Monday, October 5, 2009

Reaching Escape Velocity?

As I'm currently out of work, I went to the annual CFA networking day here in Philadelphia, last Friday. Most of the exhibitors said they were currently only hiring "replacements" (people who had retired, moved on, etc.) so it wasn't a great day for me professionally so, as usual, I was more interested in the speakers and the panel discussions.
The keystone speaker this year was Tony Crecsenzi, Senior VP at PIMCO. He began his speech by talking about the economy and the chance that it will reach escape velocity from the recession by 2011. He outlined the pros and cons of the Fed's actions, the TARP and what effects the stimulus will have, all without giving his opinion. Then he asked for a show of hands from the audience (about 250 CFA Charterholders and Candidates) if they thought the economy would reach escape velocity by 2011 without further stimulus. Only two people said yes, the rest of us said no--that we'll need more stimulus.
This may, or may not, be surprising to most people, but it was surprising to me. Most of the CFAs and MBAs I know are fiscal conservatives--typically against government spending. However, CFAs are usually more quantitative in nature, with a higher degree of financial literacy than most (even over MBAs) so perhaps they understand the economy in a much more detailed way than the average financial industry worker.
Crescenzi finished his speech by highlighting a drag he forsees on the growth of the economy in 2010 and 2011 -- the expiration of the Bush tax cuts -- and perhaps a bright spot for further stimulus. Without further stimulus, he believes the economy won't reach escape velocity by January 1, 2011 (when the Bush tax cuts expire). But the mid-term elections (he believes) typically see the ruling party lose seats in Congress. With the economy still dragging by then, the tax cuts will have to be extended (an unfavorable proposition for Democrats) so perhaps it will force them into action on a second round of stimulus. Well, fingers crossed I guess. I need a job sometime before 2011.
Here are the guts of Crescenzi's speech if you're interested.

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