Sunday October 4, 3:53 pm Eastern Time
Market Correction May Not Be Over
By CHET CURRIER
AP Business Writer
NEW YORK (AP) -- If fretting about the gyrations of the securities markets is starting to wear on your nerves, sit back for a moment and think about the
positive things the Wall Street tumult is accomplishing.
Interest rates are coming down, lowering the cost of borrowing for everybody from individual home buyers to the federal government. The speculative fever so
many commentators worried about in stocks has cooled considerably.
Dividend yields sank too low? Well, now they're moving up. Whoever was operating under the delusion that they couldn't lose in stock investments can't make
that reckless presumption anymore.
Admittedly, this happy talk is small consolation to somebody who bought Citicorp (NYSE:CCI - news) stock for $180 a few months ago and now sees it
trading for $95. Or to investors who have experienced a 20 percent to 50 percent contraction in the value of their Asian, or Latin American, or emerging
markets, or small-company growth funds.
More than a few observers argue that the corrective process is far from over. For example, a stock like Amazon.com (Nasdaq:AMZN - news), whose price
rests entirely on hopes for the future rather than any present earnings or dividends, still trades at more than five times its 12-month low.
Norman Fosback, editor of the advisory letter Market Logic, says a price-earnings ratio for blue chip stocks that has come down only from 30 to 1 to 27 to 1
or so still looks perilously high.
''We expect the market slide has further to go, both in magnitude and duration,'' Fosback writes. ''But happily, the first portents of the next upleg are beginning
to emerge.''
For one thing, Fosback notes, corporate insiders -- top executives, directors and major owners -- ''have gone on a buying spree -- in fact, they are now buying
at the heaviest rate since the market lows in late 1987 and late 1990.''
In a related, and especially telling development, partners at one of Wall Street's most respected investment banks, Goldman, Sachs & Co., have put off plans for
a public offering of stock.
Rather than viewing this is as a vote of no confidence in the markets, some observers see it as merely a patient, prudent decision by a savvy group of investors.
Now is not a good time to be selling, their message seems to say -- we'll be back later when we will be able to get a better price.
In times of stress in the markets, many people look to prominent individuals and institutions for signs of strong leadership. But most government officials and
regulators would be quick to tell you they have very little power to steer the markets.
A great clamor has surrounded last week's decision by the Federal Reserve to lower the interest rate on overnight loans between banks by a quarter of a
percentage point, to 5.25 percent.
But the impact of that action was more symbolic than anything else. Other interest rates, set by market forces, had already gone down much more sharply, and
kept falling afterwards.
Late last week, yields on all Treasury securities, from three-month bills to 30-year bonds, were below 5 percent. Whatever the Federal Reserve may do, the
world's markets for debt securities are already easing credit conditions in a forceful way.
The financial and economic outlook at the moment seems filled with instabilities. Investment managers can't open their mail these days without reading a recession
forecast. But the markets, while appearing to exacerbate the atmosphere of anxiety, may also be making important moves toward restoring stability.
As Greg Smith, strategist at Prudential Securities, told investor-readers of his market bulletin last week, ''Now that you're worried, I'm a little less so.''
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