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Harlan Levy
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Harlan Levy was an attorney at the Federal Communications Commission's Cable Television Bureau before becoming a reporter at WGTR-AM in the Boston area. He then worked as a TV news reporter at WXEX-TV Richmond, VA., WCIX-TV Miami, FL (winning an Emmy), and WVIT-TV, West Hartford, CT. He was... More
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Harlan Levy's Business Journal
  • Interview With Oppenheimer Asset Management Chief Investment Strategist Brian Belski: Eurozone Debt Problems Are Not A Major Factor In U.S. Economy.

    Brian Belski is a managing director, chief investment strategist, and leader of the Investment Strategy group at Oppenheimer Asset Management. Previously he was the chief U.S. sector strategist at Merrill Lynch.

    Harlan Levy: The U.S. economy seems to be improving, given recent data, but is it too soon to say we're out of the woods?

    Brian Belski: No, especially considering the depth of the pullback, No. 1; No. 2, the general skepticism from investors and consumers; and No. 3, the over-reliance on sound bites by consumers and investors, which continues to put a swirl of speculation about the market.

    H.L.: What's your prediction for the U.S. economy this year and in 2013?

    B.B.: We are projecting 2.5 to 3 percent growth in Gross Domestic Product -- slow but steady improving growth. We want to be in a situation where we can up our projections rather than lower them. That was the trap of many economists last year. They had too high projections and had to bring them down.

    H.L.: Where are we in the housing market?

    B.B.: We believe housing is in the process of bottoming through the summer. Bubbles take 10 years before appreciable asset accretion occurs again. So if housing prices topped in 2007, 10 years from there would be 2017, so we're about halfway through the unwinding of the bubble. That's the bad news. The good news is that we're starting to see signs of bottoming and that excess inventory is being worked off, and that's a positive.

    H.L.: Some economists say that the immense sovereign debt problems in the Eurozone are a major factor in how the U.S. economy will fare. What do you think?

    B.B.: That is a fabrication in the press which has come to that conclusion and pushed it down our throats. No one knows for certain the magnitude, low or high, with respect to the eurozone situation. The press is blowing it out of proportion because they didn't do the work. When you do the analysis and look at the percentage of business done in Europe and the percentage of companies doing business in Europe it could be a positive for the U.S. Let's not jump to conclusions.

    No one is talking about the positives of a slowdown in Europe. For example, companies around the world could be much more comfortable doing business with American companies rather than European companies, given the consternation of ongoing events in Europe. That could be the positive that no one is talking about. So we believe that this instant conclusion that the problems in Europe will have a negative impact on the U.S. economy is way overblown and is one of those sound-bite conclusions that we cannot and will not support.

    H.L.: Is the stock market responding too optimistically?

    B.B.: No, because institutional investors are playing a near-term game of catch-up, given that No. 1, they underperformed last year; No. 2, they owned the wrong stocks in their portfolios; and No. 3, the fundamental constructs of the United States market is the strongest asset in the world.

    H.L.: What do you see ahead for stocks and the market?

    B.B.: We continue to be very comfortable with our 1,400 target for the S&P 500. It could occur sooner than later, but we believe it would be difficult to exceed 1,400 without a few things: No. 1, we need constructive and consistent job growth. No.2, we need to see some sort of definitive plan with respect to structural change in Washington D.C. What does that structural change include? A, cut costs. B, build revenues, and C, we need some sort of tax reform that will incentivize companies to employ U.S. workers.

    H.L.: So where are we with jobs?

    B.B.: Again, we need to see stronger structural change out of Washington in terms of tax reform and tax incentives to hire before we see substantive gains in employment, but employment overall on a short-term basis is improving.

    H.L.: How would you build revenues, and would you have to increase taxes?

    B.B.: It doesn't necessarily mean you increase taxes. You come out with new revenue streams or different revenue streams. No. 1, you offer a one-time repatriation [of U.S. companies' cash held outside the U.S.], and once that cash is here, you tax it at the revenue amount. NO. 2, you incentivize companies to hire. You give them a laddered tax situation for the next five years, putting forth a situation where you are able to hire employees, and those people you hire are paying income taxes. No. 3, you simplify the tax code where you go after those companies that are not paying taxes and simplify to the point where those companies that are over-paying taxes will come back down to reality where everybody else is paying. Those are three revenue events where you don't have to increase income taxes.

    H.L.: Should the tax cuts for the rich, the "carried interest" tax loophole - which allows private equity and hedge fund managers to characterize their labor income as a capital gain, taxable at 15 percent -- and other tax provisions favoring rich people be eliminated?

    B.B.: No. There are loopholes across the board that are not just about the rich, and that's all I'm going to say about that.

    H.L.: A lot of commentators talk about the widening income inequality in the U.S. as an issue of unfairness that must be addressed. What do you think?

    B.B.: Income inequality is a direct result of capitalism. If you want income equality, that's a more socialist communist platform, and history has shown that that doesn't work.

    H.L.: Should bank regulations be dramatically cut and are proposed rules just too complicated

    B.B.: There are four areas that we think could ultimately be regulated, one of which could be the hedge funds, two would be the futures markets, three would be the high-frequency traders, and the fourth would be the leveraged exchange traded funds.

    It is our belief that any legislation with respect to regulation should be clear-cut and concise, meaning the more noisy it is, the more paradoxical it is, the less likely people will be comfortable with it. We need to be able to sell it to the American people that, in fact, this will be a good thing. The more confusing it will be, the more no one will understand it.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours.

    Additional disclosure: No other stock plans

    Jan 23 12:35 AM | Link | Comment!
  • Mark Zandi: Job growth to double in 2011. No reason to be nervous about stocks.

    Mark Zandi is chief economist of the economic research and consulting firm Moody’s Analytics. He is also the author of Financial Shock, an exposé of the financial crisis. His forthcoming book, Paying the Price, provides a roadmap for meeting the nation’s fiscal challenges.
     
    H.L.: How upsetting to the U.S. and global economies is the turmoil in Egypt, Tunisia, Yemen, and any other countries that follow their lead?
     
    M.Z.: It’s premature to draw any conclusions. I don’t know. I assume if the turmoil spills over into much of the Middle East it would be a problem for the global economy, but it’s much too early to think that that is what’s going to happen here.
     
    H.L.: What do you think of the dramatic negative stock market reaction on Friday?
     
    M.Z.: Stocks react to information that’s often important and a lot of times not.
    I don’t think it’s important from a macroeconomic perspective. It’s obviously important to people in the market, but I don’t think it has any meaningful broader economic meaning, at least not yet. The market has been going pretty much straight up for six months. It would be surprising if it didn’t correct at some point in time.
    Fundamentally, the economy is in good shape. Corporate earnings are strong. Interest rates are low. Prospects are good. Valuations are reasonable. I don’t see any reason the market should go down for any extended period of time. It may correct, but I don’t think there’s a reason to be nervous about the stock market.
     
    H.L.: What’s your outlook for the economy in 2011 and 2012?
     
    M.Z.: I’m optimistic; I think growth will accelerate and create more jobs, and unemployment will decline. The unemployment rate today is somewhere between 9.5 and 10 percent, and I expect it to be close to 8 percent by the end of 2012.
    There are many reasons for optimism. But fundamentally it’s because American companies are very profitable, and their balance sheets are strong. It’s no longer a question of can they invest and hire more aggressively. It’s a question of are they willing. I expect they’ll become more willing as we move through 2011.
     
    H.L.: Talk a bit more about the jobs picture.
     
    M.Z.: The economy created 1.35 million private sector jobs in 2010 from December to December, and I expect job growth in 2011 to double that — somewhere between 2.5 million and 3 million. That’s enough to bring down unemployment in a meaningful way.
     
    H.L.: Is the housing situation stuck in the mud?
     
    M.Z.: Yes. The weak link in the economy remains housing. Home sales, construction, and house prices are still moribund and very weak. I would say the market is stabilizing but at very low levels. I do expect more house price declines this year, because there is still a couple of million loans in the foreclosure process that will go to a distressed sale during the year, and that will put downward pressure on house prices.
    Housing remains a threat to the economy. I think it’s the most significant threat to the economy at this point. I think the economy will make its way through and digest the house price declines, but that’s the key risk.
     
    H.L.: Will Congress do anything on the deficit the next two years, or are we in for a continuing stalemate over Republican efforts to slash spending and Democrats intent on spending now and cutting later? If so, will that be a substantial threat to the economy?
     
    M.Z.: I don’t think there will be a significant amount of progress in addressing our fiscal problems in the next two years. I think our deficit will shrink in the next two years because of the better economy, and I’m hopeful that policy-makers will use the next two years to develop an intellectual consensus about what to do, and then when the next president takes office there will be legislation, and we’lll meaningfully address our fiscal problems.
     
    H.L.: What’s the correct policy on spending and deficit reduction?
     
    M.Z.: My view is that roughly three fourths of the deficit reduction should come through spending restraint and one quarter through tax increases. On the tax side, I think we nee to focus on reducing tax expenditures like the mortgage interest deduction, the property tax deduction. If we reduce those expenditures we could even lowermarginal tax rates.
    On the spending side I would focus on two things: One is cutting discretionary non-defense spending, which the president has proposed, and the Republicans in Congress seem amenable to. I’d also focus onSocial Security, and I’d move it from being an entitlement to being an insurance policy so that your benefits depend on your financial situation.
     
    H.L.: What should we do about Medicare.?
     
    M.Z.: That’s clearly a serious problem, but I would wait to address that until after we do the things I just proposed. It’s a very difficult problem that requires a look at the health care system, and I don’t think anyone’s prepared to do that in the next several years,and I don’t think we need to. We can redress that a few years down the road.
    Jan 31 9:46 PM | Link | Comment!
  • Federal Reserve Bank of Boston Economist Robert Triest: Unemployment to fall 0.8 percent per year the next three years.


    Robert Triest is a vice president and economist in the research department of the Federal Reserve Bank of Boston.
     
    Harlan Levy: What’s the outlook for jobs
     
    R.T.: Over the next three years, the unemployment rate will be gradually falling, and inflation will be very subdued in the immediate future, then gradually increase to a longer-term range that’s consistent with the price consistency the Fed is mandated to maintain of roughly 1.5 to 2 percent.
     
    H.L.: Analyze the December economic data a bit, please.
     
    R.T.: The latest job data was a mixed bag. The growth in payroll employment was only 103,000 in December, so that’s a disappointment. It was below what most economists were expecting. On the other hand, the unemployment rate fell from 9.8 percent to 9.4 percent, so that was actually better than expected, although that tends to be a little more volatile when the growth in payroll employment is an indicator of overall strength and activity.
     
    So I’d expect that per year over the next three years or so the unemployment rate each year will be dropping somewhere on the order of about eight tenths of a percentage points per year.
     
    H.L.: What do you think of the economy?
     
    R.T.: The economy is improving. We had some positive news in December both in terms of some of the new economic data that came in, but also what happened in the policy environment The extension of the tax cuts and some of the other elements in the fiscal bill was positive news.
     
    The Federal Reserve has undertaken a large-scale asset purchase program for longer-term Treasurys that will help to maintain really low longer-term interest rates. So there’s a lot of policy support for additional growth in the economy.
     
    H.L.: The Fed says it will spend $600 billion to buy longer-term Treasurys in the first half of this year, supposedly to fund programs and recipients to help the nation’s economy. But after June 30, when the money stops, won’t the floor collapse a bit?
     
    R.T.: The hope and the expectation is that this is jump-starting the economy, and so government stimulus, whether it’s fiscal stimulus (from government, including Congress)or the stimulus brought about by monetary (Federal Reserve) policy , you have to jump-start the econcomy to the point where the recovery is sustained on its own power.
     
    So as we have a pick-up in growth in investment and consumer spending, that will be really self-perpetuating itself and be able to keep the economy growing beyond the period of the stimulus provided by the large-scale asset purchases.
     
    Of course we’ll be meeting multiple times during that period and could be adjusting the policy stance depending on incoming data.
     
    H.L.: Republicans in Congress are determined to cut spending drastically but not cut Medicare, Social Security, or defense or raise any taxes. Some economists see that as nothing but bad. What do you think?
     
    R.T.: What you’re talking about is the longer-term fiscal picture, which is fairly dire. We have long-term structural deficits that need to be addressed.
     
    I tend to be an optimist. There is a bipartisan commission appointed by President Obama that reported in December, and I’m optimistic that members of both parties will come along to support some elements of that.
     
    H.L.: But how can you not raise taxes and not cut spending in Medicare, Social Security, and defense and then do dramatic spending cuts somewhere, but I don’t know where. Do you?
     
    R.T.: There is an arithmetic problem that it’s really hard to cut discretionary spending by enough to solve the long-term deficit problem, so something else is needed.
     
    In the short-term, deficit spending is a necessary component to help to sustain the recovery until it’s self=perpetuating. In the longer term, the structural deficits do have to be addressed. There are basic arithmetic constraints in terms of where you can get enough money to make the fiscal situation sustainable in the long term.
     
    Again, when you listen to political proposals, it’s hard to read much into that until the different parties come to the bargaining table and decide on some package that can get through Congress. You have to remember that when political positions are being staked out what happens is that there will be some compromise that will have to be reached in order to come up with a workable plan. I remain an optimist that despite some of the rhetoric, when it really comes down to crunch time, the parties will come together and strike a compromise that will put us on the right path.
     
    H.L.: Won’t Congress have to raise taxes, no matter what anybody says to convince us to the contrary?
     
    R.T.: It’s a matter of where do you come up with the money to put the nation on a sustainable fiscal path. It’s very difficult without either tax increases or cuts in the major expenditure programs. That’s as far as I’ll go.
     
    H.L.: What is the situation with Social Security, Medicare, and defense?
     
    R.T.: Social Security has a long-term fiscal imbalance, but it’s actually relatively manageable. It could be addressed even just within the confines of the Social Security program per se: raising the normal retirement age, increasing the payroll tax rate moderately, extending the base over which earnings are taxed under the Social Security payroll tax.
     
    Medicare and Medicaid is a much tougher problem to solve. A lot of that is due to underlying trends in medical costs that are driven largely by improvements in medical technology. But even that problem is in the sense of we expect further advances in medical technology. Those things will be expensive, but they may well have wonderful prospects for things like health and longevity. So we have to pay for that, but it’s not in itself bad news.
     
    If we just froze technology where it is now, there’d be upward pressure on medical costs for the aging population, but that’s relatively moderate compared to what’s generated by technology changes.
    Jan 18 9:58 PM | Link | Comment!
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