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CNN Live Saturday

Stock Markets Suffer Massive Decline

Aired September 22, 2001 - 16:45   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: Once again we want to remind our viewers that we're standing by waiting for a news conference with New York City mayor Rudy Giuliani. When that begins you'll see that live here on CNN. Meanwhile while we wait for the mayor let's take a look at the economy.

Simply put it was a disastrous week for stock prices. Total losses amounted to nearly $1.4 trillion. Every major index fell dramatically -- the Dow Jones Industrials dropped more than 14 percentage points -- that's the worst performance since the Great Depression. The Nasdaq fell 16 percent and the S&P fell more than 11 percent.

Let's get a better perspective on what these numbers mean and what traders and investors on Wall Street are saying. Joining us now National Public Radio's David Brancaccio. David, good to see you.

DAVID BRANCACCIO, HOST, NATIONAL PUBLIC RADIO'S "MARKETPLACE": Good to see you as well. Yeah, you just had that statistic up there -- $1.4 trillion.

KAGAN: That's a lot of money.

BRANCACCIO: A lot of money. I was just trying to figure out how many zeros go on a trillion. It's actually 12 zeros.

KAGAN: Really?

BRANCACCIO: It truly is extraordinary what's happened this week. And if you sell your assets Monday morning you could lock those losses in. The lesson there, of course, is perhaps many people don't want to lock the losses in and if they have faith that ultimately the stock market will come back they may want to hold on to their assets for awhile.

KAGAN: We're going to talk about what investors should do in just a moment. I know on "Marketplace Today" I was reading ahead -- you looked at some other numbers. Of course, traditionally we look at things like the Dow and, of course, the layoffs. Over 100,0000 layoffs just in the airline industry alone.

But you look at some other numbers that might be indicative of what the economy is doing and where it's headed. BRANCACCIO: Yes, on the program this weekend we're trying to figure out what is the cost of this atrocity to America? And you can only begin to quantify it. Now you can never begin to quantify the loss of lives, of course. But you look at direct costs -- the rebuilding at places like the Pentagon, the extra security that will have to be laid on in, for instance, just the air system and also perhaps greater monitoring of borders -- those costs -- but also the psychological effect of a disaster like this forces many folks to rein in their horns. It makes consumers not want to go out and shop. That, of course, has an effect on the economy.

Alan Greenspan was on Capitol Hill this week. He already alluded to it. He said, "It's already had a short term impact," these disasters have, "on the economy."

The big question for economists, of course, is how long will that last? How long will people wait until thinking about getting on a plane for a leisure trip? And that's not answerable right now.

KAGAN: Well, let's look ahead at some dates where it might take a little turn. I'm thinking of October 1 when a lot of large investors do what's called re-balancing of their portfolios. That could look perhaps as a perk for the stock market.

BRANCACCIO: Well, at some point some folks are going to wake up and realize that while many folks were buying when the Dow was above 5,000 perhaps the time to buy is when the Dow is closer to 8,000 and 9,000 as it now. Now there's no telling.

We quoted one Wall Street analyst last week who said, "You know, if you bought yesterday," meaning Wednesday of last week, "you feel like an idiot on Thursday." But if you have a longer term time horizon at some point some very good companies are looking pretty darned cheap right now. And a lot of companies not directly effect by these terrible events have also seen their share prices drop.

If you're looking for a silver lining there's no silver linings here but some folks are seeing in that idea that perfectly good companies getting hurt on the stock market as a sign perhaps a bottom is at hand?

KAGAN: Any of those companies you have your eye on?

BRANCACCIO: Watching a lot of companies. We're also watching those layoffs that you mentioned, Daryn. I have this rather macabre tally posted by my computer workstation at the office -- 57 companies by last night had warned that their profits would be hurt directly as a result of the terrible events of 11 September.

And we're going to be monitoring that very closely because even just the announcement of layoffs -- even if you don't get the pink slip yourself -- that forces you to think twice about buying and that hurts the economy. Many economists are saying now that we're probably already in a recession.

KAGAN: Well, and if you're trying to look at some companies that might benefit from this -- in a way just like that list that you have by your computer it's kind of morbid -- but defense companies would benefit by military build up, would they not?

BRANCACCIO: You're making a very important and sage point. You see a shifting -- a redistribution -- in this economy because of this terrible moment. And you do see money moving into, for instance, defense companies. You will also see telecommunications companies ultimately benefiting from the fact that some folks are reluctant to fly. Perhaps instead they will sign up for a teleconference. That will help other companies.

You also see -- when you hear about problems in the insurance industry -- obvious ones. They've been forced to raise their rates on the airlines. But a lot of the companies that insure the insurance companies -- these are called reinsurance companies -- are outside our country. That means a net inflow of cap to the United States. And, oddly, that's a beneficial effect.

KAGAN: All right, let's get back to you original point of what investors should do. Is there anyway in this current economy, where everything seems to be slipping away -- is they any way for the individual investor to get ahead?

BRANCACCIO: To get ahead is rather tough. To avoid losing perhaps not so tough.

KAGAN: Tread water -- how about tread water?

BRANCACCIO: You can -- you can tread water for awhile perhaps. I don't think there's any financial book ever written that taught us how to deal with the scale of the disaster that we saw.

I was trying to compare what we saw for the Dow Jones Industrial Average this week. You have to go back. You mentioned the Great Depression was the last week that was worse than this but there was an equivalent week in May of 1940. And what was going on then? That's when Germany had invaded Holland, Paris had already been taken. And it's sort of that scale of disaster that investors are dealing with.

And what folks have to do is not trade and alter their portfolio when they're feeling emotional. That's a ticket to disaster.

A lot of us, me included, feeling rather emotional right now -- time probably to sit tight until things calm own.

KAGAN: Good advice indeed. David Brancaccio -- you hear him on NPR's "Marketplace." David, good to see you again.

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