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Main Street: Time to Batten Down the Hatches

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Professor Depew advises paying down revolving debt, increasing savings for coming troubles.

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Editor's Note: What follows is the video and transcript of the Nightly Business Report's Street Critique, featuring our own Professor Kevin Depew. The program originally aired on Wednesday, October 15, 2008.



PAUL KANGAS: While stocks are becoming attractive to some, tonight's "Street Critique" guest says with days like today, he's sticking to the sidelines a while longer. He's Kevin Depew, executive editor at the financial information Web site minyanville.com. And, Kevin, great to see you again.

KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Always great to be here, Paul.

KANGAS: From steep market sell-offs to the government's latest rescue plans, we've been through a lot since your last visit last month, so what are your thoughts on all of this action?

DEPEW: Well, there continues to be a misunderstanding, I think, about what this crisis entails. This is a debt crisis, and it's being treated as a liquidity crisis. And just to clear that up very quickly, if there's a rumor about a bank making a bad loan and everybody goes to get their money out of the bank, because banks lend out more than what they have in deposits, that could be a temporary liquidity crisis if those rumors proved to be false.

But what we have now is a situation where there are a lot of bad loans out there, and that's a debt crisis. The Federal Reserve and the Treasury Department, no matter how much liquidity they inject into the economy, don't have the power to make those bad loans suddenly good.

KANGAS: So what should they do about it, this magnitude of debt that exists?

DEPEW: Well, the only thing that they can do, really, is to try to extend the runway to prolong the events that are unfolding as long as they can, to give these bad debts the time to be destroyed. That's one of the reasons we are seeing the dollar going up, because when debt is destroyed, that debt is either repaid in dollars, and it causes the dollar to go up.

KANGAS: Well, some of these stocks have been destroyed, or all but. Are you tempted at all to step in and do some buying here?

DEPEW: Well, not at all. If your time frame is longer than 10 years, Paul, then I think that certainly these are the times when you want to be committing as much capital as you can. But if your time frame is shorter than that, then I think that you have a much more serious problem, and you should be focused on capital preservation at this point.

KANGAS: What signals would you look for to know that the market is getting better and healthy for investment?

DEPEW: Well, that's a great question. We need to see credit improve, and by that I mean we need to see corporate bond issuance improve where the credit spreads, the difference between what it costs a corporation to borrow and what it costs the U.S. government to borrow, we need to see the spread between those two come in from their high levels right now. And we have not seen that yet.

KANGAS: Well, so what do you do with your money? You are getting practically no yield by buying the safe Treasury route, what do you do?

DEPEW: Well, that's -- you know, sometimes there's that old saying, a market cliche that cash is king. This is one of those times. You know, if you noticed that even though those Treasury yields are so low, your dollars are increasing in value. So people who are being paid to hold government debt, they're seeing the dollar go up in value as well, so that gives a little bit of boost to those low yields.

KANGAS: We have just a few seconds for any final thoughts, Kevin.

DEPEW: Well, I think the most important thing for Main Street and the consumer out there is to try to pay down your revolving debt and increase your savings level so that you can commit capital once that credit market begins to improve.

KANGAS: You're being very conservative here and probably wisely so. I want to thank you for sharing your thoughts with our viewers once again.

DEPEW: My pleasure.

KANGAS: My guest, Kevin Depew, of minyanville.com.
No position in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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