TEXT OF INTERVIEW
Kai Ryssdal: You have to go back more than a year to find a higher close for the Dow Industrials. The blue chips topped 10,200 today. But what matters in the market sometimes aren’t the highs and the lows. It’s what happens in-between. How much the market moves in the course of a day or a week. Chris Low is the chief economist at FTN Financial. Good to have you with us.
CHRIS LOW: Good to be here.
Ryssdal: I wanted to talk to you about the market, not so much the absolute level, but some of these ups and down we’ve been seeing. The volatility, it seems to be, has been increasing of late, no?
LOW: Oh, absolutely, we’ve been up a ton the last two days, and of course, the prior two weeks the market was selling off. And volatility often is the hallmark of a turning point.
Ryssdal: When you say turning point here, I’m guessing you’re referring to the possibility of turning down, yeah?
LOW: That’s the tough part. It could be turning down. It could also be turning up after a correction of a month and a half. I think you’re probably better off focused on fundamentals. If you’re looking at the fundamentals, and you see this kind of volatility in the market, it’s probably an indication that the market is ready to move to a higher level rather than a lower one.
LOW: Let me connect some dots for you…
Ryssdal: Yeah, please.
LOW: Some of the big reports we’ve had in just the last two weeks, starting with GDP…
Ryssdal: 3.5 percent.
LOW: Right, 3.5 percent. Then we had a productivity report — 9.5 percent productivity growth in the third quarter, and then of course, the employment report last Friday. More jobs lost. You know these three fit together. Basically what’s happening is companies are cutting costs in part by cutting workers. And all that saving is going straight to the bottomline in the form of earnings. So for people who work for a living, it’s terrible. But for stockholders, it’s good news. And I think that’s why the market is up.
Ryssdal: But you know, to a layman’s appreciation, you look at that unemployment number and the analysis we have that’s it’s only going to get worse from here. And how do you rationalize that against a rising market?
LOW: This is the part where the economist takes a step back and the human being comes in. You know, I see this trend, and it’s terrifying. I’ve got kids in college who are probably going to want a job someday. The good thing is it’s not permanent. You can’t grow productivity at a rate like that for more than a quarter or two. At some point you’re trying to squeeze savings where they just don’t exist anymore. And I have spoken to CEO’s who tell me they’re reluctant to do it, but looks like they’re going to have start hiring because otherwise they’re going to lose market share. And that reluctance is exactly what you see in the beginning of every employment recovery. And then soon enough they begin to realize, you know this isn’t such a bad thing, I’m growing the business, the earnings are still coming in, and you get a self-sustaining, true recovery.
Ryssdal: What about the theory, Chris, that we’re just setting ourselves up for another bubble. You’ve got really cheap money, interest rates are low, what’s your take on that?
LOW: That’s the danger of using stimulus. This is the third recession in a row that ended because the government spent our way out. The last two it was monetary policy, the Fed setting up an easy money situation. This time, it’s all that plus the stimulus bill. The risk is that they don’t know when to turn it off. We obviously hope that they’ll get it right this time. The Fed has assured us that they’ll get it right this time. And if they get it wrong, we will have another bubble.
Ryssdal: Christopher Low. He’s a chief economist at FTN Financial in New York City. Chris, thanks a lot.
LOW: Thank you, Kai.
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