Subject: SDBJ
From: "Merilee:::Kern Communications" <[email-masked]>
To: <[email-masked]>
Date: Wed, 1 Oct 2008 12:43:13 -0700

San Diego Business Journal   
      Boom to Bust
      By MIKE ALLEN - 9/22/2008
      San Diego Business Journal Staff 

      Despite a bloodletting of historic proportions on Wall Street last week, veteran investment pros say the nation's financial system is still alive and kicking. 

      Most interviewed agreed that the Federal Reserve Bank took the correct action in bailing out American International Group Inc., one of the world's largest insurance companies, as well as earlier moves to rescue Fannie Mae and Freddie Mac, and permit Lehman Bros. to fail. 

      "Clearly, we're a global marketplace today. It's important that the United States, the largest investment market in the world, to have investors' confidence," said Dick Woltman, chief executive at Girard Securities Inc. in San Diego. "If we don't have confidence in our markets, who will buy our bonds ... who will buy out debt?" 

      Not many were buying anything last week, as the bears ruled the Street, sending the Dow down a net of about 800 points through the end of Sept. 17. 

      Coming In Waves 

      The news seemed to come in waves, with the latest speculation surrounding whether Washington Mutual Inc., the nation's largest savings bank, would fold next, or if the contagion might affect more major investment banks, such as Morgan Stanley or Goldman Sachs Group Inc. 

      Several investment advisors say the massive sell-off is creating tremendous buying opportunities for some formerly high-priced blue chip companies.

      Brent Wilsey, president at Wilsey Asset Management, noted several stocks that have dropped to prices of several years ago, including Dow Jones stalwart General Electric Co. 

      Wilsey was working as a banker selling investments in October 1987 when the market took a far more serious fall, dropping about 22 percent in a single day. In comparison, last week's decline wasn't that bad, he said. 

      Wilsey said as of the end of August there's about $3.6 trillion in cash and money market funds waiting to be invested. 

      Sometimes all it takes is the lack of bad news, and when the market begins climbing, it could rise rapidly, he said. 

      John Messner, a principal in Messner & Smith Investment Management Ltd. in San Diego, said while the market has been highly volatile this year, it was worse in the 1970s, which he compared to Chinese water torture. 

      It would go down by a large percentage for three days running, then up for a day, then back down, and seemingly never let up, he said. 

      The market's recent steep declines, coupled with his firm's fairly decent returns (its main portfolio is down by 6 percent), is helping business, Messner said. 

      Yes, there's probably going to be more bank failures, but there're also opportunities for buying shares of well run and growing companies, particularly smaller firms with less than $10 billion in market capitalization, he said. 

      "The balance sheet of a lot of these companies is quite solid," Messner said. 

      Tony Cherin, professor of finance at San Diego State University, said huge declines in the market shouldn't cause individual investors to panic, particularly if they have a longer investment horizon. 

      This event points to the importance of asset allocation and diversifying investments, he said. 

      "Stay the course," Cherin said. "Over the long run, over 10 years, 20 years, the trend (in the stock market) has always been up." 

      Cherin quoted investment guru Warren Buffet on his dependable strategy reacting to bad news: "He said, 'When others are greedy, be fearful, and when others are fearful, be greedy.'" 

      "What he was saying is that times like this, there may be excellent buying opportunities because there are a lot of stocks that are now undervalued," Cherin said. 

      Cherin and several other professional investors lay blame for the financial meltdown to the deflating housing market and extending easy credit through subprime mortgages. 

      'Blame To Share' 

      "So many liberties were taken in the housing market," he said. "There's blame to share among all the institutions, from the credit rating agencies such as Standard & Poor's and Moody's Corp., to all the lenders who engaged in this predatory lending, and to the investment banks." 

      Frank Mercardante, a former manager for the Resolution Trust Corp. the federal agency that sold of billions of dollars of assets held by failed savings and loans, said the current financial crisis is "significantly different but significantly worse" than the one that hit the nation from the late 1980s to the mid 1990s. 

      "This one is far more global in terms of its outreach. This is also not a situation that bears a simple solution," said Mercardante, now the president of Discovery Bancorp in San Marcos. 

      Back then, the Federal Reserve Board cut interest rates to historic lows, leading to heavy consumer spending and investment that lifted the entire economy. "Consumers can't spend us out of this one," he said. 

      "We're not through the worst of it yet."