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Kevin Flanagan of Morgan Stanley Wealth Management on the fiscal cliff and his outlook for the markets.
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See investors suffering from a little fiscal cliff -- with Kevin Flanagan says it don't look away because this could get.
Really ugly -- Morgan.
-- chief fixed income strategist take had a looking at the yield on the ten year it's -- what about one point 65% it doesn't look like there's been any kind of seriously.
Nervous market reaction to.
How these talks have not progressed what could happen if we get to this debt lie -- and not -- -- Well you know I mean we're right smack in the middle of a range we've been talking about about one point two to 2% so the treasury markets in wait and see mode.
Three scenarios essentially if I can Lam out real quick to base case would be.
That you get some kind of compromise -- 37%.
Set at 396 but we don't see this sequester take hold back goes down the road I think that kinda keeps you in the range -- right now the other scenario would be.
Head dive off the cliff.
Treasury yields are gonna most likely come down will revisit the 139 level from July 24.
The other scenario is to grand bargain I guess right now it seems like the least likely but I think that would bring you up to the 2% quotient.
Britain.
Big picture though -- it almost impossible at this point other than a contest three situation to make money in fixed income.
I'm not just talking about treasuries but even other if you want to talk about -- other parts of the fixed income market.
Total returns going to be a lot more difficult issue you're not gonna see most likely the numbers you saw and 2011 and so far -- 2012 but I think you know you can still.
-- -- coupon and move forward from -- -- I still think you can eke out some positive returns especially in investment grade and high yield.
Because of it because inflation is still moderately low you buy that man.
Yeah you know -- inflation doesn't look like it's gonna be a problem -- regardless I think of how this -- think plays itself out the economy is gonna grow modestly at best and I think that's an environment where the Fed stays on hold they continue QE3 and that should still remain positive for the overall fixed income market.
-- -- nervous about Ben Bernanke likely leave leaving a little more than a year from now about.
I tell -- that's gonna be a big discussion I think this the year progresses you know everyone thought Romney administration would definitely get -- new Fed Chairman met what we're beginning to hear more more about his perhaps doctor Bernanke wants to retire so come January -- February 2014 we could very well have a new chairman but I don't think that's -- upset the markets until we get perhaps a little bit closer into a field who could the next fed -- -- But you don't think that they launch additional bond buying and not just mortgage security buying but.
Treasury buying.
Yeah -- twist ends tomorrow pretty much so I think what they are gonna do is start buying treasuries so I think QE3 QE for whatever you wanna call this new -- so there's going to be a lot like Q we won and so the numbers are about 85 billion per month it potentially could be -- as I said the Fed's gonna keep pumping the system up with the liquidity.
Kevin it's great to see thank you so much take care incredible insight Kevin Flanagan of Morgan Stanley wealth management.
Hi this -- some numbers are.
