Transcript: A Stock Market Rollercoaster Ride | Feb 09, 2018

Steve sits in the studio. He's slim, clean-shaven, in his fifties, with short curly brown hair. He's wearing a gray suit, white shirt, and spotted blue tie.

A caption on screen reads "A stock market roallercoster ride. @spaikin, @theagenda."

Steve says IT WAS QUITE A WEEK ON
WORLD STOCK MARKETS.
INDICES EVERYWHERE SAW HUGE
LOSSES - THE DOW JONES
INDUSTRIAL AVERAGE TOOK ITS
BIGGEST SINGLE DAY PLUNGE IN
HISTORY.
THAT WAS MONDAY, AND AS THE WEEK
UNFOLDED, GLOBAL MARKETS
CONTINUED TO SLIDE AND REBOUND
IN WHAT MANY SAW AS A LONG
OVERDUE CORRECTION.
JOINING US NOW FOR HIS TAKE ON
THE VOLATILITY THAT WAS AND
WHAT'S AHEAD:
BRIAN MILNER, SENIOR ECONOMICS
WRITER FOR THE GLOBE AND MAIL
WHOM WE ALWAYS APPRECIATE HAVING
IN THAT CHAIR WHEN THINGS GET
COMPLICATED OUT THERE AND WE
NEED SOMEONE TO EXPLAIN IT ALL TO US.

Brian is in his fifties, clean-shaven, with short curly gray hair. He's wearing glasses, a gray suit, white shirt, and patterned blue tie.

Steve continues SHALL WE JUST SET THIS UP?
YEAH, LET'S DO THIS.
MR. DIRECTOR, IF YOU WOULD, THE
CLIP?
AWAY WE GO.

A clip plays on screen with the caption "February 5, 2018. Richard Quest. CNNMoney Editor-at-large."
In the clip, Richard sits in a TV studio and faces the camera. An animated chart shows stocks going down quickly.

Richard says THE DOW SUFFERS ITS WORST
SINGLE DAY POINT FALL, SOME 1179
POINTS, IT'S THE LARGEST
SINGLE-DAY POINTS FALL IN
HISTORY, BUT WE HAVE TO KEEP
THAT INTO CONTEXT.
IT'S THE WORST FALL IN
PERCENTAGE TERMS SINCE 2011.

Richard stands next to a giant screen and points at the chart.

He says A LOSS OF 4.6 percent, OVER 1100 POINTS
OFF THE DOW.
THE MARKET IS NOW DOWN 8 percent SINCE
ITS ALL-TIME HIGH, JUST AFTER
3:00.
A WEIRD SORT OF REASONING.
NO OBVIOUS REASONS.
THE DOW TAKES THIS MASSIVE TANK
WHERE IT DROPS FROM ABOUT 700 OR
800 AND IT GOES DOWN SOME 1500 POINTS.

A line chart shows the sudden drop in the index with a red line.

Richard continues THEN IT RECOVERS, AND WE'RE
SEEING SWINGS OF BETWEEN 2 TO
3 PERCENT.

The clip ends.

Steve says THERE'S SOMETHING
ABOUT RICHARD QUEST'S VOICE AND
THAT TENSION TRACK MUSIC THAT
MAKES YOU THINK THE WORLD IS
ABOUT TO COME TO AN END.
BUT ANYWAY, LET'S GET INTO THIS.
WHAT KIND OF FACTORS DO YOU
THINK WENT INTO WHAT TRANSPIRED
THIS WEEK?

The caption changes to "Brian Milner. The Globe and Mail."
Then, it changes again to "Understanding a crazy week."

Brian says THERE WERE A SERIES OF FACTORS.
THE MOST BASIC IS THAT THE
MARKET HAS BEEN CONSIDERED
OVERVALUED FOR SOME TIME,
BECAUSE SO MUCH MONEY POURED
INTO EQUITIES AND PRICES KEPT
GOING UP AND THEY'VE BEEN UP
PRETTY STEADILY IN PROBABLY THE
LONGEST BULL RUN SINCE THE
1990s.
SO EVERYBODY SAID, THINGS CAN'T
GO FOREVER.
TREES DON'T GO TO THE SKY.
THAT'S THE OLD ECONOMICS TERM
FOR IT.
SO THAT'S THE BASIC ONE.
BUT WHAT TRIGGERS PEOPLE TO
SUDDENLY SAY, MY GOD, I'VE GOT
TO SELL?
AND A LOT OF PEOPLE ARE POINTING
TO THE LABOUR MARKET REPORT IN
THE U.S. LAST FRIDAY WHEN... BUT
WAGES STARTED CREEPING UP EVEN
FASTER THAN EXPECTED.
WHEN THAT HAPPENS, PEOPLE START
WORRYING ABOUT INFLATION.
THE REASON THEY WORRY ABOUT
INFLATION IS THAT CENTRAL BANKS
HATE INFLATION.
THAT TENDS TO MEAN THAT THEY'LL
RAISE INTEREST RATES FASTER THAN
WAS OTHERWISE PREDICTED, AND
THAT ALSO MAKES INVESTORS REALLY
NERVOUS.
INFLATION IS A REAL PROBLEM FOR
THEM, WHETHER IT'S GOING UP OR
DOWN.
THEY DON'T... THEY LIKE THINGS
STABLE.
SO THAT'S ONE.
THE OTHER ONE IS THAT IN TERMS
OF THE GLOBAL SITUATION, THERE
ARE ISSUES AROUND THE WORLD THAT
PEOPLE ARE WORRIED ABOUT.
THEY'RE WORRIED ABOUT
GEOPOLITICAL ISSUES AND THEY'RE
WORRIED ABOUT THE ECONOMY NOT
BEING QUITE AS STRONG AS PEOPLE
THINK AT A TIME WHEN THE CENTRAL
BANKS ARE STARTING TO TIGHTEN
RATES, AND MORE THAN THAT,
THEY'RE DOING SOMETHING MORE
HIDDEN THAN THAT.
WE'RE TAKING LIQUIDITY OUT OF
THEIR FINANCIAL SYSTEM.
THEY'RE TIGHTENING UP AGAIN
AFTER POURING MONEY IN FOR THE
LAST 10 YEARS.
AND WHAT THAT MEANS IS THERE'S
LESS MONEY AVAILABLE TO PUT INTO
THE MARKET.
SO THOSE ARE THE BASIC FACTORS.
THEN THERE ARE ODDITIES LIKE ALL
THESE BABY BOOMERS HITTING THE
AGE OF 70 AND SUDDENLY SAYING I
DON'T WANT TO BE IN THIS.
THIS IS TOO RISKY FOR ME.
ALL THOSE FACTORS COME INTO PLAY.

Steve says I'M SURE THERE ARE
DOZENS MORE.
LET ME PUT ONE MORE ON THE LIST
AND GET YOU TO COMMENT ON IT.
WE HEAR ABOUT FINANCIAL
ALGORITHMS THAT DO ALL THIS
AUTOMATIC TRADING.
WHAT KIND OF A FACTOR MIGHT THAT
HAVE BEEN?

Brian says CERTAINLY LATER IN THE DAY ON
MONDAY AND LAST FRIDAY AND
PROBABLY AGAIN YESTERDAY, A LOT
OF THE RAPID DECLINE LATE IN THE
TRADING DAY IS ATTRIBUTED TO
COMPUTERIZED TRADING.
PLUS, WE HAD A VERY INTERESTING
SITUATION WHERE BILLIONS OF
DOLLARS HAS POURED INTO TRADES
BETTING AGAINST VOLATILITY.
WELL, AS YOU SEE WHAT HAPPENS
WHEN THERE IS VOLATILITY, ALL
THOSE TRADES GO UNDER WATER.
PEOPLE LOSE BILLIONS OF DOLLARS.
THE ONLY WAY THEY CAN COVER
THOSE LOSSES IS TO SELL STOCKS.
THAT'S BEEN GOING ON.
PLUS THE FACT THAT IT'S SO NOW
GEARED TO HIGH-SPEED TRADING.
HUMAN BEINGS DON'T HAVE A LOT OF
SAY IN THIS ANYMORE.
AND SMALL INVESTORS, LIKE YOU
AND ME, WE HAVE NO SAY.
YOU AND I CAN SELL ALL OUR APPLE
SHARES TOMORROW, AND IT WON'T
MATTER AT ALL.
BUT IF YOU ARE A BIG FUND, A
QUANTITATIVE FUND, WITH BILLIONS
OF DOLLARS AT STAKE AND YOU
SUDDENLY GO IN AND SELL
POSITIONS, THAT DOES AFFECT THE MARKET.

Steve says WE SAW THIS GRAPH IN
THE CNN CLIP BUT IT BEARS
SHOWING AGAIN JUST BECAUSE IT IS
SO AWFULLY DRAMATIC.

The line graph pops up under the title "Dow Jones Industrial average."

It shows a fall from 25,520 points in February 2, to 24,022 points the following Monday at 3:10 pm.

Steve continues THERE IT IS RIGHT THERE.
ROB CARRICK IN THE GLOBE AND
MAIL SAID THE STOCK MARKET HAD A
LONG OVERDUE FREAK-OUT MONDAY.
BE GRATEFUL.
HOW IS A LOSS SOMETHING TO BE
GRATEFUL FOR?

Brian says THE IDEA WAS IT WAS GOING TO
COME ANYWAY, AND THIS ISN'T AS
BAD AS IT COULD BE.
A CORRECTION WAS LONG OVERDUE.
TYPICALLY EVEN WHEN MARKETS ARE
GREAT, THIS HAPPENS ONCE A YEAR,
SOMETIMES TWICE A YEAR.
IT GIVES PEOPLE PAUSE FOR
THOUGHT.
THEN THEY SAY MAYBE I SHOULD
LOOK AT WHAT I'M INVESTING IN.
MAYBE I HAVE TOO MUCH RISK
EXPOSURE, AND THEY START
REBALANCING A LITTLE.
THEY START MAKING MORE SENSIBLE
DECISIONS.
OR THEY DO WHAT WE SAW THIS WEEK
AND THEY PANIC AND SAY GET ME
OUT OF THESE THINGS.
THAT'S NOT SOMETHING TO BE
GRATEFUL FOR.
BECAUSE ONCE A PANIC STARTS,
IT'S REALLY HARD TO STOP.

Steve says WE JUST SHOWED THE
NUMBERS FOR THE DOW IN THE
STATES.
HOW ABOUT THE TORONTO STOCK
EXCHANGE, HOW IS IT DOING?

The caption changes to "At home and abroad."

Brian says THE TORONTO STOCK EXCHANGE IS
DOWN.
IF PEOPLE SAY I DON'T WANT TO
OWN RESOURCE STOCKS ANYMORE OR
FINANCIALS, THE MARKET IS GOING
TO GO DOWN QUITE RAPIDLY.
MY PROBLEM WITH THE CANADIAN
STOCK EXCHANGES IS BECAUSE
THEY'RE VERY NARROW, THERE'S NOT
A WIDE BASE TO BUILD BACK UP.
WHEN THEY GO DOWN, IT'S HARDER
TO RECOVER.
THE WAY THEY RECOVER IS WITH A
GLOBAL COMMODITY BOOM.
NOW, COMMODITY PRICES ARE
STRONGER.
PRICES ARE WEAK.
AND BANK PROFITABILITY.
IF PEOPLE ARE GETTING OUT OF THE
MARKET, ALL THOSE TRADING
PROFITS GO DOWN.
BUT ALSO IF INTEREST RATES GO
UP, THEIR DELINQUENCY LEVELS
RISE, SO PEOPLE START GETTING
NERVOUS.

Steve says OTHER INDICES AROUND
THE WORLD, HOW DO THEY LOOK?

Brian says THERE'S NO SAFE HAVEN WHEN
THIS HAPPENS ANYMORE.
WE SAW STOCKS FALL IN ASIA.
THEY DID IT AGAIN THIS MORNING.
THEY ARE VERY, VERY SENSITIVE TO
WHAT HAPPENS IN THE UNITED
STATES.
EUROPE FELL.
PEOPLE STARTED BUYING JAPANESE
YEN AGAIN, WHICH IS A SAFETY
VALVE PURCHASE, AND YOU'LL SEE
THAT.
YOU'LL SEE SWISS FRANCS GOING
UP, JAPANESE YEN.
THOSE ARE THE TRADITIONAL
HOLDERS OF VALUE.

Steve says LET ME QUOTE YOU
BACK TO YOU, OKAY?
HERE WE GO, CONTRIBUTING EDITOR
TO THE GLOBE AND MAIL...

A quote appears on screen, under the title "The good old days." The quote reads "As we draw closer to the 10 year anniversary of the global financial meltdown, a lot of investors seem convinced we won't be revisiting anything remotely resembling that period of extreme wealth destruction any time soon. And who can blame them?
The value of their rebuilt portfolios has soared during a sustained stretch of well-below-normal interest rates, strong earning growth, inflated asset values and record-low volatility. Bullish forecasters predict more of the same for 2018, playing down a host of potential pitfalls."
Quoted from Brian Milner, The Globe and Mail. December 11, 2017.

Steve says NOW, YOU WROTE THAT
TOWARDS THE END OF 2017.

Brian says RIGHT.

The caption changes to "Policy problems, policy solutions."

Steve says YOU WENT ON TO SAY
GOLDMAN SACHS WAS PREDICTING A
PRETTY STRONG YEAR BECAUSE
PARTICULARLY IF THE REPUBLICANS
CAN GET THEIR TAX REFORM THROUGH
CONGRESS, THAT WILL BE ANOTHER
REASON FOR THE MARKETS TO BE
BUOYANT.
THE REPUBLICANS GOT THEIR TAX
BILL.
WHY DIDN'T THAT PREVENT ALL OF
WHAT TRANSPIRED THIS PAST WEEK?

Brian says IT'S REALLY INTERESTING,
ISN'T IT?
GOLDMAN CALLED IT RATIONAL
EXUBERANCE, AS OPPOSED TO
GREENSPAN'S IRRATIONAL
EXUBERANCE.
WHAT HAPPENED ON THE PRICE SIDE
WAS ALREADY PRICED INTO THE
MARKET.
PEOPLE EXPECTED IT TO HAPPEN.
THEY KNEW THAT CORPORATE PROFITS
WOULD BE GOING UP AS A RESULT,
AND SO THEY PRICED IT IN.
AND THAT OFTEN HAPPENS.
GOOD NEWS DOES NOT NECESSARILY
DRIVE STOCKS UP.
SOMETIMES IT DRIVES STOCKS DOWN.
ANTICIPATION OF GOOD NEWS IS
WHAT DRIVES IT UP.
SO THAT'S ONE HUMAN
PSYCHOLOGICAL ISSUE INVOLVED
HERE.
THE OTHER ONE IS THAT, IF YOU
LOOK AT WHAT THEY DID ON THE TAX
SIDE, THEY DRAMATICALLY
INCREASED THE U.S. DEFICIT.
IT MEANS THE AMERICAN
GOVERNMENT'S GOING TO HAVE TO BE
GOING INTO THE GLOBAL BOND
MARKET AND BUYING UP MORE BONDS
TO COVER THEIR DEBT.
THAT MEANS THAT IT'S WEAKER ON
THE FISCAL SIDE, AND THAT, TO
MOST PEOPLE, MEANS THAT, WHAT DO
I DO IF THE GOVERNMENT IS A MESS
FINANCIALLY?
WELL, THAT AFFECTS INTEREST
RATES, IT AFFECTS EVERYTHING
ELSE, AND MAYBE THAT'S NOT SUCH
A GOOD THING.
AND THE LITTLE BIT OF HELP FOR
CORPORATIONS, AS I SAID, WAS
ALREADY PRICED INTO THOSE STOCKS
ANYWAY.
I THINK IT'S JUST RATCHETING UP
NERVES ABOUT FEDERAL RESERVE
POLICY, WHICH HAS BEEN... ON TOP
OF THAT IT'S BEEN AUGMENTED BY
THE FACT THEY HAVE A BRAND NEW
FEDERAL RESERVE CHAIR.

The caption changes to "Connect with us: @theagenda, TVO.org, Facebook, YouTube, Periscope, Instagram."

Steve says CHAIR, YES.

Brian says AND I CAN TELL YOU THAT EVERY
TIME THEY CHANGE FEDERAL RESERVE
CHAIRS, THE MARKET TRADITIONALLY
GOES DOWN FOR THE NEXT FOUR TO
SIX MONTHS BECAUSE PEOPLE DON'T
KNOW EXACTLY WHAT TO EXPECT.

Steve says IS THE EXPECTATION
THAT THE NEW CHAIR'S APPROACH TO
THINGS WILL BE DIFFERENT FROM
JANET YELLEN, THE FORMER CHAIR'S?

The caption changes to "Brian Milner, @bmilnerglobe."

Brian says THEY DON'T KNOW BUT THAT'S
WHAT THEY WORRY ABOUT.

Steve says THAT'S WHAT THEY
WORRY ABOUT, OKAY.
I'M GOING TO CIRCLE BACK TO
SOMETHING YOU SAID A FEW MOMENTS
AGO.
IN THE LIST YOU SAID OFF THE TOP
WHICH SUGGESTS WAS THE REASON
FOR WHY THE MARKET WENT FOR A
DUMP THIS WEEK WAS INCREASES IN
WAGES.
I WOULD HAVE THOUGHT INCREASES
IN WAGES WERE A GOOD THING FOR
THE ECONOMY, AND I'M SORT OF
STRUGGLING TO FIGURE OUT HOW
THAT WOULD HAVE CONTRIBUTED TO A
DIMINUTION IN THE MARKETS.

Brian says WE HAVE TO SEPARATE THE
MARKET FROM THE ECONOMY.

Steve says THEY'RE DIFFERENT THINGS.

Brian says THE MARKET IS NOT THE
ECONOMY.
BUT WHAT HAPPENS IN THE ECONOMY
CAN AFFECT THE MARKET.
WHEN WAGES GO UP, IT IS A GOOD
THING.
CONSUMERS HAVE MORE MONEY IN
THEIR POCKET, THEORETICALLY.
THEY CAN SPEND MORE.
WAGES HAVE NOT GONE UP THAT
MUCH.
BUT THE FACT THAT THEY WENT UP
SHARPLY IN ONE MONTH SAYS, OH,
MY GOODNESS, THERE'S A TIGHT
LABOUR MARKET.
TIGHT LABOUR MARKET MEANS
THERE'S A RISK OF INFLATION
BECAUSE EMPLOYERS HAVE TO PAY
MORE TO FIND AND KEEP EMPLOYEES.
THEIR COSTS GO UP.
THEY RAISE PRICES.
INFLATION IS BAD FOR BOND
HOLDERS AND IT'S NOT REALLY GOOD
FOR STOCKHOLDERS.
IN THE SHORT TERM IT IS, BECAUSE
YOU HAVE SOME PROTECTION FROM
THE DECLINE IN THE VALUE OF YOUR
CURRENCY.
BUT IT DOESN'T LAST.
AND REALLY INFLATION IS THE BIG
FEAR.
THERE'S NO SIGN OF IT YET, SO
PEOPLE ARE PROBABLY
OVERREACTING.
BUT THAT'S WHAT MARKETS TEND TO DO.

Steve says THEY FEAR INFLATION.
EVEN WHEN THERE ARE NOT
NECESSARILY ANY INDICATIONS THAT
IT'S COMING, THEY'RE STILL
AFRAID OF IT ANYWAY?

Brian says THERE ARE ECONOMISTS THAT
HAVE BEEN WORRIED ABOUT SOARING
INFLATION FOR THE LAST 10 YEARS
AND THEY'VE BEEN WRONG EVERY
SINGLE YEAR.

Steve says THEY HAVE PREDICTED
NINE OF THE LAST FIVE
RECESSIONS.
THAT'S KIND OF THE WAY THESE
THINGS GO.
WHAT DO YOU SUGGEST THINGS THAT
MIGHT BE DONE IN CANADA THAT
MIGHT STABILIZE THINGS?

Brian says WELL, FOR ONE THING, I KNOW
ENVIRONMENTALISTS ARE GOING TO
HATE THIS, BUT IT WOULD REALLY
HELP IF WE COULD GET OUR OIL TO
MARKET A LITTLE BIT BETTER
BECAUSE THE OIL PRICES HAVE A
BIG IMPACT ON CANADIAN MARKETS.
YOU'LL SEE WHENEVER THE OIL
PRICE GOES DOWN GLOBALLY, IT
AFFECTS THE CANADIAN DOLLAR
IMMEDIATELY.
BUT IT ALSO AFFECTS CONFIDENCE
IN THE MARKETS.
AS I SAID, THE MARKET IS
DOMINATED BY TWO SECTORS,
FINANCIAL AND RESOURCES.
IN THE RESOURCE SECTOR, OIL
COMPANIES MAKE UP A HUGE
PORTION.
IF THEY'RE CONVINCED THAT
EXPLORATION IS GOING TO GO DOWN
BECAUSE DISTRIBUTION IS A
PROBLEM, IF THEY'RE CONVINCED,
AS THE ALBERTA GOVERNMENT IS,
THAT THIS IS A REAL PROBLEM FOR
THE PROVINCIAL... THE HEALTH OF
THE PROVINCIAL ECONOMY, THAT'S
GOING TO CAUSE PEOPLE TO BACK
OFF FROM INVESTING.
IT'S MUCH EASIER TO SELL THE
RESOURCE STORY IF YOU CAN
CONVINCE PEOPLE THAT YOU CAN GET
THE STUFF TO PLACES THAT NEED IT.

Steve says I KNOW YOU'RE NOT A
POLITICAL SCIENTIST, BUT I ALSO
KNOW YOU COVER OR YOU FOLLOW
POLITICS PRETTY CAREFULLY.
AND ONE OF THE THINGS THAT
DONALD TRUMP HAS BEEN SAYING
OVER AND OVER AND OVER AND OVER
AGAIN SINCE HE BECAME PRESIDENT
IS, THE STOCK MARKET IS GOING
THROUGH THE ROOF.
IT'S BOOM TIMES.
IT'S ALL HAPPENING ON MY WATCH.
PRESIDENTS HAVE ALWAYS BEEN
WARNED NOT TO DO THAT BECAUSE
WHAT GOES UP SURELY WILL COME
DOWN.
HOW DOES THE PRESIDENT MAKE AN
ARGUMENT THAT, EVEN THOUGH THE
MARKET WENT FOR AN AWFUL CRASH
THIS PAST WEEK, I'M STILL THE
GREATEST?

Brian says WELL, HIS OWN EXPLANATION IS
THAT THE MARKET DOESN'T
UNDERSTAND HOW GREAT HE IS.
IT DOESN'T UNDERSTAND WHAT
WONDERFUL THINGS ARE HAPPENING
IN THE ECONOMY.
I THINK THE MARKET UNDERSTANDS
VERY WELL WHAT'S HAPPENING IN
THE ECONOMY.
IF WE GO BACK IN HISTORY, WE GO
BACK TO THE CRASH OF 1929, AND
EVERYBODY SAID, WHERE DID THIS
COME FROM?
YOU KNOW, IT WAS THE ROARING '20S.
EVERYTHING WAS GREAT.
WELL, TWO MONTHS BEFORE THAT
CRASH, THE U.S. ECONOMY STARTED
SLOWING DOWN DRAMATICALLY.
AND THERE WERE WORRIES ABOUT A
TRADE WAR BECAUSE THERE WERE
MEMBERS OF CONGRESS WHO SAID,
YOU KNOW, WE'VE GOT TO STOP ALL
THESE OTHER COUNTRIES FROM
TAKING ADVANTAGE OF THE UNITED
STATES AND LO AND BEHOLD THERE
WAS A TRADE WAR STARTING IN
ABOUT 1930.
SO THE CRASH HAPPENED WITH THAT
BACKDROP BEHIND IT.
BUT A LOT OF PEOPLE WEREN'T
PAYING ATTENTION BECAUSE --
UNTIL THEN.
IN FACT UNEMPLOYMENT AT THE
START OF THAT YEAR WAS ONLY
3.3 percent.
SO YOU SEE THAT THROUGHOUT
HISTORY WHERE PRESIDENTS ARE
PRETTY SANGUINE, THE ECONOMY IS
GREAT.
HERBERT HOOVER DID NOT KNOW WHAT
TO DO WHEN THAT MARKET CRASHED.
AND TRUMP REALLY WON'T KNOW WHAT
TO DO EITHER.
AND THAT'S ONE OF THE RISKS.
IF YOU WORK ON WALL STREET, YOU
HAVE CONFIDENCE THAT WASHINGTON
CAN CALMLY DEAL WITH THIS
CRISIS.

Steve says CALMLY?

Brian says YEAH, EXACTLY.
IN 1987, OCTOBER 19TH, 1987, WE
HAD THE ACTUAL BIGGEST ONE-DAY
DROP IN STOCK MARKET HISTORY.
IT FELL 22 percent IN A SINGLE DAY.
NOW, IT WAS MUCH SMALLER THEN SO
THE POINT DROP WAS LOWER.
THE NEXT DAY, THINGS STARTED TO
GET FIXED.
WHY WAS THAT?
BECAUSE ALAN GREENSPAN, WHO WAS
THEN A BRAND NEW GOVERNOR OF THE
FED, STARTED DOING THINGS BEHIND
THE SCENES TO PUMP LIQUIDITY
INTO THE MARKET, SOMETHING HE
DID HIS ENTIRE CAREER WHENEVER
THERE WAS A REAL PROBLEM IN THE
MARKET.
IT WAS NEVER ANNOUNCED.
IT WAS ALWAYS SORT OF SHADOWY IN
THE BACKGROUND, AND THE MARKET
RECOVERED REMARKABLY QUICKLY
FROM THAT ONE-DAY COLLAPSE IN
THE MIDDLE OF A STOCK MARKET
BOOM AT THE TIME.

Steve says IS THERE ANY REASON
TO SUSPECT... WE REMEMBER BACK
IN 2008, THE MARKET WENT DOWN
BIG-TIME THEN, AND THAT DID
PRESAGE THE COMING OF THE GREAT
RECESSION.
IS THERE ANY REASON TO SUSPECT
THAT THE BIG DROP WE SAW EARLIER
THIS WEEK IS ALSO A SIMILAR
HARBINGER?

The caption changes to "What's next?"

Brian says I DON'T BELIEVE SO.
AND I THINK THE REASON IS THE
ECONOMIC EVIDENCE.
AT THE TIME OF THE CRASH IN
2008, THERE WAS A HOUSING BUBBLE
IN THE UNITED STATES AND IN
EUROPE.
THERE WAS A LOT OF WHAT WE CALL
MALINVESTMENT.
MONEY WAS GOING INTO REALLY
STUPID THINGS.

Steve says SUB-PRIME MORTGAGES
AND ALL THAT.

Brian says AND ALL OF THAT.
AND OF COURSE WE HAD FINANCIAL
ENGINEERS PLAYING FAST AND LOOSE
IN THE MARKET.
WE DO HAVE THEM AGAIN; THEY
NEVER GO AWAY.
AND THEY ARE HARMFUL.
BUT THE BROADER ECONOMY HAS BEEN
DOING MUCH BETTER, NOT JUST IN
THE U.S. BUT IN CANADA AND
GLOBALLY.
AT THAT TIME, IN 2008, THERE
WERE TROUBLES ELSEWHERE IN THE
WORLD THAT WERE SORT OF SIGNALS
THAT THINGS WEREN'T NECESSARILY
ALL THAT HEALTHY.
INTEREST RATES HAD GONE UP
BEFORE THAT.
HERE THEY'VE GONE UP ONLY VERY,
VERY SLOWLY.
THERE'S NO INDICATION THAT
THINGS ARE SLOWING DOWN AT ALL,
AND AS I SAID, THE MARKET AND
THE ECONOMY ARE NOT THE SAME THING.

Steve says RIGHT.
IN OUR LAST MINUTE HERE, AGAIN,
QUOTING YOU TO YOU, HERE'S WHAT
YOU WROTE BACK IN DECEMBER: THE
CRAZIER THE PARTY, THE NASTIER
THE HANGOVER IS SURE TO BE.
WHAT SORT OF STOCK MARKET
HANGOVER DO YOU THINK WE NEED TO
BE READY FOR RIGHT NOW?

Brian says WE CERTAINLY NEED TO BE READY
FOR MORE OF THIS.
VOLATILITY IS NORMAL IN THE
MARKETS.
WE LIVED WITHOUT VOLATILITY
SINCE NEARLY ABOUT 2009.
THAT'S NOT HEALTHY BECAUSE
THAT'S TELLING YOU THAT THERE'S
NO RISK IN STOCK MARKETS.
BUT IN FACT THE REASON YOU GET
MORE USUALLY FROM STOCK
INVESTMENTS AND BOND INVESTMENTS
IS THAT THERE IS A RISK.
IF THE RISK ISN'T REFLECTED IN
THE MARKET, THEN THERE'S
SOMETHING WRONG.
YOU'RE NOT GETTING PAID ENOUGH
TO TAKE THOSE RISKS.
SO NOW THERE IS RISK.
VOLATILITY WILL CONTINUE.
I THINK WE'LL SEE MORE
UP-AND-DOWN MARKETS OVER THE
NEXT WHILE.
I DON'T SEE IT LASTING MORE THAN
A FEW WEEKS, BUT IF IT DOES...
AND IT COULD... THEN YOU'LL SEE
CENTRAL BANKS STEP IN AND
AGGRESSIVELY GO THE OPPOSITE
DIRECTION.
THEY WILL LOOSEN POLICY AGAIN
BECAUSE THEY WILL BE WORRIED
ABOUT THE ECONOMIC IMPACT, AND
THAT'S CALLED THE DECLINE OF THE
WEALTH EFFECT.
IF YOU FEEL RICH BECAUSE YOU OWN
STOCKS OR YOU HAVE GREAT REAL
ESTATE, YOU SPEND MORE MONEY.
IF SUDDENLY YOU DON'T FEEL
WEALTHY, EVEN IF IT'S ON PAPER,
YOU'LL SPEND LESS, YOU'LL WORRY MORE.
THAT MEANS BUSINESS...
BUSINESSES WILL GET WEAKER
BECAUSE DEMAND WILL FALL.
ALL OF THAT...

Steve says A SELF FULFILLING
PROPHESY IN A WAY.

Brian says AND THAT DOES AFFECT THE ECONOMY.

The caption changes to "Producer: Gregg Thurlbeck, @GreggThurlbeck."

Steve says NOW YOU KNOW, FOLKS,
WHY WE INVITE THIS GUY BACK.
LESS THAN 20 MINUTES AND WE ALL
UNDERSTAND IT SO MUCH BETTER.
BRIAN MILNER, WHAT IS YOUR TITLE NOW?

Brian says CONTRIBUTING EDITOR.

Steve says CONTRIBUTING EDITOR
TO THE GLOBE AND MAIL.
THANKS SO MUCH, BRIAN.

Brian says THANK YOU.

Watch: A Stock Market Rollercoaster Ride