Wayne McDaniel, financial advisor with McDaniel & McDaniel Financial Services, will chat online at 11 a.m. Monday about financial matters and the volatile stock market.

desinr

I bet my friend a dollar a few days ago that the DOW would drop 800 points in a single day; it did, but didn’t close there. Where do you see the market heading now? Is today’s 500point gain going to stick? What is the ‘rock bottom’ everyone should be waiting for?

Moderator

Hi, this is Mike Belt, Dollars and Sense reporter. Thanks for joining us. With us today is Wayne McDaniel, partner in McDaniel & McDaniel Financial Services here in Lawrence. He is taking questions about investments and the current economic situation. Wayne thanks for being here.

Wayne McDaniel

Thank you. Glad to be here.

Moderator

Wayne, I just checked a few minutes ago and the stock market was up. Do you think it will continue or will we have another up and down day? Is the worst behind us?

Wayne McDaniel

It is very hard to predict the future without knowing it. However, I doubt that the market is going to immediately return to the good times. I am not surprised at the bounce. But, it will probably bounce around for several weeks before we can say we have put in a good bottom.

coldandhot

Mr. McDaniel:

Do you think the vast number of unregulated derivatives is taking this market down?

Wayne McDaniel

That is a good part of the problem. With high leverage, comes high risk. We are seeing the deleveraging of the financial system. Much of the leverage is from derivatives.

Moderator

For those of us who aren’t financial experts, can you give us an easy definition of derivatives?

Wayne McDaniel

A derivative is a financial instrument whose value is derived from another investment. For example, stock options are derivatives. I can buy an option to purchase a stock that is currently trading for $20. I might buy an option to buy that stock at $20 any time in the next six months, regardless of price. The cost of my option might be $1.00. The value of this option will become more valuable if the stock goes up. Therefore, the value of my option is derived from the value of the stock.

gdiepenb

What advice do you give to investors when they see such volatile market swings for several days in a row?

Wayne McDaniel

The best thing to do is sit tight during high volatility times. However, use this time to re-evaluate your risk and your goals. Once things calm down a bit, if you have decided that the risk is too high for you, then decide how and when to make changes. But, do not make changes in the heat of the battle.

Moderator

If national and world leaders had not taken some the recent actions they did, do think we would get into another depression? How likely is a depression now?

Wayne McDaniel

It is hard to know what would happen if certain actions were not taken. However, it is very important that liquidity be improved and confidence restored. The Great Depression saw a constriction of liquidity which further compounded the problem. The efforts to pump liquidity into the system will probably avert a depression, but I do not think we are going to skirt a sharp recession.

LindseySlater

What’s the best way to make my dollar stretch during these tough financial times?

Wayne McDaniel

I think you make your dollar stretch in these times like you would in any. Know how much you have to spend, comparison shop, avoid credit card debt you cannot pay off each month, do not make unnecessary purchases, etc. It is basically common sense.

Moderator

Where is the worst place to put money now when it comes to investing? Where is the best, in your opinion?

Wayne McDaniel

This is a hard question because the answer depends so much upon one’s objectives. For example, if you want growth, now is probably a good time to pick up some good growth stocks that are beat up. If your objective is income, there are some great preferred stocks that have high levels of safety and high dividends. If your objective is safety, you probably should not be in the stock market and look at government bonds (though the yield will be low). Overall, for those who have time and cash, this is a good time to buy for the long term.

Moderator

I think you told me in a story I wrote last week there were some things you did for your customers to kind of prepare for this crisis. What was that? Did you see the economic crisis getting this bad? Did anybody?

Wayne McDaniel

Early this year we started to become more conservative in our clients portfolios and in early September we moved completely out of the market with a lot of clients who are in our management program. We did not do this because we saw an economic crisis of this proportion coming. Rather, I am a market technician and the market was telling me that things do not look good and it is time to get conservative. Some people did foresee this crisis. For example, Fortis and the Royal Bank of Scotland warned their clients last May.

Moderator

Last question: Do you think we are looking at years, months or weeks before the economy and investments really start to improve?

Wayne McDaniel

I think we are in a long term bear market. Historicially, the market has moved in 12 to 20 year cycles of periods of great returns followed by periods of poor returns. I think it will be ten years until the market is able to break to new highs and stay above them.

However, during the next ten years we will see some very powerful bull and bear markets, like we have just seen since 2000.

Moderator

Thanks for being with us today, Wayne. I guess the past couple of weeks haven’t made you want to switch to a different career?

Wayne McDaniel

Last week was pretty discouraging and early in the week I was wishing I was doing something else. But, later in the week, I thought, “This is why I am in business. I am here for my clients and it is important that I stand by them and help them navigate these difficult waters.” So I am here to stay.