Hawai'i investors, retirees shaken by scandals

By Dan Nakaso
Advertiser Staff Writer

Kevin McDermott, a trader in the S&P 500 futures pit at the Chicago Mercantile Exchange, sorts out his trades following the close of the market. Stocks skidded all day yesterday, with the Dow Jones Industrials falling as much as 440 points at one time. Associated Press

As an investor, Koenig is dreading his latest portfolio statement.

"I'm sure I'm not going to be in the best mood then," he said.

As general manager of the Hawai'i Tower Records-Video-Books stores, Koenig could barely bring himself yesterday to consider the possibility that consumers might not spend as much in the Islands as their confidence is shaken by revelations of corporate fraud and bouncing stocks.

"God, what would happen then?" he said. "I don't even want to think about it."

Hawai'i's economy has been sending shaky, sometimes confusing signals since Sept. 11. Now economists and others have new worries about local consumer confidence following weeks of market sell-offs triggered by accounting scandals. The shakiness was highlighted yesterday in an unusually volatile day of trading that saw the Dow Jones industrials fall as much as 440 points before ending with a moderate loss of 45.

The growing uncertainty is putting the squeeze on confidence in everyone from retirees to retailers and the tourism market. And when confidence starts to unravel, a drying up of spending — which accounts for two-thirds of the economy — could be a tough hit on Hawai'i's already sluggish economy.

"I'm not sure people who have already booked trips will cancel their plans to Hawai'i," said Andy Kish, who analyzes data from the Islands for the online magazine Economy.com. "The faster impact would probably be consumer spending on everything from big-ticket items to clothes to seasonal goods. Down the line, we could see an impact on tourism and travel."

More fallout from investors tightening their purse strings could delay the economic recovery for Hawai'i that has been continually pushed back since Sept. 11 as visitors slowly begin to return to the Islands.

Joseph Toy, president of Hospitality Advisors LLC, had already adjusted his predictions for a recovery to the last quarter of this year or perhaps the first quarter of next year.

"That was before this wave of corporate shakedowns," Toy said yesterday. "If anything, we'll have a longer period of recovery than we had initially thought."

Lack of consumer confidence could jeopardize the Mainland tourism market that has propped up Hawai'i's economy while big-spending Japanese tourist arrivals fell off after Sept. 11. And it could mean less inter-island travel by Hawai'i residents — who account for 9 percent to 10 percent of hotel bookings, Toy said.

For now, Toy said, it's nearly impossible to measure any effect of shaky consumer confidence on tourism because visitors are booking trips with little advance notice to take advantage of the best deals.

"The booking window is so short it's difficult to see what's on the books," Toy said. "It makes it very difficult for hotels to know where they're going to be six months from now."

But the Island economy also shows positive signs in the form of construction and robust new car and home sales, fueled by low interest rates. Or as Leroy Laney, Hawai'i Pacific University economic and finance professor, puts it: "There are currents in the economy that are going in both directions."

"A good bit of financing has put money into people's pockets," he said. "But if people feel less wealthy (because of dropping stocks), they spend less. Worst-case scenario, we could get thrown back into recession."

The uncertainty has led nearly 50 people in the past 10 days to call the Hawai'i American Association of Retired Persons with concerns over their futures.

"It's more calls than we've gotten on any other single topic," said Greg Marchildon, Hawai'i AARP executive director. "That's what you get when you get a lot of nervousness. They're asking what they should do. They want to know if their 401(k)s will be safe."

The AARP urges its members to plan for the future on "four pillars of investment," Marchildon said, "social security and pension; investments; personal savings and health security."

The AARP does not make portfolio advice and refers members to investment counselors who suggest clients diversify and stay with the stock market for the long haul.

"We tell everyone to look at the long-term view and that's really hard to do right now with everything that's going on," said Colleen Blacktin, manager of the Charles Schwab & Co. Inc. investment center downtown.

Clifford Tobita, a branch manager for Raymond James Financial Services, said he sees "a sense of terrific anger" among some clients.

"They're mad that these corporate executives are getting away with this stuff. Others say the government let them get away with it in the first place.."

And for many people, the latest worries have just been piled on top of already difficult times.

"Generally they're worried about where the state is heading," Tobita said. "Some people are just worried whether they're going to have a job tomorrow."