Key Bank economist offers investment advice

ORONO – The fact that it’s impossible to open a paper or watch CNN without being assaulted by more bad economic news may actually be a good sign, Key Private Bank Chief Economist Bruce McCain told bankers and others Thursday evening at the Penobscot Valley Country Club.

“When financial crises hit the headlines, equity markets are usually close to the bottom,” Bruce McCain said.

The financial expert said the markets usually begin rising about six months before recessions end, so if we’re at or close to the bottom now, the end should be by the middle of next year. This makes it even more important that investors hang on, he said.

“It is too late to sell, we think,” McCain said. “We’ll just have to be comfortable with volatility.”

The expert, who has a degree in psychology as well as accounting and business administration, shared some bleak and some hopeful thoughts with his audience. He told listeners that, according to the odds, investors will make “a lot more money” staying in stocks than selling out of them.

But not everyone was reassured. One man asked how long it would be before he could recoup the 30 percent he has lost in the stock market free-fall.

“The 30 percent is gone,” McCain said. “Maybe we get it back. Maybe we don’t.”

He said stock market growth likely will come from investing in emerging global markets, not from the domestic market – but stressed the importance of having a diversified portfolio.

McCain also said the government should back away from stimulus packages and let the economy correct itself.

“We look at recession at this point like it’s the bubonic plague, when really, it’s more like the flu,” he said. “It’s very unpleasant – but to pull out a whole line of antibiotic treatments for the flu, that doesn’t make any sense.”

But one factor that may make this recession more difficult to escape is the global nature of our economy. After the 1929 stock market crash, the government broke monopolies and started to regulate business more. Today’s government must be careful in how it regulates, McCain said, and understand that potentially creating a lot of “Baby Bells” out of larger companies would be dangerous.

“We have to realize that regulation will have an international impact,” he said. “U.S. firms need to be big enough to be internationally competitive.”

McCain said that although it would be a “wrenching decision” to let nature take its course, he thinks bailing out the ailing auto industry would be a mistake.

“What we have heard for years is that there is a huge overcapacity in the international auto industry,” he said.

If the industry’s long-term survival is in question, it’s not a good idea for taxpayers to get too involved, he said.

“We think you need to be really careful before moving to support autos or airlines,” McCain said.

One worry is that America’s high standard of living is under a lot of pressure now.

“Our salaries are not keeping pace as much as they used to,” he said. “Consumers themselves are really rethinking how they use wealth and what is wise. We could be in a period of slow economic growth even beyond this recession.”

acurtis@bangordailynews.net

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