Checking Up on the Economy's Mental Health

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Dec. 2 (Bloomberg) --Wells Capital Management Chief Investment Strategist Jim Paulsen previews today's markets and discusses his investment ideas with Betty Liu on Bloomberg Television's "In The Loop." (Source: Bloomberg)

The lack of worry among stock investors is a good sign according to him.

Shows people are now greedy and that is overcoming fear.

How could you say such a thing?

Well, i think we will go into more of a flat year next year.

I think we will continue to rally higher the four we correct sometime next year.

That is my guess.

Run up to 2000 and then correct to where we are today.

A more volatile year before we resume opal run a be in the following year.

-- a bull run, maybe in the following year.

I do not send outsized euphoria right now.

If we keep running ahead in early next year, we make it to the point where we have to correct.

The economy, i think, is behind this.

This global recovery is synchronizing, and now for the first time growth is positive and rising in most places in the world.

United states, europe, japan.

I think that is a big catalyst to the economy.

Scarlet has been looking into the complacency we just talked about in the market, and putting that in context to the lack of volume that we have seen.

That is right.

As distinct -- a distinct lack of fear.

Talking about the vix.

Even as fear dissipates, investors are not exactly jumping back in.

You do not see as much participation.

Volume four security types has been trending lower the past five years him ever since the aftermath of the financial crisis.

What do you make of the lack of volume?

I think that dovetails a little bit with the idea we are more comfortable today than we have been, but certainly not euphoric about the future.

We still think we have problems and issues.

You just mentioned another round of fiscal issues were the first of the year.

I think volume probably will not show up until the tail end of the big market to run.

Where there is truth euphoria like we had in the late 1990s. i think rather than complacency, we have returned more to normalcy, if you will.

Getting back to sanity.

We spent three years incorrect we worrying about the end of the world.

Now we are not doing that so much.

I do not see where we are outsized euphoric and people are taking excessive risk.

That will come, but we are certainly not there.

If you did over worry, then you certainly miss out on making money in the past three years.

Julie has been looking at money velocity.

Explain what this is about.

The subject of jim's latest note.

His definition, the amount of nominal tdp created by each dollar of the money supply.

The number of times one dollar is spent by goods and services per unit of time.

It is about transaction turnover.

In the note he argues the falling velocity of money has given the fed more room to run in terms of the unprecedented stimulus.

The question is whether that will change, whether we will see an uptick in moneys lost next year, and how that will affect the extension of the stock market.

He does not seem too concerned by that prospect.

Why not, jim?

That is why i think we have a flat year.

I think what is driving the market is velocity has turned up.

When the money supply turns over faster, it picks up nominal growth in the economy.

I think that is what is happening.

The stock market is responding by running higher, which it has historically done.

Once it is relies to that velocity is turned up, there is a panic that evolves, a mini pa nic, that the fed has overstayed, that we could have inflationary consequences.

I think that is what we might get next year.

Right now we're in the good stage that no one realizes it, but lofts it he has picked up and driving stocks higher.

Maybe by middle next year we find out velocity has picked up, and that will really change the conversation of the fed and create fear about whether the fed overstayed and whether they can exit the quantitative easing dollars.

I think we could have a correction in the later half of the and year.

One of the consequences of rising velocity will be the bond yields go higher next year.

It came off three percent this year.

We have to run.

We have breaking news.

Jim paulsen.

Breaking news on amazon.

Remember we brought you the story about how amazon is object inc.

To the new york law-- -- objecting to the new york law?

The supreme court has and rejected amazon's side.

They will lead in effect the new york law that forces amazon to collect taxes for new york shoppers.

Amazon losing out against new york state.

This text has been automatically generated. It may not be 100% accurate.


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