Q&A with FBN's Gerri Willis on the downgrade and what you should do
Congress and President Obama came to a debt-ceiling deal at the 11th hour early last week, but that didn't prevent a sharp market drop on Thursday and Standard & Poor's downgrading of the nation's credit rating late Friday.
Gerri Willis is the host of the daily "The Willis Report" on Fox Business Network, an author and veteran reporter on financial issues for CNN and Smart Money magazine before joining FBN last year.
Tonight at 6 p.m. Pacific she has a two-hour edition on both FBN and the Fox News Channel with a panel of experts to monitor the opening of the international markets after last week's political and financial upheaval and preview what's ahead for U.S. investors.
The Ticket checked in with Willis for some advice and a preview:
Ticket: What exactly happened in the international markets last Thursday that caused the sharp downturn?
Willis: Thursday's U.S. market rout was sparked by fears that Europe could be unsuccessful in addressing its long-term debt issues associated with Greece and Italy especially. Comments from Italy's Prime Minister Silvio Berlusconi and European Union officials didn't provide much reassurance.
That got the ball rolling -- on a day when traders were having second thoughts about the value of the debt deal that Congress and the President had signed into law; as well as the fact that first half GDP growth had been reported as weak.
Keep in mind, though, that that 512-point decline although the 10th biggest drop in the Dow's history, didn't even rank when you considered the drop in percentage terms. It was....
Ticket: We had some recovery on Friday, but at this point, what's the outlook for the new week, particularly for those with investments in European and Asian markets?
Willis: The outlook -- especially given the news of Standard & Poor's downgrade of U.S. Treasury debt to AA+ from AAA -- doesn't bode well for Monday's open.
The only market to date that has opened -- the Saudi Arabia exchange -- which opened 5% lower on Saturday night. Look out below! We will probably see a lot of volatility in coming days as the market digests this news and figures out what the downgrade will mean to them -- and a possible second downgrade.
Ticket: What effect did the higher-than-expected jobs number and the slight downtick in the unemployment rate have on the markets?
Willis: The jobs number -- at first blush -- seemed a positive, because the rate ticked down to 9.1%. But in reality the creation of just 117,000 jobs in July is nothing to brag about. We need nearly twice that many jobs to be created a month to get the 13.9 million Americans out of work back on the job.
Ticket: What other factors need to improve in the near future to really move the economic needle?
Willis: We need a credible plan to reduce our long-term debt and it must speak to reducing entitlement debt: Medicare, Medicaid and Social Security. This is a topic few politicians have the stomach for. But a credible plan, one that could include tax reform, would give investors and corporate managers confidence that we have our act together. It would also go a long way to reassuring the markets, which hate uncertainty.
Ticket: Of all that’s going on between the President and Congress, what concerns investors the most?
Willis: Clearly, the most concerning issue -- and one that the folks at S&P referred to directly -- is that both sides have drawn hard lines and can't seem to find any common ground. (Click here for the full text of the S&P report)
Ticket: With the volatility in the markets and in Europe, what will you be talking about Sunday night?
Willis: If Asian markets fall dramatically, it could set off a cascading effect that causes U.S. investors to sell as well. We've got a terrific line-up of guests to consider the story from every angle -- traders, financial advisers, Congressmen, industry experts and our own team of crack FBN reporters.
Ticket: With one president, two branches of Congress and, for the coming months, several GOP contenders commenting on every bit of economic news, what should investors be focused on and what should they ignore?
Willis: Look, there is going to be volatility as the markets absorb the news of S&P's downgrade, and I expect a ton of news coming from European countries struggling with their own debt.
Individual investors need to ignore the noise of the pros and focus on what their goals are.
This is a time for cool heads and not ready trigger fingers. Remember, if you had gone to cash Thursday, you would have faced higher entry costs Friday -- because the market went up. Your losses aren't real until you sell.
Ticket: What is the thing investors – and those with 401Ks – need most to understand about our current economic situation, that they may not completely comprehend right now?
Willis: This debt issue is serious -- it's not something we can wave away. It's not a made-up political problem from the right or the left. It truly needs to be dealt with. It will call for some dramatic changes that may be unsettling -- that's OK. We need to make some fundamental changes in order to keep this country growing and healthy for the next generation.
Ticket: How should individual investors be thinking and feeling right now?
Willis: When the pros are losing their heads, individual investors are best off keeping theirs.
You want to be calm, cool and collected. Remember, it's only when you sell that you lock in losses. You're better off looking for opportunities. Stocks are on sale. Think about the investments that are cheap now that fit with your investment horizon and portfolio.
-- Kate O'Hare
Media critic Kate O’Hare is a regular Ticket contributor. She also blogs about TV at Hot Cuppa TV and is a frequent contributor at entertainment-news site Zap2it. Also follow O'Hare on Twitter @KateOH
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Photos: Gerri Willis, FBN.