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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.
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