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SPOTLIGHT
Stock market's silver lining
When the going gets tough, the tough go shopping for stocks. Right now there's a fire sale, says this PBS TV host.
Growing your bottom line

Spotlight: Consuelo Mack

The international community has reacted to the current situation in a manner that's unprecedented, coordinating both interest-rate cuts and "liquidity injections" along with their own versions of "bailout packages" for their respective banks and financial institutions. Do you think that this action has the capacity to calm world markets and restore confidence to investors and lenders over the long-term?

Financial fallout
Cause of stock market crash
Real estate bubble
Great Depression reprise?
World markets
Shadow banking system
Bear market lessons
Risk of stagflation
Fixing retirement accounts
Domestic vs. foreign stocks
Investing in gold

I think a crisis does amazing things to bring people together, and I think we did look into the abyss -- the world's finance ministers and central bankers did look into the abyss. They are much more willing to set aside political differences and act in a coordinated manner. And we've seen how people like Ben Bernanke and Jean Claude Trichet (president of the European Central Bank), for example, are now in constant touch with one another. That's a real positive.

But the real-world economy and the economic reports -- all of that data, all of that negative information, is going to be difficult to absorb for the financial markets. It's not going to be pretty, and that's what's going to be dominating the sentiment of the world's markets for some time.

Are world leaders addressing the problems caused by the so-called "shadow banking system" and the widespread use of derivatives among unregulated entities such as hedge funds? How much of the current global crisis is attributable to it?

Personally, I think that the "shadow banking system" was a very visible symptom, but not the cause of the problem. That said, however, it was also a big contributor to what happened. Everyone wanted to keep the flow of money going, everyone wanted to keep the party going, and money was just so cheap and so easy to get because of a lowering of credit standards. Consequently, people became very ingenious at finding ways of doing that, and the regulations were just not keeping up.

I think that everyone agrees that our regulatory system, which was established back in the 1930s, has simply not kept up with the realities of 2008. I think that there will be an enormous rethink with respect to regulation, and Mohamed El-Erian has talked about this at length in his book, "When Markets Collide," and on "WealthTrack." There really needs to be a new global architecture in place. That's not going to be easy to put into place, however, and that's something that the new president will have to deal with, with all of the other leaders of the world. Unfortunately, these are the sorts of issues that are really going to take time to set up and implement.

What do investors need to know about an extended bear market that our recent experiences in 2000-02 haven't provided?

People now need to recognize that we might be in a lower return environment for a while -- perhaps for the next 18 or 24 or even 36 months, as some have predicted. So as an investor, you have to be aware that stocks might eventually do better than inflation, but not much better over the next few years.

Personally, I think we're really in a back-to-basics sort of environment. On my program "WealthTrack," we try to get and keep people focused on long-term investing and on being well-diversified in their investments. If you are investing for the long-term today, you might very well be asking yourself, "What are the alternatives?" Things look bleak and it can be scary, but the fact is, on a total return basis and on a sheer capital appreciation basis, the stock market has historically provided better returns on your cash than any other asset class.

-- Posted: Dec. 5, 2008
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