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DC to Blame for Sluggish Economic Recovery?

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    Cumberland Advisors CIO David Kotok on the outlook for the economy.

  • Duration 4:46
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While most of us are bracing for the impact of higher taxes -- today our fiscal and economic turmoil is hurting the rest of the world.

The World Bank today releasing a sharply -- estimate of global growth this year my next guest says.

Blame the politicians David -- -- chairman and chief investment officer of Cumberland advisors.

Joining us now -- David welcome to -- you're not alone.

Under criticism of Washington have given where we are we have this fiscal cliff deal -- it is a reality what should be done now to just preserve what we have of economic growth.

Well -- and they could do it but will they do it.

And here we have a White House that launches a new attack on the Republicans we have -- Republican response we're back in -- firing salvos again we're re playing the theater.

And as long as we replay is here in the markets are doing something else markets are saying okay this is the new way we're gonna do it.

We're gonna go to the eleventh hour and then they're gonna make a deal so long as they make that deal.

We have continuing although it slow economic recovery and we have pricing markets and asset prices.

If one of these days they don't make that deal.

We're in for -- shock.

So you're just tired of it I know you -- your economic growth forecasts that you agree with the World Bank lowering the whole world's growth forecast I I think so Lori but I think the driver for us.

Was that tax hike on the -- -- -- in the United States although that doesn't have a lot of negative impact on the economy.

But the tax hike on the working men and women a 120 million people.

That 2% payroll tax.

Is it killer and that's all consumption it has a multiply those people spend that money they don't have it they retrench savings.

That was a mistake it was bad policy I took -- stand in the US by half a point for 2013.

I think it's gonna disappoint us.

And you're telling me an agreement that the economy has all the potential in the world right now to break out how much of a headwind is this fiscal policy going to get -- -- -- -- -- If -- growth forecast out is there any way to recoup -- any offsetting fast.

-- -- unless Washington changes its behavior which is not likely.

-- -- to say it's not likely.

Then the answers no.

We have this gradual recovery it.

It will accelerate over -- -- good pieces -- it energy housing the banking sector actually may be getting better lot of good thing let's be -- Stick on our Washington leaders what if they can achieve a grand bargain.

Get entitlement reform and then we can sustain this jet.

Debt to GDP level for the time being so that we can get the underlying measures -- would be -- it would be a glorious outcome are you optimistic at all that can happen well I'd like it to happen but the practical effect is our managed portfolios I don't manage policy future while I manage policy I was.

Yeah managing these -- -- right now gonna be accommodative fed has been very bullish for the stock market interest rates will remain -- store closed for a long period of time.

Slowdown means.

Stretch it all out low interest rates for a long time gradual recovery that's very bullish for stocks.

We're fully invested we just need you to be the secretary the treachery.

May yeah that's what you know you could run a policy would be terrific.

You're very kind David but the only thing I have on Jacqueline is better penmanship and that's got off -- this I think it's good.

On what what -- a fixed income products.

Our interest -- well I what I worry about treasuries -- look for spread product so at doing you can buy the highest grade.

Tax free bond that pays you -- 3% coupon today.

And that's a bond that has a zero default history of the last hundred years.

And you can -- US Treasury's thirty year obligation it's comparative security and it pays you 3% interest in the next years.

The tax arbitrage -- the tax code is eliminated that's silly.

The tax free bond is the bargain because it taxable equivalent yield would be over five -- now.

If they make a deal on the debt deal that eliminates tax free bonds which is being attacked.

That's actually -- being attacked by the White House -- it's changed and the markets are.

Are pricing in a risk that that may happen okay which means if it doesn't happen tax free bonds are cheap.

Bigger picture we saw huge inflow into the equity markets last -- deliver -- -- was shocking -- -- a lot of people.

Are are you seeing a rotation out of bonds disease rates have been low for so.

What we had massive inflows into bonds.

So -- up that early data would say there's a shift but the potential first shift to stocks.

Given the relative yields and the potential I think is quite good very large -- like.

David -- -- thanks for sharing with us your outlook -- think that's great to see a nice to see you thanks yet.

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