Salon Money | How far will Wall Street fall?

A L S O__T O D A Y

Dis Capital
By Heather Chaplin
When Andy Cox spent $798 on an ad campaign criticizing our economic system, he trammeled one of the last taboos of our loose-lipped era

T A B L E__T A L K
What do you mean when you say you're broke? Discuss being down to your last "dime" in Table Talk's Business and Personal Finance area

R E C E N T L Y

Bull marketing
By Anita Bartholomew
While Wade Cook rides high on lucrative investment seminars, its customers' portfolios take a tumble
(08/21/98)
Hip! Hip! Hooray! Anyone remember who we're boycotting today?
By Kevin Kelleher
Boycotts are more effective than ever -- but the public's role in them is becoming increasingly irrelevant
(08/07/98)
The economy of fake fat
By Heather Chaplin
Olestra: the oil that leaves you running for the bathroom
(07/31/98)
Farmers of the American Dream
By Carol Lloyd
Financial infomercials promise "free money," but what they're really selling is their faith in your "potential"
(07/24/98)
Glutton for luxury
By Heather Chaplin
One woman's necessity is another woman's excess
(07/17/98)
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How far will Wall Street fall?
AP PHOTO RUSSIA'S ECONOMIC TURMOIL MAY SPREAD, SAYS ONE STOCK ANALYST, BUT THE FUNDAMENTALS OF THE AMERICAN ECONOMY ARE STILL STRONG.
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BY JONATHAN BRODER
When it comes to the stock market, October is the cruelest month. The biggest crashes and corrections in history were October events -- Black Friday in 1929, the big plunge of 1987, even the market's adjustment last year. Now analysts and investors are wondering whether the Dow's 357-point fall Thursday and its further slide Friday were early tremors signaling yet another economic earthquake.
While not as dramatic as yesterday's fall, Friday's numbers were not encouraging. The 114-point Dow Jones drop -- capping the worst weekly stock market loss in history -- underscored investor fears that the U.S. economy and corporate profits will be dragged down by the economic turmoil now rolling across the globe. Analysts say that on Thursday it was the chaos in Russia in particular that shook American markets. Confidence in Russia's long-term stability was apparently not strengthened Friday, when President Boris Yeltsin fired two prominent economic reformers in an effort to demonstrate he's still in control.
But if the economic forecast in Russia appears grim, analysts are also quick to remind investors that the fundamentals of the U.S. economy -- low unemployment, low inflation and steady growth -- remain very strong. Some are suggesting that in the wake of yesterday's Wall Street correction, U.S. stocks are now undervalued, making this a good time for bargain hunters. To get a sense of where the markets may be heading, Salon checked in with Edward Giltenan, a spokesman for the mutual fund brokerage T. Rowe Price in Baltimore:
First of all, why is October such a rough month?
Who knows? The stars are aligned. October is rock-tober. But I don't think there is any fundamental reason why this month is ill-starred. The market is all about psychology. Some people might speculate that October is when investors' psychology is at its most negative. But I don't think there is any empirical reason for why the market corrects at certain times.
Coincidence or not, as we go into the autumn, the economic situation in Russia is in turmoil, with the real threat that its economy will totally collapse. How will the situation in Russia continue to affect U.S. markets?
It may contribute to the negative psychology, but we feel that the fundamentals of the U.S. economy are still very strong and that, as bad as the Russian situation is, it's not going to have a major effect on the fundamentals here in the United States. So the negative psychology might hurt a bit, but fundamentally the U.S. economy still looks pretty good. I don't think the situation in Russia is cause for investors in U.S. stocks to throw their plans out of whack.
How vulnerable are American corporations with investments in Russia?
There are some U.S. banks and multinationals that are exposed in Russia. But investment in Russia is not a significant factor in our GDP.
But in today's global economy, isn't the big fear now that Russia's economic woes, like those of Asia, will spread to affect other emerging markets in Central and Eastern Europe and in Latin America, where the exposure of American banks and businesses is greater?
Yes. Russia is an emerging market, it's an economy that is still in the development process with a lot more political and economic uncertainty than in, say, the G-7 countries. So when there's a problem in one emerging market, it tends to cross the ocean to other emerging markets, whether it's justifiable fundamentally or not. Again, it's a case of negative psychology. But that's why problems in Asia are being felt now in Russia, and why the problems in Russia are going to be felt in Latin America.
Is the economic turmoil we're seeing now a demonstration of the contagion effect from the economic downturn in Asia? Is that where all this begins?
It's separate and connected at the same time. Asia's problems are separate from what's going on in Russia. Asia's fundamental underlying economic problems were overdevelopment, crony capitalism, overexpansion and a lot of problems in the banking industries. Russia's economic problems are different. In Russia, a small number of oligarchs control the main industries, and they dictate to the political leadership what polices to adopt. Yeltsin fired the last government because it wanted to devalue the ruble and tax these industries, and the oligarchs didn't like that so they convinced Yeltsin to get rid of the government. The problems in Russia are not only economic but also political.
If this economic contagion does spread to Latin America, where U.S. banks and businesses have a much bigger stake than in Russia, how might that affect the American economy?
The economy might take a whack. If there's a banking crisis in Latin America, it's going to be felt in the United States. After all, they are in our backyard.
Is there any way to determine whether the market has bottomed out yet?
I've heard some responsible analysts say stocks are 7 to 10 percent undervalued. That doesn't mean the market has bottomed out, but it does mean stocks are a relatively good value now. But the truth is we don't know.
How much nervousness is there about the stock market these days?
Among investors, there is certainly concern. But we believe in developing a long-term investment strategy and not letting short-term market developments throw that strategy off course. The history of the market in October is one thing. But history has shown that while the stock market suffers declines from time to time, over the long run it offers returns superior to most other investments. So we believe that if you've developed a good strategic investment plan, you should stick with your plan and you'll weather storms like this.
SALON | Aug. 28, 1998
Discuss possible reactions to the stock market turmoil in the Business and Personal Finance area of Table Talk.

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PHOTOGRAPH: AP/WIDE-WORLD




A L S O__T O D A Y Dis Capital By Heather Chaplin When Andy Cox spent $798 on an ad campaign criticizing our economic system, he trammeled one of the last taboos of our loose-lipped era T A B L E__T A L K What do you mean when you say you're broke? Discuss being down to your last "dime" in Table Talk's Business and Personal Finance area R E C E N T L Y Bull marketing By Anita Bartholomew While Wade Cook rides high on lucrative investment seminars, its customers' portfolios take a tumble (08/21/98) Hip! Hip! Hooray! Anyone remember who we're boycotting today? By Kevin Kelleher Boycotts are more effective than ever -- but the public's role in them is becoming increasingly irrelevant (08/07/98) The economy of fake fat By Heather Chaplin Olestra: the oil that leaves you running for the bathroom (07/31/98) Farmers of the American Dream By Carol Lloyd Financial infomercials promise "free money," but what they're really selling is their faith in your "potential" (07/24/98) Glutton for luxury By Heather Chaplin One woman's necessity is another woman's excess (07/17/98) - - - - - - - - - - - - - - - - Browse the Reluctant Capitalist archives - - - - - - - - - - - - - - - - Salon Columnists		How far will Wall Street fall? RUSSIA'S ECONOMIC TURMOIL MAY SPREAD, SAYS ONE STOCK ANALYST, BUT THE FUNDAMENTALS OF THE AMERICAN ECONOMY ARE STILL STRONG. - - - - - - - - - - - - - - - - - - - - - - - - - - BY JONATHAN BRODER When it comes to the stock market, October is the cruelest month. The biggest crashes and corrections in history were October events -- Black Friday in 1929, the big plunge of 1987, even the market's adjustment last year. Now analysts and investors are wondering whether the Dow's 357-point fall Thursday and its further slide Friday were early tremors signaling yet another economic earthquake. While not as dramatic as yesterday's fall, Friday's numbers were not encouraging. The 114-point Dow Jones drop -- capping the worst weekly stock market loss in history -- underscored investor fears that the U.S. economy and corporate profits will be dragged down by the economic turmoil now rolling across the globe. Analysts say that on Thursday it was the chaos in Russia in particular that shook American markets. Confidence in Russia's long-term stability was apparently not strengthened Friday, when President Boris Yeltsin fired two prominent economic reformers in an effort to demonstrate he's still in control. But if the economic forecast in Russia appears grim, analysts are also quick to remind investors that the fundamentals of the U.S. economy -- low unemployment, low inflation and steady growth -- remain very strong. Some are suggesting that in the wake of yesterday's Wall Street correction, U.S. stocks are now undervalued, making this a good time for bargain hunters. To get a sense of where the markets may be heading, Salon checked in with Edward Giltenan, a spokesman for the mutual fund brokerage T. Rowe Price in Baltimore: First of all, why is October such a rough month? Who knows? The stars are aligned. October is rock-tober. But I don't think there is any fundamental reason why this month is ill-starred. The market is all about psychology. Some people might speculate that October is when investors' psychology is at its most negative. But I don't think there is any empirical reason for why the market corrects at certain times. Coincidence or not, as we go into the autumn, the economic situation in Russia is in turmoil, with the real threat that its economy will totally collapse. How will the situation in Russia continue to affect U.S. markets? It may contribute to the negative psychology, but we feel that the fundamentals of the U.S. economy are still very strong and that, as bad as the Russian situation is, it's not going to have a major effect on the fundamentals here in the United States. So the negative psychology might hurt a bit, but fundamentally the U.S. economy still looks pretty good. I don't think the situation in Russia is cause for investors in U.S. stocks to throw their plans out of whack. How vulnerable are American corporations with investments in Russia? There are some U.S. banks and multinationals that are exposed in Russia. But investment in Russia is not a significant factor in our GDP. But in today's global economy, isn't the big fear now that Russia's economic woes, like those of Asia, will spread to affect other emerging markets in Central and Eastern Europe and in Latin America, where the exposure of American banks and businesses is greater? Yes. Russia is an emerging market, it's an economy that is still in the development process with a lot more political and economic uncertainty than in, say, the G-7 countries. So when there's a problem in one emerging market, it tends to cross the ocean to other emerging markets, whether it's justifiable fundamentally or not. Again, it's a case of negative psychology. But that's why problems in Asia are being felt now in Russia, and why the problems in Russia are going to be felt in Latin America. Is the economic turmoil we're seeing now a demonstration of the contagion effect from the economic downturn in Asia? Is that where all this begins? It's separate and connected at the same time. Asia's problems are separate from what's going on in Russia. Asia's fundamental underlying economic problems were overdevelopment, crony capitalism, overexpansion and a lot of problems in the banking industries. Russia's economic problems are different. In Russia, a small number of oligarchs control the main industries, and they dictate to the political leadership what polices to adopt. Yeltsin fired the last government because it wanted to devalue the ruble and tax these industries, and the oligarchs didn't like that so they convinced Yeltsin to get rid of the government. The problems in Russia are not only economic but also political. If this economic contagion does spread to Latin America, where U.S. banks and businesses have a much bigger stake than in Russia, how might that affect the American economy? The economy might take a whack. If there's a banking crisis in Latin America, it's going to be felt in the United States. After all, they are in our backyard. Is there any way to determine whether the market has bottomed out yet? I've heard some responsible analysts say stocks are 7 to 10 percent undervalued. That doesn't mean the market has bottomed out, but it does mean stocks are a relatively good value now. But the truth is we don't know. How much nervousness is there about the stock market these days? Among investors, there is certainly concern. But we believe in developing a long-term investment strategy and not letting short-term market developments throw that strategy off course. The history of the market in October is one thing. But history has shown that while the stock market suffers declines from time to time, over the long run it offers returns superior to most other investments. So we believe that if you've developed a good strategic investment plan, you should stick with your plan and you'll weather storms like this. SALON \| Aug. 28, 1998 Discuss possible reactions to the stock market turmoil in the Business and Personal Finance area of Table Talk. - - - - - - - - - PHOTOGRAPH: AP/WIDE-WORLD