Economic Update with Chris Bennett of Vice Capital Markets
Economic Update 2015
Mr. Bennett was back at our Annual Michigan Mortgage Lenders Association Sales Summit with his economic update this year to talk about the United States economy and the recent move in the dollar vs other currencies.
Dave: Hi everybody Dave Sullivan here for the MMLA Membership Committee with…
Chris: Chris Bennett of Vice Capital Markets.
Dave: Chris, thanks again for a wonderful speech to start of the day at the MMLA Sales Summit. We had over 235 attendees and a sold out vendor section. Chris, one of the things I found interesting was the way the Euro Zone and Americans handled the great recession. Would you talk about that portion of your presentation?
Chris: Absolutely, sometimes a better way to look at it is not in terms of how a countries currencies performs relative to each other. Although, obviously that both are headed very different directions, it’s really by looking empirically at what happened with GDP in both sectors.
Chris: Also what has happened to their unemployment rate. In the end you have the United States, who is basically coming off of three consecutive years mid two’s in terms a real GDP growth, very normal and Europe which is now teetering in and out of recession with almost no growth. You look at the labor market difference, we both started at about 10 percent unemployment.
Back in 2010, while we launched QE2 and our employment rate has been going down to about five and a half percent now. Europe in the mean time went up to eleven percent unemployment, so the verdict is in we were right, they were wrong. They have realized that and now they’re ready to (four years too late but better late than never) to finally embark on very aggressive actions to raise those animal spirits and get people moving. It is not just that people want a risk-free asset, it’s the guaranteed loser asset, that was what they created and ECB wants people to do anything accepts sit on their hands.
Dave: Now that they are going to start a process, which is like ours, we are kind of at the tail end of that process and will be increasing interest rates. Do you think that the US dollar will continue to grow and go stronger? I mean that would normally be the case?
Chris: I think a lot of this big move we’ve had is probably done, it’s probably played out because the markets are not reacting to the ECB starting to do something. The bank of Japan started to do something, that reaction happens much earlier, so when we see a fifteen to twenty percent appreciation in the dollar relative to other currencies. It’s because we’re stronger and they are deflating their currency so that’s why it is happening. A lot of that move has already taken place.
It is also going to have the secondary effect because the dollar is stronger, it’s going to be a real drag on our growth prospects over the next year or as long as it lasts until that stabilize itself again.
Dave: Well the thing about that is we’re stronger pretty much against every other currency. So obviously that hurts exports…
Chris: It sure does.
Dave: But that keeps inflation at bay.
Chris: It does, but the problem is we need inflation, we want it, you know with the year-over-year CPI at negative .1 percent it’s a real problem, you know down the road ten years now we may look back and say the Fed waited to long and we ended up with inflation. Frankly the Fed is not going to come out and say it but that’s an OK outcome.
Dave: Because the alternative would be deflation.
Chris: The textbook example of how not to manage an economy it to look at what the Bank of Japan did. They where shooting at the grizzly bear with a BB gun and it is not dropping. It is not going anywhere, they’ve got themselves into this debt deflation spiral where their debts now over two hundred-percent their GDP whether their interest costs are small. It’s not going to last that way forever and it’s a terrible spiraled get in to, deflation is never going to be a good thing.
Dave: They’ve been going through that for how long?
Chris: Really they’ve been fighting it hard or fighting it poorly for 15 years, well the peak in the stock market and the peak in their real estate market they both occurred at same time, 1989. So you talk about twenty-five years ago. They had a lost decade and then another lost decade. You know when I was in school we held Japan as the example the ideal economy to have. They probably grew a little too far too fast. Now they finally figured out what they need to do it actively combat deflation.
Dave: Right, Chris how can people reach out to you, how can people connect with you or follow you.
Chris: I don’t have a twitter account, I don’t have a Facebook account, I am not on LinkedIn.
Dave: You’re off the grid.
Chris: I am off the grid, but my email is CBennett@vicecapitalmarkets.com you can look up Vice Capital Markets on the web as well and reach out to me that way. Our number is 248 869 8100 at the trade desk. There’s no such thing as voice mail, you’re always going to get a person. I really am always available and I love talking to people about their perspectives and getting to share a lot about what’s going out on the world today.
Dave: Well great job again today thank you!
Chris: Thank you so much I appreciate it
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