Don't Sell American Markets Short

NEW YORK, March 11, 2020 /PRNewswire/ -- Comments by Richard Torrenzano on what business leaders can do to strengthen U.S. Financial Markets.

It is necessary for everyone to take a deep breath, step back and focus on investing – not day to day speculation.

In Barron's anniversary coverage of the 1987 crash, I recalled how we encouraged political and business leaders to work with media to calm panic through education and information. We did just that at the New York Stock Exchange. In the 1987 crash, media played a key role in calming financial markets.

Unfortunately, today, tabloid and irresponsible journalism, is causing panic through foolish coverage that is dominating airwaves and newsprint, compounded by instant commentary and nonsense on social media. All this preys on human fear and uninformed investors.

It is almost a perfect storm. 

… daily event cancellations; containment of countries, regions or zones caused by the coronavirus; rapid reduction in equity values; treasury yields at record lows; oil prices dissolving into the $20s per barrel range, caused by Russian and Saudi self-interest to crush a highly leveraged U.S. shale industry.

Additionally, Putin, through corruption, is paving the way to hold power through 2036; global supply distribution shifting and creating problems from new demands; corporate earnings are under severe pressure … and many other issues.

At the same time, sensationalistic social media modify and magnify negative perceptions ... all creating uncertainty and fostering fear. Markets react poorly to fear and uncertainty, they always have.

Trust must be built that accumulates a reservoir of faith for leaders and organizations. So, let's go back to basic actions and communications to rebuild trust.

We've learned and studied global markets since the days of the Phoenicians; and now have redefined the scope of globalization and interconnectivity.

In time, with government economic responses, we will have a better assessment of what lies ahead.

Actions American Business Leaders Can Take to Restore Confidence and Stability in U.S. Financial Markets

These are tough times. And, tough times call for tough actions.

First, speak the truth. Monday's drop of more than 2,000 points, or 7.8%, on the Dow Jones Industrial Average, was the single largest point day drop, reported by media. But, actually, it was not even close to the largest percentage drop, a much more important statistic. That was October 19, 1987, when the Dow Jones Industrial Average was cut by 23% in one day. Still the record.

Second, led by example. Top of the C-Suite of every public company should purchase – under SEC rules – a significant number of shares of their companies' stock, relative to their compensation … and announce it.

Third, companies with existing stock buyback programs should look for ways to maximize value now.

Fourth, directors need to step up. Under SEC rules, directors should buy company stock equivalent to one third of their annual cash compensation. If they do not wish to do this, they do not believe in their company, especially at these valuations, and should leave the board.

Fifth, companies that can, should reaffirm guidance, but this could be difficult given the uncertainty of crisis continued impact.

Sixth, communicate caring and sincerity … by being visible and vocal with all constituents – employees, customers, investors, regulators, partners and suppliers, media and others – about what is happening in the company, operational changes or actions in different geographic areas.

Seventh, boards should stretch, committing to current dividends and ongoing investments, partially in R & D.

All this will go a long way in restoring confidence in American financial markets and provide global leadership. It is also about time European and Asian business and political chiefs step up and demonstrate this same leadership to calm market hysteria in this global economy.

Finally, let's have some perspective. The coronavirus is spreading. It will continue to create havoc on our society and economy. So far, more than 30 people have died from it in the U.S. since January 1. That compares to 41 people murdered each month in Chicago during 2019. And, compares to more than 14,000 dead and 250,000 hospitalized during the 2019-2020 flu season, according to the Center for Disease Control.

Don't Sell American Markets Short

American history teaches us about financial crisis. And, in every case, U.S. financial markets rallied and continued to grow, following every crisis.

The first financial crisis was during the American Revolution in 1776 when hundreds of structures around Wall Street were destroyed. Crisis occurred again in September 1869, the first Black Friday, when speculators tried to corner gold and subsequently set off a financial panic.

Over several decades, we had significant bear markets in the 1970's; Boesky-Levine insider trading scandals mid-1980's; big daddy market crash of October 1987, when the Dow Jones Industrial Average plunged almost 23% in a single day. Still the record.

Also, the 1990s recession; 1997 Asian markets crisis; 1998 Long-Term Capital debacle; 2000 dot-com bubble; economic effects of 9-11 terrorists' attacks; Chinese stock bubble of 2007; financial crisis of 2008, European debt crisis 2010; late 2018 global market downturn … and many others.

In each case, American markets moved to a stronger position than before each crisis. Perhaps not as quickly as some would like, but always stronger. 

This is the message American history clearly teaches us. Don't sell American Markets short.

Background: Richard Torrenzano

Richard Torrenzano is chief executive of The Torrenzano Group, a reputation and high-stakes issues management firm specializing in building and protecting corporate reputations, helping clients grow their business and enhance brand and shareholder value.

For nearly a decade, he was a member of the New York Stock Exchange's Management (policy) and Executive (operations) Committees. And on the firing line as the Big Board's chief spokesman, he had a unique vantage on business, industry and media.

He managed some of the most visible global corporate crises in our lifetime, including: The October 1987 market crash, and Federal Reserve Bank's $4 billion recapitalization of Long-Term Capital Management, financed by a consortium of 14 of the world's largest financial institutions. He counsels leading global companies and financial institutions.

For additional information, visit:  www.torrenzano.com

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