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Team CoverageIt was a treacherous day on Wall Street. The Dow plunged more than 504 points for the sixth-largest point drop ever and the worst showing since stocks lost 508 points in the October 1987 crash.
Investors were shaken by Lehman Brothers' bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. Lehman Brothers is the biggest bankruptcy filing ever. Merrill Lynch is among the world's largest and most widely recognized brokerages.
With Monday's crushing blow to the financial market, people in Utah may be asking, "How does this affect me?" The truth is, experts say it's somewhat of a mixed bag. For some people this is really going to hurt; for others it could be an opportunity.
Today's closing bell on Wall Street delivered a financial punch in a place where many Americans are already feeling vulnerable. James Derrick, chief investment strategist for Smedley Financial said, "Everybody's worried now when's the next shoe going to drop? Who is going to be next?"
But as analysts assess the economic fallout of two tanking Wall Street investment banks and a huge stock market drop, many people in Utah are asking more simple questions. Retiree Liz Pierce from Roy said, "When are we going to get through this? That's probably what we're all wondering."
Experts say people who just retired will likely be impacted the most. James Derrick said, "If they've got a good plan that they're following then they should stick to that plan. But if they haven't planned well, then they've got a lot of tough decisions to make."
Derrick says others should also be concerned. In some cases, 401Ks may have dropped around 4.5 percent. "It could be a pretty devastating blow for those about to retire," he said.
But Derrick says it's not all bad news. The average working person should have time for their investments to recover, and for those looking to invest, the perfect time is now. "Don't assume that what's happening right now is going to last for years and years to come, because it probably won't," he said.
Another retiree, Claudette Bernard of Kaysville, said, "All my money is tied up on Wall Street except a small amount that I get from the government each month. If that goes down, I'm in big trouble."
Derrick says, had the stock market dropped like this a couple of months ago, when oil prices neared $150 a barrel, the results could have been much more devastating.
Consider the litany of challenging financial news we've had this year: Record-high oil and gas prices, the subprime mortgage crisis rocking housing markets, the bailout of mortgage giants Fannie Mae and Freddie Mac, and now stocks dropping dramatically and big Wall Street investment banks tanking. It's enough to make your head spin.
On Main Street, it's very much a topic of discussion.
Five stories up in the Wells Fargo building, Sterling Jenson of Wells Capital Management manages investments for large institutions like pension and profit sharing plans.
Jenson says the current crisis stems from investment banks like Lehman Brothers and Merrill Lynch creating riskier financial instruments, like derivatives, that few understand and regulators didn't properly monitor.
"They haven't been as regulated," he said. "And as a consequence, no one has tracked their capital base to see if they truly are going to be solvent in a crisis situation."
Jenson says the financial system is secure and may be near the bottom of the downturn.
"These things come and go, but I would suggest we're at least 80 or 90 percent of the way through," he said.
The feds insure bank accounts under $100,000 and brokerage accounts under $500,000. Most 401Ks are well diversified. So in the long run, Jenson is cautiously optimistic. "People that can hold steady in a well-diversified portfolio can benefit over the next year," he said.
Utah Bankers' Association President Howard Headlee remains optimistic, too, especially since it will take time for the markets to fully recognize the good in Lehman Brothers bankruptcy and Merrill Lynch's sale. He also gave a plug, saying putting your money in local FDIC banks can only help the local economy.
These latest financial developments may keep some people from retiring.
Craig Dunford is among the many Utahns near retirement. He says with what's happening in the financial markets, now is probably not a great time to call his job quits.
"Not now. It's a concern. We have a few different funds that we're involved with, but it's a concern," he said.
He expects to see even more financial institutions have problems before things start to turn around. But he, also, is optimistic.
"We'll pull out. But it's going to be kind of tough for this year," he said.
He says because of what's happening, he'll likely add two or three years onto his working career.
E-mail: rjeppesen@ksl.com
E-mail: jdaley@ksl.com
E-mail: cwall@ksl.com
E-mail: wjohnson@ksl.com
