Recovery bubble bursts
By Tom Raum
Associated Press
WASHINGTON -- The recent stock slaughter on Wall Street has burst the hopes of financial analysts for a fast recovery from the bear market that has seen stocks stumble into one of their worst slumps in 25 years. The only solution, they say, appears to be investor patience that market forces will eventually get stocks moving up again.
President Bush has been unable to restore investor confidence with two speeches in as many weeks. Nor has Congress' rush to pass the biggest overhaul of accounting standards since the 1930s done much to improve market psychology. Federal Reserve Chairman Alan Greenspan's old magic doesn't seem to be working either.
In soothing tones, Greenspan assured the Senate Banking Committee yesterday that the economy was heading for full recovery despite lingering weakness from last year's recession. His views reinforced Bush's claims -- last week on Wall Street and again in Alabama on Monday -- of a "fundamentally strong" economy.
The slide in the markets abated somewhat during Greenspan's appearance but later resumed. The Dow fell 166 points for the day, ending almost 1,000 points below its level before Bush's Wall Street speech a week earlier aimed at calming markets. Over the past two weeks, the Dow Jones Industrial Average has fallen more than 900 points, or nearly 10 percent.
With a record 60 percent of U.S. households owning stock, more Americans are feeling the pinch than might have been imagined a decade ago. Politicians and many economists fear a broadening lack of faith in the market could plunge the nation back into recession.
Analysts said it now seems the stock selloff trend has created a set of persistent market forces that will need to be dealt with and fixed before a genuine financial markets recovery can occur. Those factors include, they added, disagreement about how much stocks are really worth, lack of trust in corporate numbers and decreased investing by foreign investors in U.S. stocks.
All of this, the experts said, could take several months to resolve.
The usual levers American leaders use to control or influence economic policy -- interest rates changes, legislative stimulus, old-fashioned presidential jawboning -- don't seem to be working or do not seem available.
"You don't have too much room to go before you're at zero," Sen. Paul Sarbanes, D-Md., the Banking Committee chairman, observed to Greenspan at yesterday's hearing.
Greenspan's Federal Reserve has cut interest rates 11 times in a row, leaving the federal funds rate -- what banks charge each other for overnight loans -- at a 40-year-low of 1.75 percent.
Greenspan told Sarbanes he was correct, noting that Japan's central bank had encountered "significant problems" after lowering rates so far that further rate cuts became meaningless.
Still, the Fed chairman said, all U.S. indications "suggest that the economy is improving."
The market swoon and the corporate scandals contributing to it have become top political fodder, with control of both houses of Congress at stake in November's midterm elections. And, looking toward 2004, both Democrats and Republicans are mindful that no president in more than a century has been re-elected with the stock market in such doldrums.
The president's defenders accuse Democrats of overreaching in trying to tie the collapse of stock prices to administration policies and attitudes.
"The president focuses on policies that impact the economy, that impact the American people, and then the markets make the decisions they make based on whatever variety of reasons markets make," said Bush spokesman Ari Fleischer. "That's why they're called markets."
But critics suggest Bush and his advisers are making things worse.
"The lack of confidence is based on the scandals that are going on, fears that there may be more scandals out there. Perhaps the president and his economic team lack credibility. All those things are in play right now," said Leon Panetta, who served as both budget director and chief of staff to former President Clinton.
Congress is moving quickly on legislation to tighten accounting practices, with versions passing both chambers and a House-Senate conference committee soon to reconcile differences. But the flurry of congressional activity has done little to boost investor confidence.
Meanwhile, the recession and war on terror have helped transform last year's $127 billion surplus to a $165 billion deficit this year. That further limits Congress' options to spend money or provide tax relief should the economy slip back into recession.
"There are so many things going wrong right now for the stock market," said David Wyss, chief economist for Standard and Poors in New York. "You started with a market that was grossly overvalued, and now you're hit with a recession, hit with all these accounting scandals so nobody knows what to believe any more.
"And it seems like whenever Bush gives a speech, the market goes down 100 points," Wyss added.
Suggested Sen. Joseph Biden, D-Del.: "Maybe the president should stop making speeches for a couple of days."
It's a bear Market
Wall Street entered what's unofficially but commonly considered bear market territory yesterday: down 20 percent or more from a previous high.
The Dow Jones Industrial Average fell to 8473.11, a drop of 20.3 percent from its high of March 19. The S&P 500 and Nasdaq indexes were already in bear territory.
The last bear market began in January 2000 but was not declared until just before the Dow bottomed out after the Sept. 11 terrorist attacks at 8235.81, down 29.8 percent from the previous high. The bull market recovery that peaked on March 19 followed.
Nineteenth-century American cartoonist Thomas Nast popularized the bull and bear as symbols of swings in the stock market. But the phrase "bear market" is believed to go back to the 1700s when speculators who sold shares they did not own, bought them when the market dropped and delivered them at a profit, were likened to "bear skin jobbers" -- traders in bear skins who were notorious for selling skins before the bears had been caught. |
