Contact

News

 

Recovery Ahoy?


JAN HOPKINS: My next guest says the recent rise in the stock market does signal an economic recovery, but as with all signals, we have to be very careful now about how we read them. Regular MONEYLINE guest Lakshman Achuthan is with us now.

So investors are betting that the economy is going to get better soon. Is that the right bet?

LAKSHMAN ACHUTHAN: Well, it depends how much risk you're willing to take, basically. An economic recovery is always preceded by a cyclical rise in stock prices. However, we have to remember a couple of things. Mainly, that stocks can also give false signals of recovery.

HOPKINS: That happened earlier this year, in fact, right?

ACHUTHAN: Earlier in the second quarter, we had an analogous, a similar rise in the stocks. And many people then said this is it. We're going to see a recovery. It's around the corner. And we held back from calling a recovery because the way we tell what the risk level is by seeing if non-equity related leading indicators are also rising.

HOPKINS: And are they?

ACHUTHAN: Not just yet. It's premature to say that they definitively are. One of two things will happen. Either the non-equity related leading indicators are going to rise smartly, or the stocks are going to have to reconsider that information.

HOPKINS: And which do you think is going to happen?

ACHUTHAN: Well, I don't know. I mean now I'm speculating. I've been objective so far. I think that in order for the non-equity related leading indicators to rise, we need to be able to get over this hurdle of the job market deteriorating. And -- because that's where confidence is rooted. I mean, there's a lot of things, many of them positive that are occurring, to help confidence. The ultimate positive would be a more healthy job market.

HOPKINS: But you know, it's interesting. I've noticed a difference in terms of the numbers of people in stores, and on streets, and at theaters, including Harry Potter.

ACHUTHAN: Oh, sure.

HOPKINS: Is that a sign that the consumer's starting to feel better and will, in fact, be buying at Christmastime and an early sign that the economy's turning?

ACHUTHAN: Well, I think relative to the sharp down that we took after the September 11 attacks, there has been an improvement. But if we can step back a moment from that and look at the broader trends, we see a continuation so far of some of the trends that were in place prior to the attacks, which was cyclical downturn, and a more pervasive downturn in economy.

HOPKINS: But Kathleen was pointing out, you have the federal government about to do an economic stimulus package, the Federal Reserve has been dramatically cutting rates, and a lot of things are in place for the economy to do better. Oil prices are down 30 percent.

ACHUTHAN: Oil prices coming down, I think, are very significant. That's increasing the discretionary spending that we all have in our pocket when we don't pay as much at the pump.

Now with the fiscal and monetary stimulus, monetary stimulus in particular, that's a good leading indicator. It's related, perhaps, to the rise in the stock prices. There's so much money that has been pushed into the economy. And it's not all being spent by consumers, perhaps only sloshing over into the stock market.

That's why we'd like to see those non-investor related series move in a positive way.

HOPKINS: What do you think about the question of mortgage refinancing and the low in mortgage rates? Have we seen it or is it still to come?

ACHUTHAN: Depends on the economic outlook. If you think that the recovery is imminent, you should lock in your mortgage right now. If you think it may be postponed a quarter or so, you'll probably get another shot.

HOPKINS: Lakshman Achuthan, thanks for joining us.

ACHUTHAN: Thank you, Jan.
VIEW THIS ARTICLE ON CNN