Michele Girard of RBS Greenwich Capital Management & Mike Holland of Holland and Company React To The Rate Cut
Tuesday, December 16, 2008
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SUSIE GHARIB: Joining us now with more analysis on today's Fed actions, Michelle Girard, senior economist at RBS Greenwich Capital Management and Mike Holland of Holland and company. Hi, Mike, hi, Michelle. Michelle, let me start with you. What was the most important thing that the Fed did today?
MICHELLE GIRARD, SR. ECONOMIST, RBS GREENWICH CAPITAL MANAGEMENT: It was the fact that as you were talking about in the package, they did everything. Everything they could have done, they did. They lowered rates, all the way down to zero to 25 basis points. They said that they would keep rates low for a long period of time and they specifically talked about this quantitative easing that it's focusing on the quantity of money in the system, not just the price of money, which is the target rate of the funds rate. So I think was really the message there that everybody is talking about. They're clearly making a statement here that they are going to do everything that they can to get this economy back, to get this economy growing again.
GHARIB: Michael on one hand, when the Feds say that they are going to do everything that they can, should we be concerned or should we be feeling better?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: We should feel better that they are very, very concerned. But there's no question Susie for all the viewers, they know that things are pretty stinko right now around the world. That's a technical term. And I think that the Fed's response has indicated they get it and one of the criticisms of the Japanese in the past and the U.S. back in the '30s was that the governments didn't do enough and as Michelle was just saying, they did much more than people suspected. That was a very good surprise.
GHARIB: The Fed and the Treasury keep doing all of these moves and we barely see the needle on the economy moving. So are all these actions that they announced today, is that going to do the trick?
GIRARD: I know that's frustrating for so many people, because the economy just doesn't turn on a dime. But you don't see the immediate results from all the actions that the Fed and the Treasury have put into place. But there are signs of improvement in the marketplace. You know, looking at the fact that banks are becoming somewhat less hesitant to lend to each other, the overnight LIBOR rate, these rates that banks charge each other in Europe, internationally really. Those rates are starting to come down and they were stubbornly high. So I do think that there's evidence that it's working in the marketplace and it will over time work in the economy.
HOLLAND: And Michelle, one very important thing you saw today in your markets was that the mortgage bonds dropped in yield very dramatically after the Fed's moves. That's something we haven't seen in a while, the spread between the Treasury bond and Treasury notes are priced and where mortgages are priced, there's been a big gap. That gap narrowed after the Fed's actions.
GHARIB: Mike, let me follow up on that a little bit. I mean, yes, the markets had this huge rally and so they are feeling pretty good about the future of the economy. But on Main Street, they're worried about a horrible recession. Who's right?
HOLLAND: The Fed is worried about the same thing, Susie to go to your original question. Therefore we are doing, as a nation what we can do. It's interesting that people in Europe don't seem to be getting the same message we are and this message is throughout the world. I've been in China recently, as you and I have talked in the past and they are in the very serious slowdown over there as well and they are taking out all the stops as well. So I think that the people who are concerned are correct and the Fed is doing exactly what they should be doing which is very bold, aggressive smart moves.
GHARIB: So Michelle, the Obama inauguration is getting close, it's just a few weeks away. What's going to be the next big thing that happens for the economy, whether it's the Fed, the Treasury or Obama?
GIRARD: Well, I think the first thing obviously is the bailout of the auto makers. That is sort of hanging over and I think we will get something on that, but that uncertainty I think to have that issue resolved and remove the risk of a bankruptcy from one of the auto makers, which is not what the economy needs right now and then of course when the Obama administration takes over, it will be about fiscal stimulus, what is the government going to do? How much money are they going to spend? I think that is going to be really the dominant theme as we get into January and February.
GHARIB: so Mike, what is your forecast for 2009 for the markets? Where do things go from here?
HOLLAND: One thing that I'll forecast is that I won't forecast. I think that what we can probably look forward to, Susie, given some of the recent activity in Washington, particularly with the Fed today, is that glacially, but persistently the economy and the markets will get repaired. I think Michelle is right that throughout the year, things will get better and better. But I think it took us a long time to get here and it's going to take us a while to get out of it. But I think for once we can be optimistic.
GHARIB: Oh, well that's (INAUDIBLE) Go ahead. Go ahead Michelle (INAUDIBLE)
GIRARD: Policy usually takes a good six to nine months to work and with other thing the Fed is doing, I think you have to look to the second half of 2009 to really think that that's when we'll be sort of out of woods.
GHARIB: I hope you guys are both right about that. Thank you both very much for coming on the program. GIRARD: Thanks Susie.
HOLLAND: Thank you Susie.
GHARIB: My guests tonight, Michele Girard, senior economist at RBS Greenwich Capital Management and Mike Holland of Holland and Company.
