With good humor and optimism, Steve Forbes spoke Tuesday night in Baltimore about the current economic crisis and the roots of the ongoing credit crunch, offering advice to nervous investors.
“In terms of smart money right now, there’s very little,” said the editor in chief of Forbes magazine and chairman and chief executive officer of Forbes Inc.
“There is scared money.”
A Republican candidate for president in 1996 and 2000, Forbes offered his opinions to nearly 2,000 during a Baltimore Speakers Series sponsored by Stevenson University at the Joseph Meyerhoff Symphony Hall and in an interview with The Examiner afterward.
On the roots of the current crisis:
“You can have a magnificent vehicle, but if you don’t have fuel in it, you can’t go anywhere. If you don’t have enough fuel, you stall. If you put in too much fuel, you flood the engine. The same is true of monetary policy. In 2004, the Federal Reserve chairman at the time, Alan Greenspan, made a fateful error. He thought the economy was weak, so they started printing a lot of money. Well what happened [to the economy] was just like what happens when you put too much fuel in your car.”
On strengths and weaknesses in the Baltimore/Washington area:
“[The] defense [industry] is going to be around, the federal government is going to be around, so in that sense you don’t have to worry, it’s not going to disappear anytime soon.
“I’ll tell you one [company] that’s going to do just fine — T. Rowe Price. It’s “a very cautious company, [it’s] done very well. And financial services will eventually become a growth industry again, they’ll be very well situated. Legg [Mason] can come back, [it] can recover. [Legg portfolio manager] Bill Miller took a huge hit, but you can’t hit home runs for 15 years.”
On the bailout:
“For all of its flaws, it was a necessary thing to do. We gotta get this stuff off the balance sheets. This is for Main Street. On Wall Street, look at Lehman Brothers, [it] lost everything, even the CEOs, they were wiped out. This is about making sure our credit system doesn’t freeze up … so that you can get a loan … if you can maintain the debt. It’s like a cardiac arrest. First you do the open heart surgery, you save the patient. Then you lecture the patient about their lifestyle.”
On the “perfect storm” affecting the economy:
“Put it all together. The short sellers, [the Securities and Exchange Commission] removing the roadblock of the ‘uptick’ rule. Mark-to-market accounting rules driving down [stock] prices and creating bankruptcies that didn’t have to happen. Fannie [Mae] and Freddie [Mac] going on a subprime mortgage bender. Put it all together and something that might have been manageable turns into a disaster.”
On government spending:
“Washington spending … has been compared to drunken sailors. Which of course is an insult to drunken sailors. Sailors spend their own money, government spends the taxpayers’. ”
On the upcoming presidential election:
“It’s no secret, I’m a Republican. I’m voting for [John] McCain. Who will win? I’ll say McCain. But given what’s happened in this campaign season, don’t bet a penny on any predictions.”
On the best sources of financial news (other than Forbes):
“I think in terms of reading … you should skim a lot of stuff and see what catches your attention. I have to say it because they compete for some advertising, but you should read at least something from the [Wall Street] Journal and Investors Business Daily every day. It’ll seem like reading hieroglyphics, but it’s like learning a foreign language, it will become clearer.”
On advice for investors:
“Remember just this, emotions are your enemy. When the market is good, the emotion is, ‘Is it too late to get in?’ When markets are bad, it’s, ‘Is it too late to get out?’ Everyone says they’re disciplined, that they’re long term, until something happens. So ride these things through.”
