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Jim Lebenthal, Lebenthal Asset Management president, on the chances of the economy falling back into recession, and how this will impact the markets.
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With those weaker than expected retail numbers.
Who will be heading into a recession next year.
Jim -- and all of Lavin -- asset management says in many ways yes but it won't be Ed disaster again union welcomed today's show.
You heard what Adam just had to say that the consumer which accounts for 70%.
Our GDP they're spending.
They're pulling back and they pulled back this year they pulled back during the holiday shopping season how close are we to start getting into the stock are running into a recession again.
I think we're pretty close -- -- but I appreciate your putting the qualifier on there that we don't have to go into a panic there's a couple of reasons for that one.
If you look at the stock market which is you know mainly where people place risk bets on on growing their assets.
It is arguably fairly priced at some time it -- somewhere between thirteen and fourteen times this year's earnings so it's not like there's a wild overvaluation.
That needs to be corrected.
Nor is this like essay in 2000 where we had an over investment boom from Telecom and tech spending.
Or like 2007 with a housing boom you have none of those imbalances the financial sector is in great shape.
So even though the GDP of the US may be flat in the first half of the year which is kind of what we think it's going to be.
That doesn't necessarily mean the stock market's gonna come off we do see perhaps another 5% down in the -- in the stock market.
As the stock market comes to grips with the fact that profit growth is going to be flat at best in the first half.
This year OK the one problem with that kind of bearish forecast of another 5% -- -- outside -- modestly.
Is that I mean a lot of people -- bearish at all year long and if we look we're now at year end and the S&P 500.
Up something like 13%.
This year and all the bears missed out on that.
You know it's a valid point you can argue with the numbers that the S&P 500 is even up 15% when you include dividends and I for one thought it best it would be up 10% this year so I'm.
I'm in that camp.
Having said that you know we obviously can't drive in the rear view mirror we have to look ahead.
I'm I think I'm being realistic as opposed to pessimistic I think I'll if you don't mind don't shed the bear label 'cause that's not really -- my hardest I am optimistic on things going forward but realistically.
If I look normally retail sales but perhaps freightcar loading says an indication of the overall.
Movement of goods in the economy they really are down year over year consistently that the past month.
So you know we just see that things are pretty tepid not disasters just tepid for the first -- About this fiscal Clinton and the gridlock that exists in Washington -- mean it's almost certain that we're not gonna get a deal by the end of the year we are impressed saying where -- on -- on tax cut and tax hikes and spending cuts.
That could -- fact virtually every taxpaying American that's out there.
What's the market gonna do and how quickly will it -- that hang on and have this hanging over and that Washington is imposing on us.
Obviously very hard to predict stock market movements in the short run my best guess having from that would caution to the wind.
Is that in the first week of the year if new resolution is on the table that the stock market will sell off.
Similarly to what happened when TARP was voted down in fall 2008.
That will have a huge yep that was eight -- under our next several hundred points that will get some religion into the politicians in Washington and -- -- get their act together and make some sort of resolution.
And certainty is what we're looking for here it's not so much that we need the fiscal cliff resolved one way or the other.
It's that we need certainty we need policy to be in place of that.
People and corporations know how to spend money go although that's certainty that promised by the Clinton would go over -- pretty bleak right two million more job losses the nation would go into recession again it doesn't have to be the in the world but at some politicians certainly -- -- -- how -- -- to you guys are now decide you know what.
Or don't know the Clinton -- -- -- -- -- -- they get this thing done.
By the -- yeah.
These aren't like crazy we're even DC doing any -- today that I don't like.
Look things can happen we've seen things happen on a short time -- I was amazed when I woke up this morning -- checking all the news fees and everybody was so enthusiastic about possibly deal coming together.
Absolutely nothing from an evidence point of view would support that throughout today and say three days ago but you're absolutely right -- that things do happen on a short time -- Well they say one more thing you're absolutely right of course -- the fiscal cliff is this advantageous to the economy in terms of jobs and taxes.
But if we know that we're going over the cliff that actually provide some policy certainty that allows corporations to act within the certainty.
Of the new tax regime comes out of it so and also it'll help the deficit I know I'm speaking anathema but.
That's bet that is certainty area of certainty is the certainty of you of something went in the economy today it could could make -- right at some point all right well thank you very much -- Leventhal appreciate your being with us and.
