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Charles Schwab Chief Investment Strategist Liz Ann Sonders on the impact of Greece on Europe and the U.S.
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-- and all the Dow's been down ten of the last eleven days is our next guest says relatively speaking we're looking at a garden variety correction.
And there are a number of positive offsets that should be taken into account.
Joining us now -- sounds -- them -- she's senior vice president chief investment strategist at Charles Schwab and company and one of the countries.
Best and -- good to have you with -- Thanks but thanks for having me this this is a hard time to divine I mean I this this Pip -- economy with a bunch of work -- search and seemingly energy Los.
The Greeks.
It is and you're right that's the size of the Greek economy is about the size of Philadelphia's so it it is a little bit odd that -- so much of a focus the problem is.
We're we're dealing with this experiment now in the Euro which is -- started to fracture a little bit and then the potential experiment of one of the member countries leaving the eurozone implications for the banking system.
And I think there are a lot of questions that do not have -- answers.
It it it is are things appropriately ring -- had a businesses react to what I also though think that there may be a positive.
-- come here that's not quite as dire as many think -- Well it again that you could have -- at a situation where Greece does exit the Euro and doesn't cause quite the calamity in the in the banking system -- the contagion economically or in the financial system.
That's something like -- Lehman cause we had two years to prepare for this.
And I I think that's being underestimated in terms of an impact.
On on the system the system is much healthier US banks are much healthier.
-- -- I think you raise a terrific point and the fact is about a a fiscal union.
Which -- lack entirely.
In the EU.
I guess it's not a popular cliche or saw.
Our.
Our aphorism in in Europe.
But -- of whatever happened -- the the chain no stronger than its weakest link.
You know popping Greece out of there out of the eurozone would be just a -- a terrific idea if you're looking through.
Every job that would I would seem.
It would seem to be at least economic.
And it's and it's a question no of of how much that simple -- the banking system if you look at.
US banks' exposure to public debt of not only Greece but the ever other peripheral nations that make up the so called pigs -- Portugal.
Italy Ireland Greece and and Spain.
It's actually only about fifty billion dollars that's a fraction of what -- the exposure -- to say German banks banks are French banks.
But I think we still have this muscle memory of what happened back in 2008 I think there's really very little comparison between now and 2000 an aid terms -- help of the credit system.
But we have that muscle memory and I think we're dealing with it now from a market perspective -- It is interest.
And not to -- You know -- who.
Too far afield here but it is interesting to me at least.
That we've seen -- the money supply in this country really continue to expand.
Dramatically.
We have not seen that across -- across Europe.
We've seen rate.
There is great shipments of money arrive at the doors of banks in Europe.
-- but it doesn't seem to have infiltrated the the broader.
Economy.
The second -- -- you at all.
Well yes and no that's that's something called the money multiplier which measures whether all that money that's been pumped into the financial system is coming out -- loans and working its way through the economy.
Now lending growth is up in the US but it's not up to the same right agree that the Fed has pumped money into the system so that multiplier is.
Is still very low.
You need -- -- better multiplier to have a sustainable reasonable pace of growth.
But it's only at that point do you start to worry about inflation now the key difference between us and most other central banks in terms of things like money supply.
Is that our Central Bank operates with a mandate of core inflation so X food and energy because you know we don't use that.
Most of the global central banks look at inflation broadly.
So they've been quicker to react at least recently to this move higher commodity prices and try to rein in some of that excess liquidity that's very different than what we've been doing here.
And -- after all sorts of suggestions.
That -- signals from the economy and the markets more specifically.
That there is.
Deflationary.
Pressure if you -- or disinflation.
Are very pressure of when you look at the ten year note I mean we're looking like we we want to.
The move below one and a half percent for crying out loud.
We have all sorts of dissident signals here.
Give -- your your your read on the housing market.
The the bond market there as it relates to equities.
Look I think the Fed is in certainly in more control of the entire yield curve than ever before it used to be the case that they.
Purely just control the Fed Funds rate but now through quantitative easing and more recently Operation Twist.
They have this control over the long end of the curve and I actually think there's.
A growing disconnect between what yield say the economy is doing what the economy is actually doing in the good news recently as you noted.
Before we came on.
Was housing numbers much better than expected and I I wrote a report couple months ago saying at the housing bottom industrial production very strong this whole manufacturing Renaissance with domestic energy as a driver to that.
The good news is sure.
We should know capital -- at -- at Saunders has been joined.
In that outlook are a number of very large institutions.
Are here recently it's hardly standing alone just.
Just -- I'm just now I I I think that housing has bottomed and this domestic energy domestic manufacturing.
And the key there is domestic I think there's a lot -- be very hopeful about.
Right here in the US it really have -- have been very little impact from from what ever happens in in Greece I just don't think we're quite out of the woods yet in terms about uncertainty.
An -- a correction how much longer the correction how much deeper the correction.
Don't have what and I love to know the answer to that I do think it's probably going to be limited to be typical five to ten.
As opposed to the fifteen to 20% -- correction that we had not only last year but the year before but.
That's just you know one woman's -- that's.
Well.
A woman who has got a heck of a track record -- -- and and then thanks for being here we appreciate -- presents islanders were Charles.
