Maintain perspective during the crisis

Investors should not allow themselves to become too spooked by the continuing issues surrounding the sub-prime mortgage meltdown and the liquidity crisis in circumstances where the parameters are already pretty clearly defined, according to the chief investment strategist at BNY Mellon Asset Management, Phillip Maisano.

Maisano told Money Management this week that what had been experienced was a liquidity lock-up rather than a credit lock-up.

“And if you believe, as I do, that some of the other credit is a lot better than people think, then there is good opportunity there and it won’t drag the economy down further,” he said.

Maisano said he believes the size and shape of the mortgage crisis was now pretty well defined and what is of more concern are things that occurred in the so-called vintage years of 2006 and 2007.

However, he said that if even 50 per cent of the sub-prime mortgages defaulted, the total damage from that would still be less than 4 per cent of total US gross domestic product.

“So it should not sink an economy,” Maisano said.

He said this meant he was a little more sanguine looking forward because he believed credit markets would be stable, albeit he did not think they would dramatically improve.

“But I do think that the amount of credit that has been removed from the system will have an impact on economic growth,” Maisano said.

However, he said he did not believe the US economy would go into recession, but with sub-par rates of growth in the US, it might feel like a recession.