Interview: Former Economic Adviser to Bill Clinton
>> a report today showed improvement in consumer confidence and we learned the trade deficit widened to another record. what kind of news will come down the pike? we’ll ask bloomberg contributor, gene sperling, former economic adviser to president bill clinton, joining us from washington for a closer look at the economy. gene, wanted to start off with what seems to be the dichotomy in the bond market and stock market . bond investors concerned about economic growth. the stock side really saying everything seems to be looking ok. what’s your take?
>> i don’t think anybody can completely explain the lack of concern on the long bond right now. this is a subject of as much speculation as anything that we have seen. you look at current account deficit today, 6.4%. the oecb was projecting 900 billion in 2006 for the current account deficit and today we’re coming in at 195 billion, almost an 800 billion pace for this year alone. there are a lot of people deeply concerned about whether the global imbalance raises the risk of some form of hard landing and how much longer the interest rates can stay as low as they have been.
>> john snow saying today that the deficit highlights strength in the economy. what’s your reaction there?
>> i’m sorry, he said the deficit --
>> is highlighting strength in the economy.
>> i think what the secretary may be referring to is that the deficit was $412 billion last year, the administration was saying it would be over $400 billion. there has been some growth in revenues so we may see it now go under $400 billion but these are temporary fluctuations. the long-term projection is still quite negative. you have independent analysts at goldman sachs still looking at $4.5 to $5 trillion of deficits in the next 10 years. i think it’s the combination of the deficit with the trade deficit, the full current account imbalance making most people nervous even though we have not seen the kind of serious ramifications so far that some fear.
>> if we tie it back to the markets , that dichotomy between the bond market and stock market , do you think the bond market is calling it right?
>> no. i really don’t. bob rubin was the other day quoting a very knowledgeable european investor. he said he thought every single thing was being well valued in the market right now except risk. there seems to be an enormous discounting of the potential for these current account imbalances, the 6.4% we’ve seen, $195 billion in the first quarter, to ever come home to roost. there is an academic and oecd, i.m.f. circles, people are very worried about the potential hard landing but you are not seeing it in the bond market . as the new homeowner, i went through the 30-year fixed great. at a personal level, i’m more worried about what’s going to happen to long-term rates in the future.
>> today you had oil reaching another record high. how great of a risk is this in terms of economic growth?
>> it was a funny day with the university of michigan consumer confidence numbers go up a little but we’ve lowered our standards. they went up but they went up to where they were in 2003 and they’re still below where they were, really, during the recession. so when it comes to consumer confidence, you always worry about energy prices because energy, particularly gas prices, they’re right in people’s face. they see them at the pump so in addition to the impact it has on their pocketbook directly, there’s usually a psychological impact particularly when you see gas prices go to new levels. $58 per barrel, will it get to $60, will it get to $70 and psychologically, will it start getting to the pump if we start seeing price per gallon at $2.40, $2.50, that’s the type of growth that has a psychological impact and at a period where healthcare costs are taking up wage growth, the last things we need are oil spikes.
>> what do you anticipate we’ll hear from the fed at the end of the month?
>> i think the fed will stay on the steady pace. i expect them to keep going up another 25 basis points. i don’t think that’s because they’re so confident about the pace of growth. i think it’s because they believe it’s still an accommodative stance, i think they may be more worried than they suggested about whether the low rates are fueling too much speculation in the housing market and when they’re balancing everything, i think they believe the steady-as-it-goes pace is the right place to be. i expect another 25-basis-point move up.
>> have a great weekend. taking a quick break, we’ll look at the effect of the dollar’s rally on corporate profits when we return and the “world’s biggest mover.”
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Listen Market briefing --- Ellen (slow)
TYCO --- Allan (slow)
>> as we’ve been talking about, the second trial of dennis kozlowski, former chairman and c.e.o. of tyco, did end today with a conviction. his co-defendant, mark swartz, tyco’s former finance chief, also convicted. allan dodds frank is at the courthouse with more. allan?
>> ellen, the jury of six men and six women deliberated for 11 days and found dennis kozlowski and mark swartz guilty of 22 of the 23 counts against them. prosecutors accused the men of stealing more than $137 million from tyco and of illegally making $405 million in improper stock sales of tyco’s stock. itose trades were not disclosed to shareholders. after the verdict, kozlowski and swartz were stunned while members of their families broke down. after meeting with the judge, who set sentencing for august 2, charles tillman, lawyer for mark swartz, told reporters that the money that was involved in the case is so staggering, so many millions of dollars, he thinks people couldn’t get their mind around that number and as a result, even though he contends his client never stole a dime from tyco, the jury obviously thought otherwise. the jury found the 58-year-old kozlowski and 44-year-old swartz guilty of all 12 counts of grand larceny against them, eight of the nine counts of falsifying business records and single counts of conspiracy and stock fraud under new york’s general business law. the verdict followed a 13-week trial featuring testimony from both defendants. the first trial ended in a mistrial in april 2004 when only mark swartz took the stand. the two men face as much as 25 years in prison for grand larceny and the other lesser offenses. the way the prosecutors say the gentlemen told the $137 million is by giving themselves unauthorized bonuses, cash, and forgiving company loans. prosecutors said kozlowski’s lavish lifestyle in the decade he ran the company included a $2 million birthday party for his wife, million dollar works of art and a $6,000 shower curtain. both kozlowski and swartz testified that they had no intention of stealing from the company and the bonuses were authorized by a company director who has since died. in her closing argument, the prosecutor called that part of the defense despicable. lawyers for both men say they will appeal the verdicts by the jury and more on that later. ellen?
>> allan, thanks so much. taking a break. when we return, consumer confidence rising, the trade deficit widening. we’ll speak with gene sperling, former economic adviser to bill clinton, about his views on the economy.
