Here we present yet another transcript from the case files (BusinessWeek, 1/29/08) of Dr. Graham, a specialist in the treatment of investors with post-bubble anxiety disorder, or P-BAD. Here is his most recent session (Friday, June 13, to be precise) with one of his more severely afflicted patients:
Good morning, Mr. Market. Tell me what's on your mind right now. You seem nervous….
Well, it's Friday the Thirteenth.
Come now, Mr. Market.
Can I help it if I have Triscuit-phobia, or whatever that is?
That's triskaidekaphobia. Actually, the specific fear of Friday the thirteenth is often called paraskevidekatriaphobia.
Geez, who needs Google when you're around? Anyway, it doesn't really matter what day it is. The bad news won't stop, Doc, and I'm a nervous wreck. First it was the bad housing market, then a credit crisis, then a slowing economy, and now high oil prices and rising inflation. And the old worries don't go away—they just stick around and pile on top of each other in my mind.
But the economy isn't as bad as you thought, right? In our last session, you expressed some deep fears…
Well, I was expecting the worst, but then this stimulus came along. So for a while I was happy that consumers seemed to be spending their rebate checks. But then the unemployment rate jumped from 5% to 5.5%. Now it feels like the federal stimulus package is going to help only temporarily—kind of like one of our sessions. Consumers are going to hate it when gas hits $5 per gallon.
You seem to be looking for negative outcomes, Mr. Market. I see the price of oil is down today. Maybe we'll all get a break from inflation (BusinessWeek, 6/2/08) if the high costs of energy, food, and other commodities fall.
Yeah, right. The price of oil has been so volatile lately that one day means nothing. I keep trying to predict where it's going and I keep getting it wrong. It's the speculators, I tell you. Or that Chavez character. Or maybe it's those Hummer drivers. They're soaking up all our oil. Idiots!
Mr. Market, let's try to keep our focus. You had been worried about the Federal Reserve in the past, but in the past few months, you've seemed happier with its actions—cutting interest rates to stimulate the economy, and stopping the panic after the Bear Stearns collapse in March.
Doc, you should know by now that I don't stay happy too long. The Fed seems like it's in a tough spot now. If it cuts interest rates or even holds them steady, it could cause an inflation problem. If it raises rates (BusinessWeek, 6/11/08), and a lot of my fellow investors expect that it will later this year, it could send the economy into recession and prolong the housing slump, and the credit crisis.
The credit crisis? I thought we'd made progress on that in past visits.
Not really. It just drags on. By the way, I may need some new meds this week, because the big Wall Street banks, Goldman Sachs (GS), Morgan Stanley (MS), and Lehman Brothers (LEH) are going to report last quarter's earnings. Doc, it's not going to be pretty. Lehman already had to raise $6 billion in new capital, and many other firms are scrambling for cash. We could be facing $1 trillion or more in losses from bad debt, and it could take years for it all to be accounted for. Years!
[The session is interrupted as Mr. Market rips off his necktie and shirt and runs around Dr. Graham's office chanting "CDO! MBS! Alt-A! Tier 1! GAAP!"]
[Session resumes.]
Sorry Doc, guess I got a little carried away.