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[Zene]
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this podcast is to you knowledge at won
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please visit
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knowledge.warton.upen.edu for
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moreation the stock market june swon has
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cared into july with key indicators
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pointing to a market we down by rising
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oil prices and the credit crisis among
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the factors weing on the market more bad
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news from detroit the big
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sufferedstantial losses because american
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gall longer suv and trucks meanile us
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presidential candidates continue to
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promise tax cuts and balanced budgets we
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here with won finance professor jeremy
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seel to discuss the worris signs welcome
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professor the us stock market down 20
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from a in october and 15 for the year
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these are gck times those us inv the
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long
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run take the stock maret
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rec market has h a punch the first punch
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was the credit
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crunch you know started at the end of
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last year because of housing bubble that
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that burst the second punch which i
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think is now a stronger punch is the
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energy prices the gasoline prices the
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oil prices above
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140 and i of said thought that the
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economy could handle
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either together is is really tough
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actually i i think some people say why
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is it only down 20% because we you know
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we seen bear markets down 50 the truth
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of the matter is is that there's a
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number of good things out
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there that are i think
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keeping the decline in in the moderate
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territory what do we need to get it
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moving back up again and that is lower
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energy prices i think that that is the
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key we get oil back down into the 100
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region gasoline stabilized back down to
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even 350 which i know is still high but
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i think that that will will be an
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important part of the recovery of the
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markets well the auto industry would
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certainly appreciate that for gm and
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chrysler the big three in the us had a
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terrible june they seem to have gotten
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themselves caught in the same trap they
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did in the 1970s and 80s they were
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building the wrong cars for the wrong
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time can they recover from again well
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and they're paying the prices they
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should for that i mean no one predicted
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would go this high but everyone knew
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that that that it certainly wasn't
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wasn't going to go lower and you know
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hybrids and alternative fuels they have
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to put all their resources there and of
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course the big problem is that they were
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weak even before the this with with the
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pensions which is working out with the
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uaw um so theyve got they've got that
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double whamy on them hopefully to bring
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some leverage on their current situation
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to to resolve the health care and and
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some of their pension fund costs which
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are really and the competition doesn't
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have to carry those costs absolutely
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that's and that's that's a major major
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factor shares in the two government
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sponsored mortgage companies fanny may
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and freddy mack felt pretty dramatically
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yesterday july 7th it signaled a lack of
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confidence among investors if the
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companies fall short of capital they'd
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have a harder time buying and
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guaranteeing mortgages and that would
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raise homebyers costs and possibly drive
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home values down even more what does
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that say about the prognosis for the
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housing crisis well first of all the
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govern not goingna let freddy mack and
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fanny may fail um i mean and given the
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way the fed and others have been
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extending credit these are very
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essential
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institutions and so my feeling is is
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that top priority for government fed is
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to make conformable mortges you know
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those that are under the limits and
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conform to will still be flowing at a
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normal rate jumbo mortgages have have a
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surcharge and and they will continue to
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have a surchge compared to where they
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were a couple of years ago but no matter
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what happens to you know the fears on
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wall street i know there is a backup
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there to make that conformable mortgages
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will still because
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all real that if you cut that conduit
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you really sp the economy into a
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recession and there's far more public
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support to making those mortgages are
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available than giving money to the
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investment banks that the fed did in
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march the crisis has not only deflated
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the us economy but it's obviously had a
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serious impact on economies abroad for
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example put the breaks on china's twoye
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bull market how do you see the crisising
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out globally over the next few months
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was i was reading an interesting analys
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jp morgan s said that europe is about
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months
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cycle of slowd to the us and the
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emerging markets a year behind which is
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is interesting no one's going to be
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immune from the energy crunch it's
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affecting everyone and of course for
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some of the poor countries the the food
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crunch is equ important to deved
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countries to the developing countries i
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think everyone's going to be affected by
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the energy crunch and i i really think
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again if i were to say what's beviling
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the market right now
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worldwide i would say that that the
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energy question is more important now
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than the credit question will the g8
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conference that's going on now in japan
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come up with any meaningful proposals or
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will it be long on rhetoric and short on
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substance that seems to be the case all
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the time there's a lot of rhetoric you
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know they talk about exchange rates
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truth of matter is we econom really the
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central banks even though they we to
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give it to the treasury central bank
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makes the decisions on monet poli aff
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the exch rates between the
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countries you know everyone knows that
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you know gege bush is a lck president
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you know i mean starting initiative now
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when we know we going to have a new
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president next january
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toetty you all together
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llob
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crood china and india ar there is that a
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of mission absolutely i mean when
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everyone talks about what are the
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sources of the energy crisis and we
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always talk about the insatiable
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appetite from china and india and now we
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leave them out of g8 in terms of talking
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about you know what what they could have
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done i me clearly i think you have to
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expand
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it to these other two countries
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to really get global global look at at
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all the factors affecting the world
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economy san francisco federal reserve
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president janet yellen said yesterday
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that the fed can't just be hopeful that
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inflation will subside but must be
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prepared to make hard choices as needed
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according to a report in the new york
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times is the fed prepared to make those
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hard choices and what should some of
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those choices be well you know for the
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last year the fed has been saying
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we expect inflation to moderate as the
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economy slows and tru matter is we haven
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seen inflation moderate and it's
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beginning to be kind of thrown back in
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their face you keep on talking about it
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it does not happen uh i had stated in
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earlier podcast i didn't like them going
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down all the way to two from two and a
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quarter it was more of a a signal more
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than the importance of of a quarter
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point but clearly they're not going any
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lower my feeling is
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o
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second we had some big declines that
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they won't need to
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ra this year goes back down into the low
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region my feeling is they stay
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at through theder of the period the
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dollarir
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well that they'll have to raise enough
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if oil continues upward and we see those
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prices continue upward i think that
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they're going to have to join the ecb
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and perhaps others and saying we got to
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stand against this comm inflation it is
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a painful choice and she's right but if
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prices again start rising they would do
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it if commodity prices break if we did
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see the peak a couple days ago my
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feeling is hold on the the rest of the
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year we talked about roric at the g
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which brings to mind of course the us
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presidential ele candidates republican
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senator john mcc and democratic senator
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barack obama are promising all man of
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tax cuts and rebates but they're not
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offering a lot of specifics about what
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they would cut from the budget to reduce
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spending still they're both promising to
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balance the budget mccain in four years
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and obama in e can you give us a reality
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check on the candidates promises and
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perhaps you could alsoind us of the pros
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and cons of running a defit well first
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of all let me say that reality check is
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i don't think it's going to close in
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four years or eight years i think we
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probably be running a deficit for for
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decades now that isn't bad as long as it
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stays in a certain proportion to gdp we
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don't we don't actually have to balance
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the budget i think there's a couple of
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things on the table that are important
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now do we need another fiscal stimulus
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package it has helped gdp is going to
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come out in a few weeks i expect second
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quarter to be up between 2 and 3%
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remember ev
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quarsens ises go
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downd and quarter could much weaker
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particularly the fourth quarter which we
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want to think about another fiscal
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stimulus package then that's one thing
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that this is under bush's
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watch you know the truth of the matter
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is we know that taxes are going to go up
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taxat go up no matter m wins ob wins
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because democratically contr congress
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and the bush tax cuts are going to
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expire so that's going to be a
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reality
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but one thing very important and that is
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the most important thing we can do to
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close the deficit is not to start
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raising taxes especially under a weak
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economy but to stimulate economic growth
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i mean clinton balanced the budget not
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really through new taxes but by an
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incredible growth surge that we had
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through the 1990s and that's when we
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balanced it if we can get back on the
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growth path get those energy prices down
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put into place policies and get us back
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on the growth pr that will do more than
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tax policies in terms of closing the
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deficit just something that we all have
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to keep in mind we talk about deficits
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into the future thanks for joining us
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professor se thanks for having
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me for more information pleaseit
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knowledge.warton.upen.edu
