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Keep hearing over and over how the Fed stimulus program is what's keeping.
Our economy afloat was propping up the markets but in our next guest our first guest -- markets now so that we're missing the boat on this Brian Wesbury chief economist.
Advisors is a bull.
All of the big fat part that David was -- -- Brad and I apologize for hurts is we can't control it actually will talk about that but why it's not the Fed everybody sell lots credits that's what it is to keep rates low and that's what's.
Driving the marketed you have been a role for a long time so I figured -- you must you must like these low rates and that's what -- -- what are we missing.
Yeah well you know when I go back to 2009.
-- -- -- there's lots of people that believe this quantitative easing these low interest rates.
That's what's caused all of this -- you know people call -- -- show her high up and and it's all just a sort of a fake rally.
But -- if you really look at for example price to earnings ratios in the stock market that would be the price of the of the stock relative to its earnings.
There are no higher today in fact they're lower today.
Then they were before quantitative -- easing started so what I'm getting to here is that stock prices are up because profits are up.
Not because the Federal Reserve is holding interest rates low or printing money and.
Quantitative easing action so you would make the case then a -- isn't -- were looking at a ten year note we just where.
A two and a half and as a thirty year at three point six who you're making the case -- stocks are cheap.
And I -- Samir writing that you use a model in doing that that's why mention the ten you know right.
It would be afford a half percent when you model the stock market of the would you say all right let's just pretend the ten year note -- for argument sake -- four and a half percent -- still think the stock market looks good here is two and a half tell us why.
That's right -- and what you just described as the discount process right so we want to say.
I stocks are valued on their earnings we want to own a company because it's going to make money.
And so that but -- -- prod dollars' worth of profit worth -- a year or two years -- have to discount bad back using interest rates.
And and we've always believed and I believe still that the bond market is in a bubble so that these interest rates are artificially low.
So when we were on our stock models we say here's what earnings are going to be.
And we're gonna discount them with a much higher ten year treasury yield than exists so today the actual yield is two and a half we're putting in four and a half percent.
And it tells us that the market's 35%.
Well today even.
With a four and a half percent ten year treasury why that's -- can go up -- it won't change our view.
I could have why that's different than conventional wisdom and people watchers know we have guests that have differing points of view on this all the time that are in the exact opposite camp.
-- Bryant is because there is an assumption that once rates and we saw this in the last you know few weeks ago right -- rates start to go up.
Stocks are gonna come back -- and you're saying what that it would be that might happen it would just be a correction that won't happen at all being.
How will that play out because you're a great start to go up -- -- all -- now we're afraid that's the end of -- for the stock market.
Sure so if we just go back over let's say the last six weeks Ben Bernanke it first came out and said we might taper quantitative easing.
And stocks did drop you know and people were worried and and so there's no doubt that traders and and and and and investors.
Get scared when they hear these kinds of things but once the market bottom.
And really the Fed didn't change its language and -- Intel yesterday.
All of a sudden stock started coming back again and and what I would argue there is yes sure there was a knee jerk reaction people have this fear.
But it's not the real fear that they should have.
The reason to own stocks today is because profits are so high.
And and -- let me add one little thing -- this and that is.
When I go back to 2009.
I do not believe -- quantitative easing or -- car.
-- our government spending is what saved the economy -- what did.
I believe it was the entrepreneur.
In the end and and you know we've invented the cloud the Smartphone -- -- tablets wracking has become -- were going to be energy independent in America in the next three to eight years.
3-D printing all of these great new technologies.
That's really what's driven profits that's what strip in the economy now I know the economy's not -- -- But that's what's allowed us to grow it's not all based on is not a sugar high she just -- Phones making him here in the US apparently was some talk about it a few minutes Brian has there you go right -- is not big and fat but he usable much we've confirmed thanks a lot of coming -- talk to sit up banks gal are you sure you do you.
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