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U.S. and Global Markets

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Howard Schneider
Washington Post Staff Writer
Wednesday, February 28, 2007; 1:00 PM

Washington Post staff writer Howard Schneider, who covers economy news for the Post's Continuous News Desk, was online to discuss yesterday's markets slide and today's financial news.

A transcript follows.

Read today's headlines here.

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Howard Schneider: Hi all...Well that was a crazy 24 hours and now things are green again. Confused?

Join the club.

Of the commentary I have read the points that stick out to me are:

A)Just how interconnected things have become -- where a whispering of new market rules in China becomes a 400 point drop for the Dow...

B)Just how primed people are for something bad to happen. Things have calmed down today, but are we convinced that markets and assets around the world are now reasonably priced and investors duly cautious?

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Rockville, Md.: How concerned should we be? Do you think the markets will rebound? Or is this just some sort of correction?

Howard Schneider: I am your standard shlub of a 401(k) investor. When I checked in today I had lost about what I expected - proportionate the market - and my response is to do...absolutely nothing. Things are back up a bit today. If the economy continues on its slower pace, and people become cautious about spending or worried about the value of their homes, things could stagnate a bit. Is this the edge of the abyss? Not to my mind...

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Washington, D.C.: Someone used this Malcolm X comment to describe yesterday's markets: when China sneezes, we catch pneumonia. How did what happens in China start to have such an effect on our financial markets? And if we're really a global economy now, why are so many countries still poor and AIDS-ridden?

Howard Schneider: I think the effect here is more complex and cumulative. China was one thing among many that coincided and freaked people out. Judging from the overnight results, investors in Shanghai feel they overreacted to any new market restrictions that are in the offing -- markets there were back up by about five percent. The point I draw from this is that values in a lot of areas have gotten so high, the assumption is that they will fall, and it did not take much to start them tipping....One poverty, we needn't look at the national scale. Why are there still poor people in rich nations? Can't deal with that in these confines...

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Arlington, Va.: Are we headed for a recession and if so, how can those of us who are paying attention try to bolster ourselves? Paying down debt, building up savings and laying low 'til things correct?

Howard Schneider: To the average person, the threat of a recession is not "will my stocks lose value...", it's "will I have a job..." That's the first order question for most of us, no? The rest is gravy...Michelle Singletary is a better one than I am on this issue, but I think her point would be something to the effect that debt in itself is not bad: Most of us carry a mortgage, and that's in general a good thing. Education is another asset worth borrowing for. The plasma screen? If you're worried about the coming months or years, put it on the boat back to Korea...

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Rockville, Md.: When I lived in Texas, I had a friend who sold all his mutual funds when the 87 market went down. Later on when I came back in 2000, I advised another friend not to sell in 2000. She did and said it made her nervous to keep stocks when they were low. Why do people always sell at the worst times? Is it genetic?

Howard Schneider: There have been a number of questions along similar lines...I am not an investment adviser, but I'll be happy to tell you what I am doing about this: Nothing. My time horizon to retirement is a good 15 to 20 years away (maybe more if we follow the Greenspan work-til-you-die rule)...Nothing that happened in the last 24 hours made me think I know more than the vast array of investment pros who counsel amateurs to avoid market timing at all costs...

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Washington, D.C.: I get the impression that Bernanke's speeches don't move the markets like Greenspan did when he was in office - is this true? or is Bernanke just being too cautious in his speeches?

Howard Schneider: I am not sure in his rookie season that he wants to move the markets. Though it seems his remarks today did have a somewhat calming effect. There was an interesting duality to what he said: To the extent the market lost sight of fundamentals, he reassured that growth was on track, though more modest than some expected...On the other, his warnings about social security and the deficit -- right out of the Greenspan playbook -- are pretty much ignored...

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Manassas, Va.: Why is the media overhyping the total number of the decline? It was only 3 percent. 400 points today is not like 400 points in 1987.

Howard Schneider: That's a good point and one that did get a bit lost in some of the coverage...Black Monday in 87 I believe was a 22 percent decline. Now THAT hurts...The drop post-9/11 was a larger point decline...The markets recovered from both...

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Northeast Washington, D.C. again: Did Greenspan set this off with his "prediction?"

Howard Schneider: I don't think so. That was Monday -- and early Monday at that -- speaking via satellite to a conference overseas...There was plenty of time in the trading day Monday for reaction and if I remember the Dow was off only 15 that day. Maybe it was another piece of the puzzle Tuesday, but whatever the Greenspan's forecasts are trading for these days, it was priced into things well before the Tuesday rout...

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Maryland: people DO need to not panic. if you panic over something like this, do the REST of us a favor and get out of the markets and stuff your money under a mattress. I lost $3000 in my 401(k) yesterday. I made $20 grand last year. I think we can all do the math.

Howard Schneider: I am with you...I was thinking through this yesterday and any change I might make to a 401 (k) or other investment allocation today would be total guesswork...Not a good basis for a decision.

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Laurel, Md.: The S&P 500 lost 3.5 percent of its value yesterday; dropping to a level not seen since....

December 1, three months ago.

YAWN.

Howard Schneider: Nerves of steel...You have my admiration...

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Why people sell at wrong times...: Since you're an economic reporter, I'll let you have with both barrels my complaint about stock reportage:

Most all the news outlets I saw described yesterday as along the lines of "a bad day on Wall Street?"

Except for people who planned on selling this week, shouldn't we be rejoicing that we can now get 4 percent more stocks for the same price than we could a week ago?

Howard Schneider: One man's loss can be another's profit, no question there. But part of the challenge in reporting on events like this -- and I am not saying we always get it right -- is to look at the large movements on them market not just as a question of wealth being shuffled around, but in what it says about underlying economic conditions. One of my colleagues made a similar point today, saying that no one really suffers from an event like this -- unless they are planning to liquidate assets that day and have to sell at a loss...But: recall the economic crises of a few years ago in Latin America and Asia. That's an example where markets -- in this case the debt markets -- really did punish countries like Argentina in ways that left people poorer than they were and out of work. Bottom line: It's not just a zero sum reshuffling...

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Penury, Bankruptcy: Given that we still are bleeding red ink in Iraq, with no end in sight, shouldn't the markets continue plummeting?

Howard Schneider: Well things sound cheery in your hometown. The markets seem blissfully carefree about U.S. government debt, which is what is paying for the Iraq war. The Bernankes and Greenspans of the world talk about it pretty regularly, but as long as the overseas central banks love those Treasury bonds, no one cares...

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South Riding, Va.: Yesterday afternoon, I was listening to the news and they were speculating what caused the sudden drop in the market. They were talking about concepts such as people and confidence. Aren't most of the large transactions on Wall Street handled by computer software? My confidence, or lack of confidence, in the market had not impact on yesterday's events. Sure, today, I can call up my financial advisor and pull my money out of the market, but that is not what happened yesterday.

Can individual investors really make an impact on Wall Street? Most of my investments are in Mutual Funds via 401 (k) savings plans. It is the fund managers that make the real decisions and buy and sell stock in bulk.

Howard Schneider: I think the "people" referred to are probably the mutual and pension and hedge fund managers who in some cases are waiting for the computer to tell them what to do...I think your underlying point is well taken, though, that many of the people with a stake in the outcome have by necessity given their voice to a fund manager or investment adviser. Personally I don't feel bad about that because if I was on my own it would be a disaster...

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Falls Church, Va.: Re: Market timing. I don't usually do it, but fortune favors the brave, and yesterday just seemed like such an obvious overcorrection. I jumped in and bought into a fund of Chinese stocks yesterday afternoon, and it's up 3 percent today. There's money to be made even in times of bad news.

Howard Schneider: Bravo...I'll go buy that new television after all just to help you out...

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Alexandria, Va.: Thanks for doing this chat.

We've been socking away savings in a number of places - about a third with stocks - and were planning to divest this in the fall to enter the housing market. Given the short time frame until we hope to use the money, what are your market predictions for the near term?

Howard Schneider: Again, I am not an investment pro. But you are on a very short time frame and might want to think through this carefully. When I was saving for a house -- back in log cabin days -- I kept everything in Certificates of Deposit, and was more than willing to accept four or five percent, happy in the security that the dough would still be there when I needed it...

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Arlington, Va.: Markets go up, markets go down. I media making this into something more that it really is? The economy has been doing well over the past few years, and last time I checked (last week), the fundamentals still look good.

Howard Schneider: This is a good point and goes to the underlying mystery of why this happened. Chinese officials whisper about some new rules, things go haywire, and people start selling. None of the provisions mentioned, it seems to me, would have had much of an impact on their ability to produce or on global demand for the products of Chinese companies. Would it hurt investors deep into Chinese real estate? Yes. Would it change global fundamentals? Not so sure..

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Princeton, N.J.: Bernanke testified today with the same old long term doom and gloom nonsense. Why doesn't the Post call him and others on obvious falsehoods such as:

1. He acts as though the 75 year long economic predictions by the CBO and the Social Security admin. are gospel. He should be forced to admit that these predictions are no better than reading the entrails of a goat. At least look at how accurate they have been in the past. Remember "Surpluses are far as the eye can see..."

2. He agreed with some Republican that higher taxes mean slower economic growth. What about the '90's. In fact I have a list of about 20 developed countries with total tax rate in one column and average growth in GDP for the last 10 years and there is no correlation.

3. He never mentions that a good part of our health problem is because there is sp much waste in our system as compared to other countries single payer systems.

etc., etc, etc.

Howard Schneider: It'd be hard to call him on the first issue. Just as his predictions rely on certain assumptions, so do everyone else's. Although I do like the image of goat entrails spread across the FOMC meeting room. His position does give him a forum to choose his perspective, and we need to report that along with competing predictions.

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Washington, D.C.: What do you make of Greenspan's prediction that a recession is likely to occur in the latter part of 2007? I read that at about 6 a.m. yesterday morning and when I saw the sell-off, I immediately linked the two. Then later, people started saying all sorts of things except the word recession. They even said a computer glitch caused the 3 p.m. free-fall, which is the most stupid thing anyone could say even if it was true. Really, the immediate response is to think blaming a computer will make it seem okay, but it really just makes the system look fragile.

Howard Schneider: I am glad you raise the computer glitch. As I understand that was not being blamed for the events of the day, only the very steep drop in mid-afternoon when orders that had been accumulating were processed. That made it seem like things had really fallen off a cliff, and MAY have spurred more furious selling then otherwise would have been the case.

Greenspan expressed himself about a possible recession, but there has been a lot of discussion about when, for example, the slump in the housing recession will prompt consumers to pull back. It seems the better question now is IF it will ever have that effect. Latest consumer numbers were strong. I have not heard many people following Greenspan's use of the R word...

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Washington, D.C.: Any indication that the Chinese government has learned how short a leash they have the U.S. economy on?

Howard Schneider: The key thing there is: Will they keep buying our debt. That government is sitting on a ton of cash and wants a save place to put it. So far they trust us to repay it...

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Howard Schneider: This has been fun...Sorry I could not get to all the questions...Maybe we can do this again after a 400 point rally?

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