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Are Middle East Investors Worried About the Fiscal Cliff?

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    Jefferies economist Ward McCarthy on fiscal cliff woes overseas.

  • Duration 3:18
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Japanese economy -- ward McCarthy just got back from a trip to the Middle East where he visited with business leaders in Oman and Saudi Arabia United Arab Emirates and Jordan.

But it's not the violent unrest in their region that is keeping the leaders awake at night instead it's -- about worries about things here -- America.

Washington DC to be exact joining me now is more.

Chief financial economist at Jefferies.

Warren thanks so much for joining us you know I'm actually surprised to hear this because I too was in the Middle East recently I -- a lot of companies -- Are bringing back local workers because they're worried about.

You know safety concerns.

And I really did think that was more -- you think they're more focused on the fiscal -- -- -- and he talked to the people I was visiting where are all.

Institutional investors.

Who are predominately.

Denominated in dollars yeah so there -- their primary concern is.

You know where can they find some returns what is the dollar going to do.

And they're very concerned about the fiscal -- excuse me that fiscal and political dysfunction in the US.

Because they're concerned it could lead to another downgraded US credit rating.

Yes I was gonna saving Abel let's break those problems apart we start with the fiscal -- They feel like the threat of a downgrade is real because there are a lot of people out there who think that -- -- sort of got over the Clinton has given fix this thing yet.

Well what we've had we've come close enough to the cliff that it has had an adverse effect on the economy and you can see -- -- In investment spending in the durable goods numbers and of course you can see in the payroll numbers still because.

Businesses do not want to be irresponsible hire people that they going to have to let go you know after a short period of time.

-- concerned about the dollar although at the same time acting like when I respect question people say well everyone's devaluing their currency -- everyone's doing their version of QE3.

So on a relative basis you know the long -- the dollar doesn't get hurt that badly they're not find out argument.

-- it sounds like.

Well.

Not everyone can do value at the same time but you're absolutely right -- a lot of the major economic players would love their currencies to be weaker.

I think the concern about the dollar stems from the fact that.

All of all the central banks the Fed is still the 800 pound gorilla.

So if they are going to do the biggest QE for the longest period of time that means that they'll be putting more dollars on the market than the other central banks.

And as a consequence that you know it could be reflected in a weaker dollar yeah I would also add that the US.

While claiming that a strong -- policy is in our interest for years.

We've had the dollar really -- -- over the past thirty years so this is really nothing new on that front war record before you go what are they see as the biggest opportunity and it does that their concerns where's the opportunity.

Well I think they they recognize QE3 -- what it is and that is an effort to.

Increase the value of risk assets so they they think that they have to risk their raise their risk profile.

And you know venture into more risky assets so in in addition to the lower credit ratings and in the credit markets.

There are also looking at equity markets and real estate you know -- -- -- McCartney banks cannot.

Thank you.

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