It’s hard to remain sanguine when watching the market drop 10% in less than a month, but Zachary Karabell, «investing.businessweek.com»’s chief economist and portfolio manager, is paid to stay calm. And he is calm. He’s watched the recent gyrations of the bourses, and despite the decline, isn’t worried by what he sees.

On the other hand, he’s not expecting the climate to be easy either. Investors still will be facing hazards like further fallout from the subprime mess, rising foreclosures, and uncertainty surrounding leveraged derivatives. According to Karabell, there’s been too much complacency for too long and it could take some time for Wall Street to return to normal.

So, what’s an investor to make of the market turmoil? Karabell took some time amid the volatile doings of the stock market Aug. 16 to share his thoughts with BusinessWeek contributor Ben_Levisohn@businessweek.com. Edited excerpts of their conversation follow:

Why isn’t this the beginning of a bear market?

Fundamentals aren’t pointing in that direction. Earnings are still good. Global growth is extremely solid. These have been good markets and I think they will continue to be. We see a lot of opportunities in the market. We’re looking for the entry point much more than we’re looking for the exit.

What explains the recent downturn?

It’s an important correction in the financial instrument sector. People don’t understand the complexity of all the systems that have developed: quant models, electronic trading, derivatives. It’s been generating a lot of quiet anxiety. But none of that has been tested out in New York and financial capitals. Now it’s being tested. In the past 10 days, it went from where’s the damage, to how much have they infected the whole system. There’s a lack of transparency about the real extent of these issues and people are panicking.

Should they be?

I don’t think there’s ever a time to start panicking. The Dow Jones industrial average was up almost 15%. That’s a lot at midyear. No one was thinking this would be a 30% up year on the Dow or the S&P 500. It was fun when we were up and now it’s not so fun. It’s not like the fundamentals have suddenly deteriorated or even changed that much. Bigger picture, we’re probably a little closer to where we ought to have been. The problem is we didn’t get there in a gradual easy way. But when people are panicking, it’s just not a good time to do much except wait.

You’re not worried that the subprime problems will spill over into the rest of the economy?

Global fundamentals are very strong. It’s not dependent on subprime mortgages in the United States. Is China going to import less iron ore because of a Goldman Sachs («www.businessweek.com») quantitative hedge fund? I don’t think so. You also have to question the assumption that subprime borrowers will drive consumer spending off the face of a cliff. Subrpime borrowers are a small, small part of the consumer market. That’s a low-end consumer who was not, even in the best of times, contributing all that much to consumer spending. If you’re worried about consumer spending, look at jobs and wages—they may not be doing spectacularly, but they’re doing well. That’s what fuels consumer spending.

What would it take to change your mind about the market?

A lot more selling: If you’re aware that panic is out there, you’ll know when there is a stampede you have to pay heed to, whether it’s correct or not. A real systemic crisis: If a big bank fails, I think that would be a reason to stop for a moment and look at what’s going on. But you have to try to separate panic from reality; you have to look at the actual damages, the actual costs.

When does this turmoil end?

At some point it will burn itself out, maybe even today. But let’s see what happens tomorrow.

WASHINGTON: The Federal Reserve said Friday it is taking bigger steps to ease the nations credit crisis, including increasing the amount of money it will auction to banks this month to $100 billion.

The Federal Reserve said it will raise its planned March 10 and March 24 auctions to $50 billion each, up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.

Fed officials said in a statement they planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed.

The Fed also said that starting Friday it will enlarge another series of transactions, called repurchase agreements, so that they will pump a net total of $100 billion into the financial system at any one time.

The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit. The central bank started its new type of auction in December to provide short-term loans to banks in hopes of keeping them lending.

Economists say the nation is teetering on the edge of a recession, if one has not already begun.

The picture worsened just after the Feds announcement Friday when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.

NEW YORK: The economy unexpectedly shed 63,000 jobs in February, the government said Friday, fueling fears of a recession as manufacturers and construction companies cut their work forces amid the continuing housing crisis.

It was the fastest falloff in the labor market in five years, and the report raised anticipation on Wall Street that the Federal Reserve would lower interest rates again this month. Some investors are now predicting a more drastic cut of a full percentage point.

Stock markets dropped after the opening bell but had recovered by 10:30 a.m., with the main indexes on Wall Street fluctuating in and out of negative territory. The Dow Jones industrials fell slightly while the Nasdaq composite showed modest gains as investors weighed the bad economic news with the prospect of lower interest rates.

Stocks sold off Thursday because of a new round of problems in the credit market, and before the jobs report was released, the Fed announced that it would increase the amount of money available through its new auction program, in a move to ease the flow of credit between banks, businesses, and consumers. The Fed will release $100 billion in additional capital as part of its effort to make it easier for banks to borrow money from the government without the traditional stigma.

But the focus Friday was squarely on the jobs report, which revealed widespread cracks in the U.S. labor market.

“I havent seen a job report this recessionary since the last recession,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington. “This is a picture of a labor market becoming clearly infected by the contagion from the rest of the economy.”

Many economists had predicted a slight increase; instead, February marked the second straight monthly decline in the labor market. The government also revised down its estimate for January to a loss of 22,000 jobs - the first decline in four years - and cut in half its estimate for job growth in December.

The private sector lost 101,000 jobs last month, the biggest dropoff in five years. Retail stores shed 34,000 jobs, while the manufacturing sector lost 52,000 workers and construction firm payrolls shrank by 39,000 jobs.

Would-be workers are also feeling more discouraged. Fewer Americans looked for work in February, and the size of the overall U.S. labor force declined. Those developments sent the unemployment rate down to 4.8 percent last month from 4.9 percent in January.

Wages grew more slowly, further depressing the outlook for consumer spending over the next few months. Among rank-and-file workers - more than 80 percent of the workforce - average pay grew just 0.3 percent to $17.20 an hour. Wages are effectively running flat when adjusted for inflation.