Area investors predict economy will take 2 years to settle

Is the American economy in a “crisis” or just going through a “correction”?

Local investors and economists agree that the American economy has taken a downturn, but how long it will stay that way and how it will affect area residents has the financial community divided.

With wild swings in the stock markets over the past few weeks, the job of forecasting Wall Street becomes harder than usual.

“I’ve never seen anything like this in my years of experience,” said Edward L. Marmande, a financial consultant in Houma since 1986. “But if you believe in your country, you have to believe it’s going to bounce back sooner rather than later.”

Marmande and other investors said it will take about two years for the country to recuperate from the current mortgage and credit crisis affecting the market. However, one investor said a much longer recovery time is expected.

“I’ve been waiting for this for quite sometime,” said David Tabor, owner and financial planner at Affiliated Asset Managers in Thibodaux. “On average we have a correction every five to seven years. The market is going to stay flat for the next five to seven years as well.”

One reason investors are having difficulty reading the market is uncertainty about which party will be running the government after the Nov. 4 presidential election.

“Until the government is reconfigured, there are a lot of unknowns,” said Dr. Bruce McManus, head of the finance and economics department at Nicholls State University. “There are large differences in economic policies and attitudes that go with who gets elected.”

The demographic most distressed by the current stock market woes are workers 55 and over and retirees, investors said.

Individual Retirement Accounts and 401K plans have lost a significant portion of their principal value in the last month, investors said.

The retirement systems of public entities have also been hit hard by market fluctuations.

Those who received money through dividends and interest fared better than those relying on capital gains and selling stocks at a gain.

“The market is down 30 percent,” Marmande said. “That kind of slide erodes public confidence and creates distrust on Wall Street.”

“If they don’t have to liquidate now and can ride this out for the next two years, they are going to see substantial gains again,” McManus predicted.

While the nation as a whole is reeling, the local economy has not felt much of an impact. That is because most transactions businesses or individuals conduct are with local banks that did not get involved in the sub-prime mortgage trade, investors said.

The area’s larger companies that normally finance their operations through larger financial institutions may find it tough to do so in the short term.

“Businesses like Bollinger (Shipyards) and McDermott (Marine & Fabrications), they tend to borrow from those very big banks that are having all the issues,” McManus said. “Until that settles, they’re going to have issues with borrowing to finance major construction jobs. Smaller firms that are principally using local banks, they’re not seeing a lack of loans.”

For anyone who was thinking about investing in the stock market, this may be a ripe opportunity. Many solid companies have had their stock price drop along with the bad companies, investors said.

“It’s like going to Dillard’s and buying clothes at a 70 percent discount,” Marmande said.

“There are so many bargains out there, almost anything is a good investment right now,” Tabor stated. “Just diversify investments among the various sectors and assets classes.”

“You want to take advantage of worldwide consolidations as the bigger, stronger firms buy out the weaker firms,” said Thomas Hassell, owner and broker at J. Thomas Hassell & Company in Houma.

The recent $700 billion bailout plan passed by Congress and $250 billion invested in American banks by the Treasury Department has not calmed the stock market. Whether or not the moves will have a positive effect is also hotly debated.

“It needed to be done because if left unchecked, we were headed for a crisis,” McManus said. “But with the recognition of the situation, both the government and the private sector are going to work through this.”

“This bailout package is the worst mistake they could have ever made,” Tabor blasted. “Anytime the government interferes with capitalism, it’s a recipe for disaster. You can’t stop capitalism in order to fix the problem.”