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Moody’s Chief Economist John Lonski on where to invest in this market environment.
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And there's a lot of money flowing into stocks over the last week Lipper analytical reports that equity funds -- an eighteen point three billion dollars in the week -- Wednesday which is the largest inflow into equities.
Believe it or not since.
2008.
-- -- -- John Lonsky chief economist for Moody's capital markets -- -- -- to seal team here OK so a lot of people kind of start -- when we talk about trade gap but it's noteworthy today because November expanded by a much wider margin people were expecting causing banks like Goldman Sachs.
To lower their outlook for economic growth in this company.
-- the markets are holding up -- -- the five year highs on yes and peak where's the disconnect.
You know what it is it turns out that practice widening of the trade get it indicates a stronger world economy the US imported more because US consumer so are expected to spend more and exports actually grew monthly but I must be at the year over year growth -- what's.
-- slow from nearly 12%.
A year ago to purely.
2.5 percent today.
You think this is actually good news on the trade deficit.
But why don't we see a reaction in the markets well you know as it does signal.
Overall together of growth of course markets don't focus on at this as news from back in November the markets -- what what's happening today January 2013.
So specifically wire people pouring into stocks is that just giving us the best returns and you look at other asset classes cash bonds not.
That's basically it investors expect that.
Interest rates will remain low indefinitely.
They're beginning to believe.
And Ben Bernanke that perhaps it will not be.
Until we're well into 2015 that the Fed begins to hike rates in if that's the case equities are the best deal on top.
Provided that earnings do not disappoint badly.
We're coming into a busy earning season really in the Russell force next week lot of big name -- report and the forecast for for a little bit of -- downdraft so.
Could a disappointing earnings season really -- out of the sales -- this run so we are right now that's the biggest threat to the equity market you wouldn't be surprising if we have somewhat of a correction after a strong start for the new year.
That said I know -- economists but you have any advice for investors can tell me.
-- headwinds.
To economic growth -- were talking about earlier and in Washington.
That such an overhang right from Washington all these cliff debates so what's what do you do with your money really is is there -- no -- -- -- -- But let's have a look at bond -- they are just so very low but look we can't heal -- they -- right now that's incredible five point 8%.
That's just several percentage points above the dividend yield of 2% that gap has never been so narrow.
So perhaps as a stronger case to be made.
Or invest the inequities and staying away from high yield bonds.
It's perhaps not a bad idea -- you -- would increase your exposure to equities on the premise that earnings are not gonna fall through the war.
And that the over time.
The price appreciation of equities -- the growth of dividends will -- -- one high yield bonds as well as investment grade bonds.
And really more simply he stay cautious -- by the defensive names consumer Staples utilities or some skin.
Go to technology -- go to some of and faster growth companies look at the out.
Look for economic growth fell we're expecting only 2% growth there's really not much of a margin of error for the downside so why would -- recommend investing conservatively.
I'm lets you can afford to take up above average risk.
Obviously depends on how many years of work you have ahead -- you up with retirement you are.
Which brings me to my next question for you and that's inflation had Philly Fed president Charles Plosser actually -- of inflation.
Do you think that's a legitimate warning no.
You know -- right now -- are wages are growing by less than 2% annually you know labor cost there -- -- rising by one half of 1%.
Back when inflation was -- the major problem.
From 73 route 81 you don't labor costs were growing -- nearly 8%.
Wages average.
Wrote that an excess of 7%.
And this is over in nine years the end we're not even close to -- so I think it's far too early to spread over inflation until wage growth.
He -- to approach 4%.
-- for that happening any idea.
You don't see that happening to me that 4% wage let me ask you have been flat for like tears as -- -- a minor bump up in the last read but nothing to get excited yeah.
We also would in in total employment income is showing its slowest growth of any recovery since the Second World War so if it turns out.
Consumers simply lack the purchasing power to sustain.
Eight persistent rise.
Like ramped up price inflation -- mentioned politics quickly earlier point this.
Deficit crisis were in unemployment being at crisis levels of debt to GDP number it's just -- -- be elevated this is the new normal force is now yet lets you have a new Treasury Secretary anything special data but we're gonna happen world -- -- drive a hard bargain.
With congress and that perhaps president -- that does not improve the outlook much.
On the other budgetary front so you're not a fan -- Jack that he wouldn't vote -- had the opportunity will help -- -- -- -- Hair elected give it outlets like if I'm John -- thank you so much for coming you.
