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Stifel Nicolaus portfolio manager Chad Morganlander and Wells Fargo senior economist Mark Vitner on whether the markets can survive without the Fed st...
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What's the question everyone's asking what will the economy in the markets do without the -- Chad Morgan land -- portfolio manager at steeple necklace and market near Wells Fargo senior economist.
Joining us now -- the market used the economy's.
Not and prices at this point for the latest fed chatter in debt on but the headwinds that we're facing today.
Do you think that we hear the markets can really survive without all this fed stimulus.
Well the Fed's is not about to to take the punch bowl away just yet.
But but their right to be discussing.
About what the proper timing as.
I think there's a sense that that the Fed's gonna keep on buying 85 billion dollars in securities month after month all the way through 2013 and a good part of 2014.
I think that's just too long -- time horizon.
The economy is doing okay.
And -- okay that we've grown to two point 1% annual rate since the recession ended.
How we have that decline in the fourth quarter it's going to be revised away.
And in the middle -- this year on July 31 we're gonna get revisions the GDP data going all the way back to 1929.
In what we believe they're gonna show is that.
That -- -- little -- stronger than people think that we Bernard at 2.4 percent pay less if the recession ended and that growth is actually stronger than that.
In in 2013 and that kind of environment yes the -- should be thinking about.
Taking the punch bowl away may be even by the end of this year.
Perfect setup for a chat -- -- sitting next to -- I know that you're very contrasting opinions.
Well I believe is that there's the Federal Reserve will continue to monetize.
Because -- -- do laid out.
That they're gonna -- very that they're gonna look at the inflation expectation up to one half percent and unemployment is six and a half percent -- continued to do that at 85 billion dollars a month.
But until they reach that inflection point.
Now the US economy is growing at stall speed around 2%.
And we're at a point in time win -- with the financial markets.
That -- the financial markets to move higher in particular -- and 500 you're gonna have to see the baton pass from this liquidity driven rally.
To more of an economic and earnings driven right.
And -- that you see you're saying that this past earnings season which some argue with spectacular.
Corporate earnings 90% of them beating expectations.
You don't think that that fed into the rally no way you look this has all earnings.
Year over year it was up about three point 6%.
So you have you going off of an earnings of about 103 dollars 1105.
Dollar -- 2013.
Which contrasts to market expectations of roughly about a 113 dollars.
So what I'm trying to say here is that the expectations are very high for 2013.
With that said we still.
Moderately optimistic about the mark.
-- it and you can go higher apparent put that in a few words you think the economy's not bounce back as much is should the Fed is going to continue to stimulate the market I wanna get back to mark though.
Mark it if if -- actually get out of the picture here I've been saying that the market's been artificially.
Propped up by the -- that's what's been spurring this rally.
It did -- -- out of the picture because as you're saying economy's getting better.
They -- we just -- experience a huge massive stock market -- I don't think we get a massive sell off but what I think -- I think what people have to come to realize.
Is that the economy's gotten about is as much better is it's going to get this is -- -- hairy animal.
It -- it's scary in some ways it's not scary in other ways I think people -- unrealistic expectations.
As to how strong the economy's going to get.
And as far as this what the Fed has said.
They change their mind all the time what bothers me the most about what the Fed has said -- they're talking about being reactive.
Monetary policy works with a long and variable lag changes in monetary policy take a year to eighteen months to take effect on the economy.
If they wait until the unemployment rate falls below six and a half percent.
Before they start taking some of the -- -- and I consider -- Hello -- yeah.
There's parcel that not our economic forecast is for the economy to slowly start to improve in 2013.
So that way you look at Q4 2013.
You'll be at that 3% up I don't believe in the -- what I -- added that's just them it's a it's a minimal amount of supposed a modest cut fiscal drag.
And if you throw the fiscal drag of the sequester and tax increases to comment with a one and a half percent kind of drag on the US -- 2000 today and all and the economy for 2013.
Can grow at about two and a half percent rate and 2014 you can see -- smoking -- of improvement.
And mark not to mention the sequester where week away from but also gas prices -- that the picture you see that the new -- -- Three dollars and 75 cents at the pump.
But I hope that's not the norm but we've seen this squeeze in the gasoline markets the last couple years us because the refineries switch over to to produce in -- summer blends.
It's a temporary spike it'll probably go away by the middle of the year.
But but hey hey I think we're gonna and pretty much agreement -- the economy's doing better if we're -- two and a half to 3%.
Where's the fire why do you need to be buying 85 million dollars of securities about why do we need to have a negative two and a half percent -- the federal funds rate that real federal -- that doesn't make any sense in the world.
The unemployment rate is a lagging indicator in improves after the fact he has a monetary policy takes a long time to take -- -- -- -- hearing a lot sooner than that you without the Federal Reserve he just wants to guarantee that there's going to be an improvement within the US economy.
Where would -- -- have the self sustaining recovery.
And we can both agree that right now we're not there were not at the self sustaining recovery part here so the Fed's gonna keep pressing on the gas until all systems -- go.
And every -- cannot be delusional about it that's what's gonna happen.
I Chad Morgan lantern -- -- thanks for joining us now we thank you Dow up 62 -- these markets sky is certainly trying to figure out which way to go Dennis.
All right lesson.
