Nov 19, 2013|
Garland talks with Mark Rosa of Tulane University about whether the stock market is booming or simply on a bubble.
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Automatically Generated Transcript (may not be 100% accurate)
This dude boom -- in a bubble that headliner of real life when I look at. Some the economic. Publications and every you know and regular businesses. You probably know yesterday the Dow Jones went above 161000. For the first time -- 500. -- new to -- broke through the 18100. And this morning and the Dow is up around two 1994. -- to leave the same. And -- their bull. Dow and the absentee. Or breaking records all moves daily. And the figures up on lifts I don't know of to users current. Stock market is already soared more than 160%. Since it hit bottom in march of 2008. As always. A good group professor mark -- Professor of the economy and practiced with Tulane University professor welcome back to the show appreciate it's time. -- our own thank you for inviting the -- -- I think. The current market averages he wasn't always bubble that that hesitate to call was so full bubble but it certainly been. Eighty that -- -- tremendous increase numbers that you just mentioned for over a 100% return since the recession ended. And I think it's been fueled by cheap money. And I think we're gonna see some of these averages calm. Calm lower. Certainly. -- -- -- Stop injecting money that they're injecting into the economy it's just isn't just a lot of cash Wall Street loves cheap money. And all that they've done Garland is is taken away. In an effort to. Stimulate the economy the unintended consequences. You you've beaten the tar out of the safer. You can get any return on your money through banking traditional banking products bonds -- becoming very risky. The reasons that we could talk about so really the stock market is the only thing left. And that's where the money -- So in consequence -- a lot of mine -- six frenzied buying -- -- just a lot of money moving in those directions. Investors try to pick up yields. Buying stocks that pay dividends. And buying some stocks that don't pay dividends that you want to capitol -- so that's what we're seeing record levels. Some 35 record set in both that the average shoes that you mention it's simply now. This year. Everything you -- is it's certainly what I am reading. Book bottle of soda a pulled up some inflation figures and it's an adjusted for inflation. The market remains below the peak of breach earlier in the -- So does does that mean it's it's not as much horrible horrible war is this and a regular. Historical thing. Will go inflation has been low we hit a period of actually one year deflation. I'm remembering some data that -- looked at recently inflation figures going back in 1970. And we only hit one period I think it was -- -- nine of deflation and the Fed is very word about this as we know about that as we all should be. But don't always tell my quest is deflation equals depression so wanna stay away from deflation. Tell tell us what he pledged and would the court wasn't going to. The meet the dollar the guy on the street. They adored it it -- mean inflation is increasing prices deflation decreasing prices and it at first we would be important that confirms somebody would sanction decreasing prices that's fantastic don't wanna pay less. For the goods and a fine. But it it's actually yes -- that. That process continued deflation would also -- affecting wages salaries. Those prices and those would start to fall they would have to fall so what would -- the news is that. Continued. Then you have any negative growth rate for the economy and that would -- depression that's why eventually leads to. A recession and a very deep recession would be a depression. So we we want you want -- growth rate to. In an economy. Which means rising prices. But if inflation is kept. At day it's sustainable level that's not an issue it's it's a one to two and a half percent. Increase you know -- be an economic growth rate that survivable that's okay just don't want to go the other way. Or I'd love for those loosening up period of doctors fascinated as I'm Libya. In reducing expansion of the stock market Gibbs called we've got the expert. And throw a question comment. 260187203. 6689070. And that has doubled bill brigades 70 am and I'm Rea. The thing about the US stock market the judge Dell broke through the 161000. Barrier for the -- -- -- security brought down a little bit but it's very closed again today. Absentee he didn't you broke through 18100 and and both. Of these exchanges have been making making and breaking records on a regular basis so we're trying to figure out. Or we're looking -- they bubble oral boom and we have professor mark broke through to a new -- to -- the list. -- -- One of the things you mentioned is what I've read when I -- looking for why is this happening. And breed in the number of things but the one that comes up over and over again. Janet Yellen and the nominated to replace Ben Bernanke is the and but affords and it. Tough supplies and that. There weren't gonna turn off the spread that the money was gonna keep going area they're gonna continue the of the bond buying program. But board next year or or beyond next year. -- Most of the analysts have a broad -- expect up to -- -- march of 2014. Why not the runway from the market now. Ignoring orders suspecting. That's the time -- is good because the the have ignored ago. The exact -- -- prohibiting alternative agenda at the banking products it to cool you don't savings. Astute as to deposit that dictate he actually less in the rate of inflation. You lose money every day global money sits there got a -- money. The bond market is risky because that that's easily fixed rate of return that's bound to -- Negative reaction did too said. -- isn't in their policy to the place last news is that. And they kind of what what they did this in 2009. Pushed interest rates down to levels that would never seen before that -- was -- killing. If we want to take risks. You bet that you can't make money you. Oh in the -- in the other investment vehicle you have to take -- -- money in the markets. But all this is uncharted territory go -- -- they've never. We haven't seen interest rates at near zero levels before did not go into these quantities of these people very creative methods to try to stimulate the economy. You know I think. -- -- put this altogether and really stepped -- job was. The person it's got to unravel -- so the Janet -- It means that the debt she and that they and that -- Federal Reserve board they don't have to Ralph that's in the beat market and it negative action back in May when the first comments came from the feds saying that stored in September. Will he come September and the economy was judged to be still too fragile distort. Tapering it would be the work that they've been using so now what ticks over into but -- administration to 2014. Well that they would ludicrously low interest rates. For the next three of 40% to prediction actually that you mean who knows what tomorrow is going to bring it. Just keep seeing them they have to take that 85 billion dollars a month that there are objecting to the economy back to paper itself down to zero. Before they -- store raising interest rates so that this is not credible way quickly. A month a month is that debate the cash injection into the economy. In an attempt to stimulated through. -- city state large can't -- end. Low rates does he have something that's very plentiful but the price tends to go down the value of the dollar is going down to it there's a lot of consequences to what they're. That would pit stop. Is this not the big keynesian theory of -- you throw money in the carburetor and get the engine started again and back off. Well that the that the that the keynesian that would be the government needs to stimulate the economy many times some fiscal policy as well that taxing and spending they've they're doing this year of spending that we've seen it through the debt that's. But -- from a monetary side to this that is George basically two things they interest rates. And the money supply and bail or to talk about the cooperated biffle has been to the floor. Interest -- to or its lowest. They could pretty much go. In in many cases and and there's enough cash but it is more liquidity. In the marketplace without missing before. The last couple of days friends. See each side of boom or bubble when it comes as stock market. -- -- -- plethora. Those that believed worry in trouble and those who believe. We're gonna continue recordable altered to boom. On both saw -- is there any one. That disagrees but once we start pulling back that 85 billion a month. People. Or gonna get out of the stock market and in the Isner and by the disagrees with the. I'm sure there roar but it is or it's. How for a secure the calm down it's it's got to be. It's many would -- -- right now that the existing level to probably pushing will be called fundamentals is pushing. Beat the averages up a bit. Passed would be a long term effort so that would be -- -- would accuse that of the bubble. So do we have a little bit of euphoria built into the the current numbers. That we could sell off a thousand points of 16100 points -- -- fairly dramatic it's especially if it came by very quickly. But and -- -- I don't think it's been able to literacy or to 161000 -- -- did the doubt that's 161000 for the minute. This is a critical back to 6000 we -- during the reception I don't think there's anyone that would suspect. Some apocalyptic. Consequence. To the -- A couple notes about reading psychologist report. On her behavior. Human animal and that said that being left out it's actually painful to the human law. When they think that whole group of people getting something that they don't. They immediately do everything the world would join that group. If if if that's true does not does that not apply in the stock market we're seeing. And if the stock market would stop going down precipitously. When the planet's pull back from that 85 billion a month. Where do they go to -- Well. The bond market is is it's. Is is being painted with Russia that's more risky handle. It was over the past. Few years accurate declining interest rates market bonds do particularly well. It would interest rates start to move up. Those fixed income securities boost prices and should be all that you would you would incur losses potentially. -- bond portfolio so that's what people have. Gotten out of bonds are being advised to do so. Because the risk to the upside we know that interest rates -- did that blows fail so where could they go from -- even lower -- full. The risk is to the upsides so stay away from bonds -- so what's left again it is the equities. But it is cool and so many of them but they large companies' stocks that we could point to a couple of names what they're paying dividend. Which yields. That -- every attractive for any single market -- -- two large companies -- it might get 34% dividend. It's enormous. Compared to what the five years BP pay one point 5% that you're getting paid that immediately upon by the stop with the upside. In improving economy and the company do better and consequences stop brightly and go higher so. You know you're getting the potential capital gains in quality issues that you didn't dispute every appealing. Cash spigot at one week. So that's what contents we have -- 161004. Oh -- or try to. Aren't let loose talk about corporate the problem that your. News in particular the price earnings ratio. Others and and -- all that going on that's that's one of the reason to rebuild the market is so alive and continues to expand. And little else -- that took a look at the yeah as soon be hasn't -- the so called American companies. 500 of them or multinationals. And they get 40%. From 46% of their earnings from a brawl. Does that suggest that kind of regardless of what happens here. We may keep chugging along in on the -- side of it because so many of our -- American companies are really multi national. Instead the belts are all very big companies that all of the making up to 161000 average. In the -- of the -- of course large companies. And that's why they -- -- to kind of represent the stock market did is that there are small -- small firms in the S&P 500. To that to bigger list that's 500 companies vs the thirty in the doubt that the the -- companies certainly diversified. With with volcanic -- Operations in I think the the global economy is improving its improving very slowly actually painfully slow. But he eats its you to improve and so I think that's where you see. Corporate America's balance sheets came out of the recession. They pared down so board so science were in the recession yet. -- they have the end. Hesitant to expand. Very quickly so that's what we've seen me in sluggish. Unemployment rate still hovering around seven point 3%. In the did we get back to Washington and apple would go one on -- it's creating. Full of uncertainty. With business it was or afraid to expand very quickly but the I think the potential was there. Professor. Assorted -- in the back -- your plants from -- lol we -- tomorrow we have to Bryant. But I gotta have -- back on moral lectures to better understand that. Or -- two time all sorts thank you yeah. Professor mark wrote at Tulane University come public through talk to doctor Lawrence. Through economic president of Lawrence -- associates.