DAVID CRAIG:  Good afternoon.  Today is Monday, August 8, 2011, and I’m talking with Ashi Parikh, Chairman and CEO of RidgeWorth Investments, about market volatility and the S&P downgrade.  So, Ashi, last week we had a pretty big sell off in the equity markets and also S&P downgraded U.S. debt from AAA to AA+.  Let’s first talk about the S&P downgrade.  What exactly happened, and why do you think?

ASHI PARIKH:  Good afternoon.  Thank you, David.  Well, the S&P had talked about downgrading U.S. debt back in April if the U.S. did not take certain actions, and indeed, on Friday, they did lower the long-term debt to AA+.  With it they removed their negative outlook.  They kept their short-term rating in an A+1.  The other two rating agencies, however, Moody’s and Fitch, did not take such action.  S&P was very troubled by the budget process that the country had undergone, particularly the polarization of the politicians.  They had come out in April and said they were expecting something to the tune of $4 trillion to be cut in order to bring our debt-to-GDP ratio in line.  So, over the next ten years, there’s a real concern that our debt crisis will continue to spin us out of control, so S&P calculated that they would need about $4 trillion in cuts, and that should come through both some major cuts, not just in discretionary spending, but potentially in terms of some of our entitlement programs.

DAVID CRAIG:  Right.

ASHI PARIKH:  Our so-called sacred cows, and also some raise on the revenue side. 

DAVID CRAIG:  Okay.

ASHI PARIKH:  They didn’t get that, so they then cut, and they also threatened again to cut.  So, there’s not a lot of faith in the congressional process, the polarization that took place between the politicians, and the fact that this Congressional commission will be able to come to an agreement that would be suitable to put the country back on track.

DAVID CRAIG:  Okay.  Now let’s talk about the market selloff.  The Dow and S&P were down tremendously last week, over 500 points for the Dow in one day.  Was the S&P downgrade do you think related to that at all, or are these distinct events?

ASHI PARIKH:  I think to somewhat distinct events, things are always interrelated, but in terms of what we saw in the marketplace, we’ve been seeing for the last couple of months a substantial slowdown in the leading economic indicators, the GDP, we haven’t had favorable employment numbers, and so the fear was that the economy and the global economy was decelerating.  We’ve had huge issues in Europe, and that’s really been the focus with Italy and Spain, not just Greece and Portugal, and some of the other countries that we’ve seen.  There’s a real issue that we’re going to have a problem in terms of funding those various periphery countries within Europe, and that’s really the focus.  If that were to happen, we would have a massive global recession again.  That’s really the fear.  So, you saw the Dow down about 7%, 8% last week, S&P’s downgrade, while it wasn’t a surprise to most, I think the timing was certainly a surprise.

DAVID CRAIG:  Right.

ASHI PARIKH:  And that was more of a pile on.  So, now we’re down to about 13% over the last thirteen trading days.  So, it’s an acceleration of the fear that the global economy could go into a recession.

DAVID CRAIG:  And I guess with all this happening, what would be your outlook for the markets both domestically and internationally for the next six to twelve months?

ASHI PARIKH:  I think the outlook, let’s pare that down into a couple of phases.  Clearly, over the next week, we’re going to have to see the dust settle.  We would anticipate the continued flight toward U.S. treasuries, which is a little counterintuitive.

DAVID CRAIG:  Yes.

ASHI PARIKH:  Because the United States still continues still be the best house in the proverbial bad neighborhood.

DAVID CRAIG:  Right.

ASHI PARIKH:  So, we at this point don’t anticipate for selling of treasuries or collateral, repo, or haircuts, or that sort of thing, but we’re monitoring that situation very closely to see what will happen, particularly with additional downgrades with the agencies.  At this point, though, with the financial system, awash with liquidity, we don’t see any triggers in terms of mutual funds, insurance companies, and forced selling.  So, that will be a real positive.  Over this next six to twelve months the real silver lining is, can our politicians get their act together?  So, if we see the fact that $2 trillion has been put into place, that’s a good start.  That’s all it is - is a start.  Our timing has sped up.  If people can see that we’re going to continue to be the reserve funding currency for the world and get our act together, that will be a very big positive.  If we can get Europe to stabilize also, we then see that the market could actually take these developments as very favorable, and you could see a nice rally from the lows.

DAVID CRAIG:  Great.  Okay Ashi, thanks for your insights. 

ASHI PARIKH:  Thank you.