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Wells Fargo Senior Economist Mark Vitner on the potential economic impact of sequestration and the outlook for the markets.
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-- -- -- now with his outlook for the markets in the economy Wells Fargo senior economist market hit -- mark great to see you again before we get to all of that.
I know you were a speaker have begun governors con -- this weekend and that sequestration was also a huge topic of conversation and we -- with the president releasing the state by state impact of the sequestration.
And -- -- governors on board with his fight to promote his -- had governors feel about that what was your impression participating in this conference this weekend.
Well everyone's concern it and and the way that that -- us as we really don't know I mean it's I mean.
You really think that is it much ado about nothing are is that another Lehman moment and you would think that it's that 44 billion dollars in cuts they say it's 85 but that that's actually budget -- forty if you look at outweighs.
-- cutting 44 billion dollars and -- was.
And you would think in a three and a half trillion dollar budget.
That we could do that.
Without.
Bringing about Armageddon I mean it just so it just seems it seems it's a bit but -- been -- is a little understandable because.
Two thirds of the budget is off limits -- problematic is off limits.
Well that raises the question about the grand bargain so we know we get the next GDP report for the fourth quarter of last year tomorrow the first take -- a negative read.
What you think sequestration if it actually does happen as many are expecting it to you I will actually lead to.
Further economic duress.
I don't think you will I think that in the fourth quarter that that drop is probably be revised and modestly positive territory.
In in a big reason behind that was we -- we 2% drop in defense spending.
In the fourth quarter it looked like the sequester was going to take place.
On January 1 and so a lot of cuts may have already been made -- I -- -- it really bothers you when I hear all these dire consequences.
I don't know -- BI and no one really knows.
How bad our.
That it's going to take effect that we are going to go to march 1 was no deal.
If there's didn't deal at all it'll be to put it off right -- the down the road and we.
That happened many many times -- started talk of real limited time as always and I want to talk about the markets because Dow 141000.
-- is proving to be a very stubborn resistance level what is going on.
Well we we didn't have a great quarter earnings it was okay.
They earnings did rise on a sequential basis but.
But we we we seem to be losing some momentum -- and what really turn the market down today.
Was when we we get some disappointing news from Italy which it -- seems like the Italians.
Not surprising that to need are not very much in favor of all the austerity that they've had they're looking for better days many are longing for Berlusconi Berlusconi to come back into power.
But there's really -- -- real decision.
In Italy from the elections and this just bring European Europe's problems back to the fourth right.
There doesn't seem to -- anybody in the developed world right now that has -- that has a a good sound economic policy in place except maybe the Germans it.
A reminder right mark that even though we haven't -- Europe.
And the top of the -- of newspapers and headlines in the last couple of months -- we've been so absorbed in our fiscal mess here is still out there it's incredibly insolvent.
Huge trouble spot not to mention the rest of the world -- just lackluster mean look at the flight to US treasuries today we can't excellent -- their outlook.
My view on Europe is that they have not done one thing right since the street protest back in 2010.
We're not one iota closer to solving their financial crisis that we were back then they claim to be.
I say well we're gonna get a banking union we'll get a fiscal union.
But unless it's run by the Germans it's not gonna working through by the French -- the Italians I don't think people are gonna wanna be racing did to invest money there.
It -- the basis they are not any closer today in solving their problems and they were at the very start of this crisis.
And it's so easy to forget about that just to reiterate that point.
Interest in the dollar was very strong today another pressure point for the equities market but there's growing talking concern of its currency war and -- From Japan do you think this is a real threats of Japan lowers the value of its Yang.
To make its exports more desirable in the better deal than other.
Countries to follow follow -- creating sort of -- ripple effect this sort of currency war year that's gaining more traction with the reality of that happening mark.
Well it is it has been happening and the United States we with our currency strengthens and when there's uncertainty in the world because -- -- -- a flight to quality of flight to safety.
But in its subways for the cleanest dirty use -- hang his dirty shirt in the closet and admit that -- that benefits us but.
All of this is so easy to solve if somebody would just be brave enough.
To put in sound economic policies that currency would strengthen that's that's better for your currency to strengthen -- -- standard of living your citizens.
Is improving as capital would flow into those economies.
It's not a sign of success for your currency.
To be depreciating.
Society and that's great they've had this lackluster growth for so long and look US is with our monetary policy and there's an argument he said we've been devaluing the greenback for some time here -- -- -- Bernanke that I got to leave it there mark thank you.
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