The Frothy Markets

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Economic growth may be off in the US. But it's not bothering Wall Street. Almost every day last week — four days in a row — the Dow Jones Industrial Average hit a brand new, all-time, record high.

The week's close, at 13,264, is "over the moon" territory for the Dow by historical standards but is it "over the moon" now? Is there room to go higher? An awful lot of Americans' futures — dreams and plans and savings and retirements — depend on the answer to that question.

This hour On Point: with growth down, Wall Street way up, and futures on the line, where do we go next?

Quotes from the Show:

"The catch-phrase in Wall Street is that this is the Goldilocks economy, not too hot, not too cold. ... The presiding belief is that there aren't signs of really drastic slowdown coming ahead or the need for the Feds to engineer a stronger slowdown." John Authers

"When we talk about slow growth in the U.S., that only impacts part of the revenue stream that US corporations receive. ... International growth has been very good, and interestingly enough, here's a case where the weak dollar has actually helped because earnings in foreign currencies such as euros are now being translated into dollars at greater rates and that helped boost earnings. ... So we really have to think of the global economy and not just the national economy when we talk about the markets." Jeremy Siegel

"Certainly, I do think the economy is slowing, and we're gonna see more slowing over the next couple of months with the labor market numbers on [last] Friday probably a sign of things to come. So I do think you'll see weaker numbers and that will probably elevate risk somewhat. But in the end, I think what we'll have is what the market is probably hoping for, in terms of a soft landing, and from that perspective, it could be a benign outcome for the markets." James O'Sullivan

"The problem [with hedge funds] occurs when there's plenty of money around and the old strategies start working less effectively when you can't really make money the old way. And with the tremendous glut of liquidity in the capital markets nowadays, I think that it's getting harder to find ways of making money and there's tremendous pressure on these funds to keep making money for their investors and for themselves." Raghuram Rajan


John Authers, investment editor at Financial Times.;
Jeremy Siegel, Professor of Finance at the Wharton School at University of Pennsylvania.;
James O'Sullivan, senior economist at UBS Securities.;
Raghuram Rajan, Professor of Finance at University of Chicago and former Chief Economist at International Monetary Fund.

This program aired on May 7, 2007.


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