Mike Holland of Holland & Company and Brian Wesbury of First Trust Advisors on What's Next From The Fed
Wednesday, June 24, 2009
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SUSIE GHARIB: Well joining us now to talk more about all of this, Mike Holland of Holland and Company and Brian Wesbury, chief economist at First Trust Advisors. Brian, Mike, hi, how are you?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hi Susie.
BRIAN WESBURY, CHIEF ECONOMIST, FIRST TRUST ADVISORS: Good to be with you Susie.
GHARIB: Mike, let me start with you. Is Ben Bernanke's job on the line?
HOLLAND: I really don't think so. I think this is an unfortunate challenge to someone who has come out of this crisis as one of the few heroes. We have plenty of billing Susie over the past year for what's occurred. His lifetime's work of ethical and smart behavior belies the charges that you just read. And I think that at the end of the day tomorrow you'll have plenty of people saying that Ben Bernanke is someone that we should have reappointed next year. I hope he is, because he's been a savior of this economic system and this financial system.
GHARIB: All right. Let me get Brian in the conversation. What about the issue of credibility, though Brian? Has Bernanke's credibility been challenged and the Fed's independence being challenged?
WESBURY: Well, that's going to be the big question here. Last year in the middle of the panic, the question is, did some of these people at Treasury, at the Fed, did Ben Bernanke step over a line? I believe him when he says he didn't and even Ken Lewis says, has argued that there was pressure and I think the Fed is appropriately applying some of that. But that they didn't really go over the line. So I think his credibility will come out of this intact. In fact it could be enhanced when all of this is over. We'll JUST have to wait for tomorrow to see it.
HOLLAND: You've watched him for many years. Do you think he's too smart to have done something that dumb, don't you think?
WESBURY: I agree, he is a man of integrity. But there was, boy, it was tense last year and that's the only thing that I'm worried about, is that sometimes in those situations, even people that have a spotless track record can make mistakes. I don't think he did. But --
GHARIB: Real quickly, real quickly because we want to get on to other issues, I just want to ask though, if he did cross the line, if it comes out like that, what does this mean for investor confidence and confidence in the economic turn around?
HOLLAND: Go ahead, Brian.
WESBURY: What bothers me there is that you end up with a politicized bet. And so this whole thing is fraught with danger and it really could create a lot of uncertainty for investors. That's dangerous for the market.
HOLLAND: And the market will have lost one of the few people who can look toward helping the future.
GHARIB: Let's switch now to talk about today's Fed policy decision. Basically the statement from the Fed saying deflation isn't a threat, inflation is not a worry. So Brian, are we on our way to recovery now?
WESBURY: I think we are. I personally think we're in a V-shaped recovery right now. If you look at existing home sales, durable goods, (INAUDIBLE) I could list endless pieces of data and I think the evidence is building. I think we're going to be surprised at how strong the economy is in the second half of the year.
GHARIB: Do you agree with that, Mike? .
HOLLAND: Susie, Brian and I spoke earlier and I have to say the companies I speak with don't underline and underscore what he's been talking about. I hope he's right. It doesn't look like it right now, but from his lips to God's ears.
GHARIB: Everybody is talking about what should be the Fed's exit strategy, when should it begin to pull out some of the stimulus that it's put into the banking system. When do you think that has to begin, Brian?
WESBURY: I would hope that the Fed starts to do that reasonably quickly. I think inflation is a problem. But there are going to be very hesitant to take their foot off the pedal, especially because they're talking probably some of the same companies that Mike is talking to. And if there's low visibility out there, they're going to want to keep their foot on the pedal.
GHARIB: Your thoughts, Mike?
HOLLAND: Susie, Brian's points are particularly relevant as it relates to Bernanke's history looking at both Japan and at the great depression here. He's learned from those mistakes. One of the reasons he's been so successful is his historical perspective. It's not going to happen. He's not going to do it too soon.
GHARIB: All right, so what happens next, Brian?
WESBURY: Christina Romer, for example, she's the head of the Council of Economic Advisors, has very clearly said that the history of the great depression, they believe the Fed and the government took their foot off the pedal, they eased up too quickly and that caused a depression within the depression. So my belief is that the Fed probably will keep rates low way into this year. But if I'm right and the economy recovers strongly, we're going to be talking about rate hikes before the year is out.
HOLLAND: And Susie, it's very important, the markets are looking at Ben Bernanke to be the captain of that ship to do just what Brian talked about. If for some reason he's taken away from that ship, the markets are going to be losing some confidence around the world and the U.S.
GHARIB: We've already seen some loss of enthusiasm for the rally in the markets, Mike, because of concerns that the economy is slowing down, that report from the World Bank yesterday predicting that global, the global economy is going to be in a retractive (ph) mode for all of next -- for this year. So what do you see as the outlook for the markets?
HOLLAND: Well Susie, I go back to one of the previous markets, which is somewhat similar to this one in the 1970s where we had kind of an ugly political as well as ugly economic environment. The stock market after hitting crisis lows continued to do well for years, while the economy wasn't doing well. If we get the V that Brian was talking about, we're going to have a wonderful time. But we can have an OK time without the economy doing great.
GHARIB: All right, gentlemen. Go ahead, Brian, finish up.
WESBURY: I was just going to say, that's 1975 and '76 that Mike is talking about. We had a 60 percent rally in the stock market in the middle of a pretty tough decade.
GHARIB: Well, I hope both of you are right about that. I'm sure many people will be happy to hear that. Thank you, gentlemen, both, for coming on the program, appreciate it.
WESBURY: Thank you.
HOLLAND: Thank you Susie.
GHARIB: My guests tonight, Mike Holland of Holland and Company and Brian Wesbury, chief economist at First Trust Advisors.
