Take on the Ticker
Nancy Coutu is founder of Money Manager Advisory Inc., Oak Brook
The Bank of America and three other banks borrowed about $500 million from the Federal Reserve Bank last week to help ease the credit crunch that's threatening to slow the economy. Is this a bad sign for the banks?
"No, not for these banks. A lot of lending institutions are in trouble. Merrill Lynch just lowered Countrywide Financial Corp. from 'hold' to 'sell.' That's a huge indication that the lending industry is in trouble. These banks that borrowed had something that was more symbolic and supportive of the Fed. Their efforts, more than anything, were strategy. We're seeing the closure of mortgage companies and sub-prime lending institutions and this mess is going to get worse. … There are still a lot of closures, especially in the sub-prime industry. It's a totally different story when they take advantage of people who couldn't afford a traditional mortgage on their own and took an adjustable rate. Now when the those rates went up, they can't afford to pay those mortgages and then they end up losing their homes."
The roller coaster ride continued on the stock market last week. How is this affecting the economy?
"The stock market was violent (last) week and anything that attempted to defuse it had failed. (Thursday), it got a little better. Overseas there was some losses. But by mid-day the Dow was up substantially and it landed in positive territory. But you have to remember, the Dow is off 900 points since its high in July, which was about 14,000. It's off 900 points. And that's what makes people wonder what's happening. Are we finally at the bottom? There's still a lot of heavy trading going on. I don't think we're through this yet. There's a lot of volume, buy-sell, buy-sell, going up and going down. Consumer sentiment is huge. It hasn't been shaken so much here. And we've had some good years, so no one expected it. … It's' also getting close to the time when you have to think of what cash you have on the sidelines and what you can do with it. Large caps are good investments right now and they offer some good bargains. This is the time to re-balance. You shouldn't panic and pull out of the market. Also, real estate for the long term is a wonderful piece for your portfolio. But that's for the long term, not short term."
Last week, the Feds cut the discount rate. Do you see this happening again soon?
"Ben Bernanke made it clear that he doesn't want to cut the rate until inflation rears its ugly head. It's to help maintain our economy and that's not suffering. You have a low unemployment rate nationwide and there's still a higher consumer spending rate than it was last year at this time. Companies also are doing more hiring. These are not signs of inflation. It's still been a good economy, separate from the housing market."
What do you see for the week coming up?
"I'm looking for more consumers issues, like car purchases. There is good news out that new construction sales are going up a little and that offers a glimmer of hope for the housing market, that its problems are lessening. … It's a consumer market and it's an important part of our economy. … I also believe people aren't thinking internationally and our economy depends on international markets. The Standard & Poor's 500 has some of the largest corporations and they generated 44 percent of their revenue from overseas production in 2006. That's a huge increase. We're a global economy and people should be receptive to that and should invest in internationals for growth."