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HS Dent CEO Harry Dent and IHS Chief Economist Nariman Behravesh on how the economy and fiscal and monetary policies will affect the market outlook.
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GDP growth rate dropping to one point 5% in the second quarter can the US keep growth positive.
Or are we heading perilously close toward a double dip.
It's time for street fight today's fall as I age as chief economist -- bearish.
-- -- is HS -- CEO Harry -- even though these guys -- an opposite sides we -- both they both have used -- Harry I wanna start with you because on a day when you see double like triple digit rally like this.
It's kind of hard to make -- bearish case but.
Central Bank movement is is all of the air from the start -- rally coming from central banks pumping it up and is it a balloon about to bust.
This is a very simple story every time economies get weaker and especially in Europe here recently we've been predicting.
Governments come up -- bigger stimulus plans the bigger the stimulus the greater the sign.
That things are getting in trouble Europe has been mushrooming very rapidly -- weakening economy.
Short term debt ELA target loans all types of things people don't see under the table.
Have been mushrooming in the last several months LTR old one point three trillion dollars did even last a couple months before your went down sort of they don't.
Upping the ante and of course the market plummet markets on crack like more cracks the markets are probably gonna rally for another couple weeks on this.
OK -- -- -- the same question goes to you as the bull is this a bubble about to burst -- we're talking about a government.
Or a federal type of -- that large scale.
Asset purchase bubble starting to pop.
I don't think so and in the sense that what we're looking at here is the alternatives are pretty young palatable.
There what's the choice for the ECB you let the ship go down.
Please try to hold -- -- you benefits using temporary -- any measure and I think that's really what's going on here so I think from that perspective the markets are relieved.
That somebody's taking this problem in Europe seriously says that sense of relief more than a bubble I think that's what's going nominal markets that.
Well Harry what -- I'm wondering when it catches up -- the markets we get we seem to have contradictory policies gone we have fiscal policy.
That is sort of against -- or at least it will be when we come to that fiscal cliff when we see a lot of penalties towards investors a doubling of the capital gains rate.
In less we have some kind of action on the part of -- -- policy makers in Washington and that we have monetary policy that's aimed.
At increasing investing -- it seems like you have conflicting interest between fiscal and monetary area.
-- their -- but of the monetary policy is trumping and it's having to be the more active.
And that the net effect of this it's not doing much for lending this money goes into the banks and after they cover their losses.
And and their reserves -- thought they just reinvest that in government bonds and other investments and push up the market so one of the things that did burst this bubble is when the markets get pushed so high by stimulus.
-- this of recoveries been totally due to stimulus.
-- then they eventually burst then when they burst it takes down the economy's.
Here -- -- why fight the tape you're not wrong.
But if you're an investor I'm not fighting this -- -- where we are putting ideas right now then why not be bullish -- markets at least short term.
We we are short term bullish.
We were bearish short and we thought things were gonna weaken in Europe we saw signs of weakening rapidly but it when Mario Draghi came out yesterday and so what he said.
But you cannot -- perhaps the markets will be up for a few weeks I think you're more likely to be.
Another correction between mid August and October but right now no I would not be betting -- -- -- there are there are -- what about you long term are are you concerned as we approach that point where taxes are gonna go up and we'll see a lot of punishment for investing.
I don't think so -- my guest says and our best guess is in terms of the fiscal cliff.
Belt belt -- Out the the tax cuts at that the tax increases no faith in the the spending cuts a bit gradual sort of tightening of fiscal policy.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- capital gains.
Come January 1 won't that have a direct effect on the market.
I doubt very much at WW capital gang that's right -- that's why are going to happen to you about -- guys -- watch and they don't seem to get any kind of deal.
Might not understand that but -- to begin -- I I don't -- he's certainly nothing's gonna happen before the election.
And I suspect given that the economy's weak they're not gonna tighten.
Either explicitly or implicitly come January 1 sort it -- -- when he fourteen story just outside -- -- clear about that gentleman.
Let me get your opinion on the breaking news that Timothy Geithner our Treasury Secretary will be going to meet with Mario Draghi and and obviously something may or may not happen we we don't know but -- you first.
Is this a big deal.
I think it is we've been saying it's inevitable we're gonna get a QE3 -- the United States.
In more stimulus in Europe but 'cause QE2 is wearing off stimulus wears off it's not real.
QE1 more often we had to have QE2 we want to almost zero growth now QE2 is wearing off one and a half percent GDP.
Vs 3% -- two quarters ago.
And and -- Europe is quickly falling into a deeper downturn because they keep piling more debt all these bailouts and LTR it's all down on the banks over there.
And so it's only weighing down the system more so take more stimulus stopped at the slowing many get a bump in the goes out at some point the system -- so stretched.
That did it just takes something to -- it and it falls apart before the government's -- but but you know that this is a story weakening stimulus.
You know -- come back up weakening stimulus you can't do this forever past Japan Japan's gone nowhere.
For two decades doing the same type of policies we're doing in Europe united.
All right -- -- -- crash after crash we squeeze we started with -- -- let's end with the -- airman.
What about the Japan model what is it different about the United States right now from Japan that would prevent us from going in -- kind of slump they've been in for twenty years.
-- -- -- Optimistic things about the US.
Is the strength of the private sector.
We have a very dynamic very competitive private sector that Japan does not happen it has a few good companies but the rest of the private sector is is basically Third World.
That sets us apart from Japan.
I don't worry about it -- -- -- -- for the US.
I think we've got a lot going for us we've got a manufacturing Renaissance and a half.
Hands we've got low energy.
We've got to chemicals industry that's going on energy industry that's going well I don't worry about the Japanese model for the US and for -- yes not for the U us.
-- come -- CEOs on the phone for you.
There for a bag of there being not such good to see him thorough debate guys chairman -- -- at a hair.
