In a large room of a famous Manhattan hotel, I sit quietly at a small oak desk near a window which offers an expansive view of Central Park. The scene below is inviting, but the dirty fingerprints of midsummer showers dotting the glass are an unpleasant distraction. Of course, compared to the oppressive heat of the street, a sweltering 90 degrees Fahrenheit, I'm very comfortable in my air conditioned suite.
In the park, I see people moving about in shorts and t-shirts. Not surprisingly, much of the park's grass is brown, but the trees are full, and I imagine the city's aromatic gardens to be enticing. In my mind's eye, I see myself sitting on one of the benches, the sun warming my body, perspiration beading on my skin.
It's not an unfamiliar thought. In Toronto, where I live, I often lay on an oversized towel on the sand of the city's east beaches, a water bottle in hand, a host of people, lobster red, nearby. So far from home the daydream is comforting, but my phone rings, interrupting my peace.
“Hey, Mister!! It’s Janet Hammerstein. How are you?”
A smile comes to my face. I remember Janet quite well. She’s a vibrant, educated, thirty something woman. Smart and successful, she never seems to run out of energy.
“Hi, Professor Hammerstein, what’s up?" I ask. "I’m surprised you remembered my phone number.”
“Professor?” Janet asks. “I thought we were on better terms than that!”
"Well, of course we are," I reply, "it's just that -"
"Uh huh," Janet interrupts.
"It's just that formality is my thing," I continue.
"Well, in any case," Janet says, "I just had to phone you. I'm worried about the markets, and how it'll affect my pension plan. So, I called my go to guy for this stuff. That would be you."
"Uh huh!" I reply purposefully.
"I mean," Janet continues, "last year, it was about the safety of my university job given the state debt in California, and it still is, but, now there's this AA+ negative thing. What should I do?"
I take a deep breath. It's Sunday, and I'm not in the mood for financial chit-chat.
"Well," I answer, "the 'AA+ negative thing' means that as of Friday, and according to Standard and Poor's, there's now more default risk associated with nominal U.S. Federal debt (AAA becoming AA+). That the rating was negative means S&P might downgrade U.S. debt further. Truthfully, the stock market is likely to fall given these announcements. Of course, some of the other ratings agencies did not take this tack."
On the other end of the line, there's silence, and now I feel awkward. I hate these conversations, especially with people who don't understand the markets very well.
"Oh my God!" Janet blurts out. "Now what? Does this mean the Government isn't going to pay me my money? I have U.S. treasuries in my pension plan. I also have shares of Wells Fargo. You know, before I phoned, I was watching some financial expert on the TV and reading market blogs. These people scare me."
Silently, I shake my head and shift uncomfortably in my seat. Only just a few minutes ago, I was happy. Now, I'm not.
"Janet," I say, "you have to understand something. This downgrade isn't the end of the world. I also read financial blogs, and you can learn something from them, but you shouldn't listen to the extremists, the doomsters. One guy I occasionally read, someone with a huge following, has been predicting food crises, a 1930's style depression and even rioting in the streets within a few years. Eventually, he may be right, but so far he's been dead wrong. Maybe, he'll be right, but when? That doesn't seem like much of a crystal ball to me. Besides, what many of these doomsters don't tell you, is how many of their dummy predictions never come true. What's especially galling is their unwillingness to admit that others, guru or not, have predicted some of the same things. I also think some of them are dishonest. For all their complaining and bluster, they'll make money in good or bad markets. Their so called enemies, the idiot politicians who've created this mess, are not their enemies, but their friends, convenient whipping boys useful for creating drama which drives business to their trading courses."
"Whoa!!" Janet shouts on the other end of the phone. "Where'd all that come from?"
I hesitate for a minute. She's right. I do get myself worked up at times.
"Sorry, I'm bringing up thoughts from a negative interaction with another. Let me re-focus."
I reach for a Coke can on the desk and pop it open.
"There was a recent report of a big time trader," I begin, "who shorted billions of U.S. treasuries, expecting U.S. interest rates to rise (One Billion Bet). Why? Rising interest rates would severely discount or reduce the value of U.S. treasuries like yours. That may happen, but I don't think the U.S. will default on their debt. They'll cut other things first. They have too much to lose, world reserve currency status being one of them. I do think there'll be inflation and market gyrations, but as to gold going to $5000 U.S. per ounce etc., who knows. And as to your holdings of Wells Fargo, well, Warren Buffet loves this stock. Let me send you a link from my Blackberry. It's here: Warren Buffet and Wells Fargo "
I take another sip of my soft drink. I really do like this stuff. Caffeine and sugar - yummy!
"Look," I continue, "the issue is this. Next week will probably be bad. If the market goes down a thousand points or more, it wouldn't surprise me, but, if you're holding for the long term, why get aggravated? Besides, the market might just do nothing, or move higher for all anyone really knows. All I do know is this. The U.S. economy is one of the most dynamic in the world, and every day I receive earnings reports from Earnings Whispers . On balance for the past year, inline and above estimate have outpaced negative guidance consistently. Eventually, the U.S. economy will be humming once again, but hey, that's just my two cents worth."
Exhausted from my rant, I lean back in my leather chair. The only sound I hear is a slight squeak.
"So, what do I do then?" a hesitant Janet asks.
"Enjoy your life!!" I answer quickly. "Even if the Dow drops, the sun will still shine, and life will go on. I say hold on to your Wells Fargo shares, and be happy with the interest you receive from your treasuries. When you get more investment money, diversify over other assets like gold etc., a little at a time. Also, make sure your bills are paid. If you were a day trader or swing trader, I'd have something different to say, but you're not. What else can I say?"
"Not much, I suppose," a sullen Janet replies. "I still feel like selling everything. You know, between job uncertainties and pension woes, I'm not sure how much more of this I can take. It seems like it couldn't get much worse."
I sip some more of my sweet soft drink and place the cold aluminum can on the desktop glass with a firm tap. Trying to feign happiness, I press a smile to my face and lean forward in my seat. From the corner of my eye, I notice the stream of people entering and exiting the park continues unabated - unconcerned with the troubles of the financial markets. Good for them I murmur.
"Janet," I say softly, "we haven't talked in a while, have we?"
"No. Unfortunately, we haven't."
"Remember when I was in California last year, and those guys burst into that party?' I ask.
"Oh yes."
"Remember what I told you about my friend Sarah Lindale, Mr. Waterman's Estate Lawyer?" I ask.
"Oh yes," Janet answers quickly. "They shot her. She almost died? Right?"
"Yes," I reply sadly. "Sarah's better now, but it took a long time for her to heal, and she's still not right. Last year, I became sick, and my liver began to shut down. It was terrible. Life can always get worse, and sometimes, money woes are the least of our troubles. Not to sound too condescending, I wish I was a healthy thirty something again. I envy you in some ways."
"I'm sorry," Janet answers. "I didn't know."
"Don't be," I reply. "I got better, and so will the markets. The Doomsters have it all wrong."
Until next time
Adios
AP
