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Moody’s Chief Economist John Lonski and Deutsche Bank Securities Senior U.S. Economist Carl Riccadonna on the potential consequences of reaching the...
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I may surprise some that December is historically the strongest month for investors the S&P 500.
Posting gains in December 82% of the time since 1990.
It's at 18% that should troubles some folks but are.
Our concerns over the fiscal cliff giving investors a reason to be -- less than optimistic joining me now and John Lonsky chief economist for Moody's capital markets.
Karl -- Obama senior US economists regard -- bank securities Joan thanks for being here let's start with.
The Treasury Secretary.
Demand inch -- charge of our treasury.
Is out telling every one.
That the administration he works for is a part -- is perfectly prepared to go over the fiscal -- In order to raising tax rate to 39.
Point 6% does that make any sense do you are you shocked -- -- Well I I guess that no surprise given that weren't still in the early stages the discussion but for the economists and forecasters out there who are calling -- -- fiscal slope.
Not a cliff -- believe that it's may be worthwhile to go over the cliff.
But it's certainly is not the case it is without a doubt a -- at 600 billion dollars economy cannot withstand that sort of shock -- It's already slowing in anticipation of the cliff 600 billion dollars in tax 600 billion dollars of spending reductions and tax increases.
The economy can't handle that without a doubt we head into recession if we go over the cliff.
Are you are you an agreement with caught him -- -- absolutely right nevertheless the markets have effectively -- you -- equity markets keep going higher corporate credit market improves.
Commodity prices are rising.
In the ten year treasury yield is dipping to a new lows I can't figure this out.
Everybody -- Mena that I know this -- -- and that's what worries me somebody has to be wrong and wrong big time -- yawning and.
So they don't that's that's the concern I know this would.
Perhaps been stunning and alarming to your congressman here who would never -- themselves being wrong on this but is there are some possibility.
That everyone is wrong about this that these are actually men and women of goodwill in both parties.
We're going to come together -- one great warm embrace some time before Christmas Day and give the nation.
Such -- rate boost of spirit of goodwill.
And and reach agreement here.
We're gonna see -- type of.
Sense of brotherhood.
Or sisterhood anytime soon in Washington.
And I'm still convinced.
That they are not going to come to an -- -- on the fiscal cliff unless compelled to do so why.
In adverse external event such as a sharply lower equity market.
And and ways you know I can't imagine.
Market ever going down -- -- its -- job is suggesting here simply because -- government chooses not to function.
If it means what heading into recession the markets will react and in a typical bear market stocks sell off by about 20%.
That would be great to have a big compromise before year end.
But simply time is running out how to not -- how is it that a Treasury Secretary responsible for the integrity of the markets responsible for the integrity of currency.
Responsible -- deed for the financial system.
This country largely broadly and internationally.
-- would sink to the level have been a political.
Operative.
Making statements about we're going over the fiscal -- -- ready to go the president has put him in charge of the negotiations from -- -- when you thought well what he's wearing two hats at this point in time.
But what the one point worth considering here is yes there's a big complicated negotiation that -- take place.
But there's -- very.
There's some very low -- it about it but this isn't easy low hanging fruit and accredited granular here they're not yet complicated about this by may say -- what facility it was pretty -- -- well -- they're sixteen trillion dollars in debt.
For which we are responsible.
There is any one trillion dollar one point 04 trillion dollars deficit projected for this year will be the fifth.
By your -- that we're looking at this this kind of number.
We're going through as folks used to say when I was young a law this country's gonna Helena hand basket -- we don't get our act ago.
And right now we still have time -- dollars not -- we don't have treasury bond yields soaring through the roof things aren't you have -- the Euro is -- -- against the dollar I mean isn't that embarrassing well that's not a great concern to the administration -- to congress to me this makes US exports all the more competitive and we benefited salsa or.
So let me see if I got this right we should -- say the hell with a sound dollar let's embrace that strong competitiveness and -- the last I looked at the trade deficit.
We were again.
Laggards and sucking pond water.
We have a rising deficits stripping at least a half percent copper GDP and let's not forget -- right now Europe is an eight relatively deep recession either I was still you -- cold -- You jumped all over the punch line.
But because it IE he talked about things -- making -- -- this isn't me it's that it's and I'm delighted so because that means a lot of people still have some wild left in the equities market in the bond market.
How Long Will that be the case -- we over the square.
Will be the case for long if we have -- -- a recession followed by a typical bear market.
How long to get to recession if these we can get their rules -- what they bite we can get their pretty quick in fact some of the downdraft sorority starting to.
Warm we saw in the Q3 GDP numbers that capital spending business investment plans out were already thinking into contract -- -- that was yeah point seven.
Are -- make the see some signs of this in the upcoming employment reports for November and December were I would be surprised if gains in private sector payrolls.
Are well under 100000.
New jobs that would not be that would not -- The baseline at least I think for passable would be 125 or -- what your judgment.
Up above the same OK that's a C minus grade and you get up to receive it -- -- different -- There we may -- saying a deal looks.
Analyst thank you very much appreciate it thank thank you very here John Lonsky -- -- about much more.
