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Federated Investors chief strategist Phil Orlando gives his outlook for the housing and equity markets.
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Around the globe but we got good news this morning new numbers on home building.
In particular building permits now running at the highest level in nearly four years.
But how -- only accounts for part of the loss of wealth that we felt -- less several years.
-- the latest census data shows good portion of those big losses also came and the stock market leading many to believe are recovery.
Could be led by equities to set of housing and Phil Orlando as the chief equity strategist for federated.
Investors he joins us right now as you look at the losses and stock funds when things got tough is that right -- that the stock market holds the key and -- so.
What do you make of the outlook I think it's a timing issue more than anything that that the the stock market certainly had a terrible moved down from the 07 to -- nine period.
But in the last three years the stock markets double.
So those investors.
With a presence of mind in the courage I guess to stick with that -- put some money to work.
Have seen their IRAs and 41 case and five point -- to really really well the housing -- on the other side is is is flat on its back at this point but we do think.
But the housing market is bottoming right here you'd -- you guys referenced the permit numbers this morning which were terrific yeah.
The housing market index which is another leading indicator the we look at that came out yesterday has doubled over the last nine months fourteen last September 29.
Posted yesterday so we think the housing market for -- number of reasons is is gonna achieve the bottom this year and start to move up.
We think the equity market is gonna continue to move up so we think composer to asset pools that.
That that for investors -- they they continue to stay where they are.
-- gonna continue to do well and and recover some of that wealth over the next couple -- you think that from now until distended a year tick in stocks we can get a sustained rally from absolutely we put out a note to clients two weeks ago.
That we entitled sell and make -- June.
That that we felt that the that the collapse that we saw on the stock market down of that 1260 level in the aftermath.
But that terrific jobs report.
Who was actually going to be the bottom of the market this year and and we've seen the market rally now about 7% year over the last couple weeks we think that move is gonna take us up to about 1450 level by the end of this year you guys are just not being kind used to -- you're.
This using the cliche -- because usually -- also -- -- way -- be sure thing but you guys came back in -- we thought there was I would agree that we thought that investors yeah overly pessimistic and there was series of issues the first of which was the Greek vote on on Sunday which we thought I was gonna -- benefit which was favorable I wanna ask about the Federal Reserve to cut all the stock markets up and today -- 109 of the -- -- because.
Of the housing numbers the data talked about but also because people are expecting the Fed to do something and -- -- what you think what is that something what can the Fed realistically actually do well that that would help stocks at this point in chart here here's the issue you've got Operation Twist is gonna expire at the end of this month.
So the Fed needs to do something what we expect to see over the next two days are two things number one.
We think the Fed will extend Operation Twist in some form number two we think the Fed will renew its commitment to keep the funds rate at zero we do not expect to QE3.
Right now because we don't think number one that the economic news is that bad number two.
We think the Fed wants to keep some powder dry in the event that there is some global catastrophe.
That does push the US economy lower the Fed needs to keep -- bullet and reserve.
Is that super low interest rate policy though we have 0% Missouri short term us rates and it did -- on the historic -- longer term rates at historic lows.
Has that really done much for pushing money into the stock market you have not seen that.
In equity fund you've seen money flowing out of equity funds from individuals and -- it really helped housing that much can people really get mortgages.
Think you're right that that interest rates right now are particularly mortgage rates are at or near record lows but that's not what the driver is right now.
Alluded -- the Fed monetary policy has not -- -- -- militants in terms of the marginal changes was three years ago.
What we -- right now is is is greater fiscal policy initiatives.
That the Federal Reserve monetary policy standpoint it really Donald can do but from a fiscal standpoint we're pretty much walked in told election -- -- what's gonna drive the market here is the fact that that stocks relative to bonds -- 80% undervalued a couple of weeks ago corporate earnings are still growing pretty well.
If we can get some resumption in the labor market in the second half of the years we think possible.
We think that the market will -- to continue to be able grind -- we're gonna talk about this whole fiscal cliff you know scenario little bit later on this hour actually but they did.
You here's -- sure as optimistic as you are you're gonna bet that's basically nonsense that at the end of the -- those guys will figure out what city it's not not say it's it's a serious issue but right but that -- don't -- -- -- -- -- they'll do something that the biggest within our expectation is that a we will get to election results in November and that beat.
Whoever though the move the new people are alike either in lame duck -- the beginning of next year are gonna are gonna come to an accommodation.
So we think the easiest thing to do at this point.
It's a sort of extend all those deadlines until middle of next year right which gives the new the new Washington if you will six months to sit down and put together.
An intelligent of entitlement and tax reform to be able to get those issues dealt with intelligently all right felt.
They'll thank you sound -- -- land -- on stocks.
