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Amid near-meltdown in Monday stock markets, advisers urge investors to stay the course

As investors hammered stock markets Monday in the first day of trading since Standard & Poor's downgraded the nation's coveted AAA credit rating, veteran financial advisers urged clients not to panic and to stay the course.

Why? Because this is not a repeat of 2008.

The economy is no longer saddled with a huge housing bubble. Giant companies are not hovering near bankruptcy. And banks are not nearly as overleveraged. All that makes the economy less risky.

Not that the markets cared. The Dow plunged 635 points Monday, closing under 11,000 for the first time since November and losing 5.5 percent in value. The S&P and Nasdaq markets dropped by 6.7 and 6.9 percent, respectively.

For all the blood in the water, most of the Tampa Bay financial advisers who spoke with the St. Petersburg Times on Monday said they were not barraged by clients spooked by S&P's downgrade. Many advisers anticipated Monday's market tumult and already had counseled their investor clients, most of them in or near retirement and who had suffered through the severe downswing a few years ago. Their advice? Stand firm.

Overleveraged private sector debt that sparked the 2008-2009 market collapse got transferred to the government during the federal bailout, said financial adviser John Marcus Largent of Tampa's Members Trust Co. That huge transfer of debt eventually cost the country an S&P downgrade, to AA+ from AAA, the United States' first drop in its credit rating. And that, he suggested, is okay.

"That is not a cause to panic," he said. "But we must realize we live increasingly in a world of austerity."

Tell that to Washington. S&P's downgrade had far less to do with the country's ability to pay its debts than with the inability of the White House and Congress to find common financial ground or show leadership at a critical point in U.S. history.

Last week's poll showing that a stunning 82 percent of Americans disapproved of how Congress did its job was not lost on frustrated area financial advisers.

"I wonder about the remaining 18 percent in that poll," chided Ray Ferrarra, chief executive officer of the Clearwater investment advisory firm Provise Management Group.

Ferrarra predicted that this downturn will soon fizzle and offer buying opportunities.

"The market does not look good. But at the end of the day, the market is driven by earnings, and they continue to look good. … We think sanity will prevail at some time."

Largent echoed that theme, buying stocks at cheaper prices on Monday's decline. He praised S&P for making the right decision on Friday about the downgrade.

"You can't have this country 24 hours away from default and still insist on having a AAA rating," he said. Even with the S&P downgrade, he noted, U.S. Treasuries continued Monday to attract buyers seeking the safest investments.

Conventional wisdom says the threat of further credit downgrades may push Washington to break its ideological impasse over the debt. The bad news is that while Washington fixates on debt, the critical task of creating jobs gets less attention. Talk of slipping once again into recession is also growing.

At Provise, 40-year veteran Ferrarra rattles off a series of positive economic signs, from strong corporate earnings and still low mortgage rates to falling commodity prices.

If that's not enough, if a new recession arrives, maybe there's another solution, he says.

"In 15 months, we get to elect new people in Washington."

Contact Robert Trigaux at trigaux@sptimes.com.

In their own words

"The stock market always has come back in the past, and I see no reason to think this time will be different. That is based on the premise that we as a country will find a way to deal with our debt problem. If you believe that we aren't going to get our act together, where are you going to put your money?"

Helen Huntley, financial adviser, Holifield Huntley, St. Petersburg

"I remember the sky was going to fall when (President Richard) Nixon took us off the gold standard at $35 an ounce. I recall President Carter with two big, bad markets. I remember the high interest rates in the early Reagan days, and the crash of 1987. You go on and on, and it's not that things are different. Basic economic law has not been repealed yet and is not likely to be anytime soon."

Ray Ferrarra, CEO of the Clearwater investment advisory firm Provise Management Group

"The stock markets have been living on four Splenda packets in their coffee. Now they're down to one, and since it does not taste as good, they want less coffee."

John Marcus Largent of Tampa's Members Trust Co.

"This certainly is eye-popping, but I think we have seen this (downgrade) was coming for a while. If we stay focused on underlying fundamentals of the companies that we invest in for our clients, we are still on the right track."

Jennifer McClintic, financial adviser, Sabal Trust, St. Petersburg

"By maintaining a negative outlook on the U.S. credit rating, S&P has served notice that a further downgrade is likely if more progress is not made at upcoming deficit reduction meetings with real reforms to taxes and entitlement spending over the next few years."

— Economists John Silvia and Mark Vitner (above), Wells Fargo Securities

Amid near-meltdown in Monday stock markets, advisers urge investors to stay the course 08/08/11 [Last modified: Tuesday, August 9, 2011 12:20am]
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