What Not To Do Right Now

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Bob Losey
Professor of finance at American University, former senior economist for the Federal Savings and Loan Insurance Corp.
Markets tend to overreact--they have since time immemorial. People will buy on momentum upward and sell on momentum downward. Where does it stop? Nobody knows. It's just impossible to call unless you can read everybody's mind.
The most major recession we've had since World War II was from 1973 to 1975. We had a 39% [drop in the Dow] then and just exceeded that here. But if you use the normal indicators--price/earnings ratios, unemployment--you can't justify this drop. The psychology of the market has a mind of its own.
What's going to get us out of it? Concerted effort by world leaders. I expect we'll see some of that. We have a more integrated world economy [than during past crises], as everybody knows. It also means that there's more likelihood that countries work together to solve problems. Much more so than occurred during the Depression.

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