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Moody’s Chief Economist John Lonski on bank downgrades, the outlook for the markets and Bernanke’s forecast for the economy.
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Joining me now tonight's market master John Lonsky chief economist for Moody's capital markets' John good to have you here.
Let's start there -- with a -- I mean this was this thing started weakening and it it it went south and are.
What the market did finish sharply lower with the market is still well above its recent lows from earlier in June late may it's not do we all that -- it's not a total surprise in the market was -- higher in anticipation.
That the Fed would -- extend monetary stimulus that he did that.
Classic case of what you gotta -- read that part of me did you say -- Operation Twist classic case of -- 67 billion dollars in.
But protracted -- took a look at the global economic news was not good it's subtly indicates the Philly Fed index right was negative.
In fact very negative we also flying that be a preliminary reading war Europe's have man composite PM why.
Was in a attractive range once again.
-- -- over.
China's manufacturing.
PM why.
Was under the break even mark of fifty for an eighth straight month the global economy slowing the US economy is slowing so investors are beginning to question.
What we're is growth gonna be coming from there you track all of this.
Back here and we're talking about August September 2011.
Just before we're servicing things bounce back and in October.
We saw turned in the market -- are you expecting this to be a summer of continued stress in the markets of pressure.
Are you looking for perhaps of some morality is the -- result I think over the near term perhaps up until the elections -- -- the outcome of the November elections become -- We're gonna -- a situation -- the market twist and turns to -- what might be described as a restless summer.
Will be moving up moving down very choppy.
Now you work for the -- home movies and I know you can't comment on the downgrades.
I won't tell you the names of a lot of folks down -- Wall Street -- color movies tonight and we know Vikram Pandit Citibank has come -- with the statement saying they don't much like the way Moody's.
I care about whether either -- methodology or the result was thought -- that way.
I -- -- it's kind of helping to start seeing some tension between the ratings agencies.
And the and the companies that they knew that there cover.
And we -- -- also consider that some of these downgrades were not as deep has had been feared we find it certain.
Bank -- stock prices are now -- hired after hours trading as a result.
But even before these downgrades -- for some time we have have to credit spreads other and that's been -- -- banks and well above what the average -- to previous recovery back in the previous recovery.
There was a 77 basis points less of a percentage point you know when you say previous recover if there -- a lot of folks -- in the world with that previous 2002 through 2007 that's when the recovery was in back then.
The yields on -- -- up corporate bonds of major financial institutions -- less than a percentage point higher than comparably dated treasuries today that gap is about two point six percentage.
Points -- As weird as always from you and I -- are already over but our wanna I wanna turn real quickly through Bernanke's comments in which you talked about protracted.
Stubborn.
Unemployment.
Numbers.
He talked about stubborn.
News.
Slow growth rates as well.
Offers some hope for three plus 22 -- three years out well -- I don't like this new normal and the -- acceptance of the Fed Chairman straighten me out.
Here go where -- long term growth rate.
They forecast the economy's gonna -- 2.3 percent to 2.5 percent over the long term.
That's what we're going to be averaging we used to grow by 3.2.
Percent.
-- a -- lengthy period of time I think the Fed is also telling us they can't do what all it would perhaps help with the Fed got some.
Assistance from other central banks namely the European Central Bank.
And any any problem about maybe its fiscal policy kicking in to work -- well what I think would you wanna consider is that if we do follow through with fiscal austerity.
Treasury bond yields are we going to remain exceptionally low equity does not just -- austerity I event simple prudence.
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