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Max all right what joining me now for more on this set off the Fed and the economy is Bob haven't -- partners chief market strategist and Julia Coronado.
BNP Paribas its North American chief economist thank you both for joining is so lots to talk about.
-- I read that you say ultimately you don't think the Fed will be able to exit as quickly as they would like because of what you call Osama Walpole in growth.
And financial markets.
That's right so you know the Fed has made it very clear Bernanke made it very clear that they are data dependent.
That they have a pretty rosy forecasts are forecasts is a good half a percentage point higher.
Than the average private sector forecasts so it -- they don't see 200000 on payrolls.
Month after month and in fact GDP is slower to accelerate in the second half of the year.
And I think they'll push it off I think right now what they're trying to do was socialize the idea and make sure that markets are prepared for it whenever it comes.
We'll ballclub was socializing the markets and this is a response we've got down to have more than 200 points today what -- take on this market right now is this.
You know talked about correction that was needed for this market.
Well it could be all of that but there's a lot of concerns about what's going to happen with interest rates if they continue to go wild.
That means it could have a negative effect on the overall earnings environment obviously corporations abuses.
Low interest rate environment to reduce the number of shares outstanding increased their dividends.
And that's certainly given a a little -- a bit of a positive look to the to the earnings outlook.
Also people are concerned about what's gonna happen with housing obviously interest rates are going to go up and that's going to probably affect housing and mortgage rates going forward.
The thing is I think you have to remember that interest rates are are still relatively well in that are.
Are are going to continue to stay low even at -- go to two and a half percent or even 3% on the ten year treasury.
Is it going to have an impact on the global economy or at least in the of the economy here in the United States it could.
But -- -- said the Fed isn't going to do anything until they start to see you know a continued.
-- core relation between what they expect.
And what's actually happening with the overall economy we do think that that's going to happen we do think that the Fed is going to start to Revere.
-- the reduction in asset purchases and people are just getting prepared for that right now and I think it's really just being played out the overall market.
If we want to investigate not really all that concern you look at the course of the action is for yesterday and over today and you sort of factored in and you don't what general good you don't let that bother you too much.
All right -- let me pick up bugs on -- by the -- about the housing.
Market and the rising interest rates.
Ben Bernanke yesterday suggested that he -- perhaps -- indicates more optimism in the economy has nothing to do with -- what -- you'll take.
That that's a little bit disingenuous on the part of the chairman I have to thank.
Most of us have not been marking our growth forecasts -- here for the year.
In fact we've been nudging them probably a couple of tenths slower that's exactly what the Fed itself did.
It lowered the top end of its growth forecast by a couple of -- so.
-- the economic data haven't been terrible but they have been mixed -- in general consistently.
Slightly slower growth in Q2 than in Q1 and Q1 wasn't great shakes at 2.4 percent.
So I think the chairman is trying to sort of wiggle around that one I think that they knew that when they started talking about tapering.
That the market had gotten a little bit ahead of where they were thinking in terms of how much Huey would be delivered.
And that they were gonna get a market response and they're getting exactly that -- they're taking some steam out of the Mark Penn and they had to be well aware that that was coming down the road.
Quickly at just what interrupted by what we've seen today does this lessen the chaos solely wild volatility.
Further down the road -- -- actually kicks them.
Yeah I mean I think that if it.
And that's exactly what they're trying to do they're they know there's going to be some volatility.
As they normalize policy that is just inevitable that we're we're entering a new era of volatility.
And -- gonna -- and slow and actually you can.
-- bring up a good point gap.
Go ahead thought.
You you bring up a good point because you're going to see an increase in volatility because right now we were basically in that part of where.
Good news is bad news any kind of good news is going to substantiate the case for the -- To be able to do their tapering and sort of kind of positive economic reports is going to give the market a little bit of concern it's gonna give reasons to people who are long bonds to be able to try to go -- get a -- for those bonds.
And so I think as we get closer to the end of July we get close -- to maybe September.
Who people have largely circled on the calendar whatever big red pen you're going to see people start new to reduce their bond exposure and eventually they're gonna start to increase their exposure to equities.
-- -- yes go ahead only wildcard actually I think the fund flows are this thing that is the potentially destabilizing factor here and if you start to see investors and even retail investors.
Start to rush for the exit and bond funds then you -- get a self perpetuating move that's a lot more violent than what we've seen so far I think that's the worry people have.
We have seen outflows from bond funds over the last couple of weeks.
So I think people are watching very closely what retail and institutional investors do with their asset allocation decisions.
Yet -- quickly CU for Chelsea what do you make sure you're always reevaluating people going into cash getting out of bonds and equities.
Yet they are they they're they're worried you know a lot of retail investors are scared they're worried about what's going to happen with interest rates going -- But I think eventually you're going to CAE a reversal what's going on with the treasuries and with the the fixed income market people are going to start to see.
You know 456%.
On a corporate bond and they're gonna start to get attracted.
Now that you're gonna have to be careful about it if the economy continues to improve in the Fed is going to have to move.
A little bit closer -- a little bit of -- -- on raising interest rates.
You know that's good for the the equity market and good for the overall economy but it could be a trap for those are looking to try to capitalize on those higher yields which are bound to come.
We are out of time great discussion thank you so much about pavlik had -- Julia Coronado thanks for joining us today it's a pleasure.
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