One on One with Mike Holland of Holland and Company
Wednesday, April 29, 2009
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SUSIE GHARIB: Joining us now to talk more about the economy, the Fed decision and the markets, Mike Holland of Holland and Company. Hi Mike.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hi, Susie.
GHARIB: So what did you hear from the Fed today that caught your attention? What stood out?
HOLLAND: That there was no surprise and that they echoed what we heard a second ago that there appears to be some leveling off of the steep descent in the economy. More important to me Susie was a former head of the Fed Paul Volcker who actually was the head of the Federal Reserve. He was the Ben Bernanke when Chrysler was in the headlines 25 years ago in terms of bankruptcy. He said today or he was at least quoted as saying that he believed that the economy is leveling off, that he believed that there would be no failure of any large significant or systemically important bank as he put it.
GHARIB: But still we hear that so many businesses and consumers are retrenching. And so how can the economy really level off and do better with consumers and businesses so cautious? And what can the Fed do about that?
HOLLAND: That's the key question. First of all, I think the Fed probably can't do a lot about that in terms of what was they do on a day day-to-day basis. But if they get the financial system stabilized, that can help confidence which has gone off a cliff. What you just described is what all the viewers are experiencing, but it's been happening since last November and December. And what Paul Volcker and others who are looking at the big numbers are saying is people have done that. They continue to do that, but the pace of decline has stopped. People who weren't going to go to dinner or weren't going to buy a car or weren't going to buy a house, they can only make that decision once. People are now, whatever the low level was, it looks like we've hit a reset button at a lower level in the economy the way Steve Ballmer described it. We simply taken the whole level of demand down for the reasons you just said.
GHARIB: So have we set a reset button in the markets? Because today it looked like investors liked what they heard from the Fed.
HOLLAND: The answer to that is the markets always go way too far in both directions, whether it's on the up side when things get euphoric or on the down side as they did over the last several months. We had this decline of 52 percent in not just the U.S., in the world markets. They're all linked now. So they had pretty much predicted by the descent in their prices and increasing yields where you could sell a bond, the markets were ready for the end of the world. It looks as if the end of the world is not going to occur at least right now. So it appears that the market's big gloom factor that was priced in when we got a day like today where the Federal Reserve doesn't surprise badly, it even takes a horrible GDP number, which people would say is a 50-year tsunami kind of a number and say the market went up as a result. It's because prices have gone down so low.
GHARIB: Could all of that change on Monday because that's the day that we're waiting to get the results on these bank stress tests. Could the market turn around and go down?
HOLLAND: It's always possible Susie. I would have to say that the market is showing a little bit of a jaundiced view, giving a jaundiced eye to the stretch (INAUDIBLE) its significance for the practical outcome. We know that there will be banks who are going to need more capital. As Paul Volcker said today or was quoted as having said, there will be no systemically important bank that's going to be allowed to fail by the government. If that's the case, then what's wrong with telling some of the banks who are less significantly important that you need more capital and go get it. They should do that.
GHARIB: Real quickly, we have 30 seconds, is it time now for investors to put new money into the market or is it still too risky?
HOLLAND: We've got historically high numbers in terms of people on the sidelines. A lot of people who have sold or were going to sell, they took the prices down to very low levels. It looks if we got any decent news they're going to go up. I think it's probably, you're probably better off looking at something like IBM which today increased its dividend 10 percent while other people are reducing their dividends or eliminating them, the good companies who are not only surviving but thriving in this time.
GHARIB: Mike thanks a lot, appreciate your thoughts as always.
HOLLAND: Thank you Susie.
GHARIB: My guest tonight, Mike Holland of Holland and Company.
