Appeared In
Special Issue
WWD/DNR CEO Summit issue 11/17/2009

Disputing naysayers who predict the current gains in stocks are just a blip before a possible second slip, an optimistic James E. Glassman, managing director and economist at J.P. Morgan Chase & Co., told attendees at the WWD Apparel/Retail CEO Summit to bank on a recovery.

This story first appeared in the November 17, 2009 issue of WWD. Subscribe Today.


“In times like this, people tend to be skeptical,” he said. “If you insist on absolute proof that things are turning, you may be the last one on the train. “Things are changing,” he said emphatically. “There’s lots of opportunity.”




He explained the source of much of the pessimism has been from the academic community, which points to needy individuals because of high levels of unemployment. “I don’t buy this [argument],” said Glassman.


According to the economist, the U.S. economy began to grow in the summer, and “we think this is [the] beginning of the tides coming in.”


He described fall 2008’s crash as an “implosive collapse,” stemming from the decision of the world’s leading central banks to cut rates at the same time. Those simultaneous moves caused a loss of confidence, particularly in the benchmark three-month London Interbank Offered Rate (or LIBOR, the interest rate charged to banks borrowing from other banks in the London wholesale money market), which “exploded.”


But as the impulsive collapse from a year ago is now part of last year’s history, so, too, has the “financial panic [become] a past memory,” said Glassman.


Also helping to stabilize the economy is the housing market, where the correction that began in 2006 is making prices for homes more affordable. “The housing news is turning more stable, more positive. Prices are moving up a little bit” in some areas, he said.


The economist pointed to reports of a surge in productivity earlier this month, noting the layoffs and paring of inventories in recent months provided evidence that “everybody got too cautious.”


“People didn’t expect it to come back so soon,” Glassman said, predicting that, “in the months ahead, if we see business sales doing better, you’re going to see hiring picking up.”


The aversion to risk is easing, as well. Investors have started to move money from low-interest accounts back to higher-risk investments such as stocks, he noted.


But Glassman also might have surprised some of his audience when he told it: “We economists spend very little time [thinking about] the consumer, even though the consumer is 70 percent of the economy. They are the least volatile.…You pay us, we’ll spend.…That’s why we economists don’t worry about the consumer. We know the consumer will be there when the cyclical side changes.”


What economists do keep tabs on is the viewpoint of the Federal Reserve, which Glassman said has two main goals. “The Fed wants to keep inflation down and promote growth in the economy to keep unemployment down,” he said.


Glassman said the Fed’s long-term goal for unemployment is between 4.8 and 5 percent. It is currently at 10.2 percent. Even if unemployment were to decline a half of a point a year, it would still take a decade to get back to the 4.8 to 5 percent level, Glassman concluded.

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