Tags: Wien | Economy | Stocks | Third | Quarter | us

Wien: Economy, Stocks to Rally After Dismal Summer

Thursday, 16 Jun 2011 10:45 AM

Stocks are due for a bumpy summer ride when the Federal Reserve ends a stimulus program on June 30, but the economy will strengthen by the third quarter and bring equities indices up with it, says Byron Wien, vice chairman of Blackstone Advisory Services.

The Fed is wrapping up this month a $600 billion bond buyback program, known as quantitative easing, designed to pump money into the financial system and kick-start economic growth.

Market watchers are concerned that once the Fed closes the spigot, stock prices will fall without all that liquidity flowing into the system.
That may be the case for a couple of months, Wien says, but don't rule faster economic recovery.

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Byron Wien
"I think in the final third of the year we're going to see a stronger economy," Wien tells CNBC.

"It's going to be lead by three things, exports as a result of a lower dollar, the consumer, whom I think is more positive than people give him or her credit for, and capital spending, which has been strong throughout."

U.S. gross domestic product grew 1.8 percent in the first quarter of this year, although that figure should approach 3 percent by year end.

"When it becomes clear that we're going to have 3-plus percent growth for at least part of the third quarter and all of the fourth, I think the market will pick up," he said.

"The market tends to do best when people are down on it."

For President Barack Obama, meanwhile, unemployment rates have to come down from the current levels of 9.1 percent, or they'll threaten his chances at re-election.

"Eventually you'll get the unemployment rates certainly into the eights and maybe even by the election date into the sevens," Wien says.

"You've got to get them into the sevens. No incumbent president I don't think has ever been reelected," with unemployment rates that high.

In the meantime, don't worry about government defaults either, Wien says.

Lawmakers are mulling lifting the government's $14.3 trillion debt ceiling, but will come up with a solution.

Failure to do so, government officials and ratings agencies say, will have negative consequence for the economy.

"We've got to raise the debt ceiling. I think both parties realize that it would be politically dangerous for them to be tough on this," Wien says.

Politicians don't like angry voters.

"That's not good for either the Republicans or the Democrats, so I think in the eleventh hour, they'll compromise in some way. I'm hopeful they'll compromise in some that way that won't increase the budget deficit."

Fed Chairman Ben Bernanke has said lawmakers must raise the country's borrowing limit, pointing out that the argument that a new ceiling must come attached with hefty spending cuts is understandable but not the right way to go at this time.

"I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job," Bernanke says, according to the Associated Press.

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Stocks are due for a bumpy summer ride when the Federal Reserve ends a stimulus program on June 30, but the economy will strengthen by the third quarter and bring equities indices up with it, says Byron Wien, vice chairman of Blackstone Advisory Services. The Fed is...
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Thursday, 16 Jun 2011 10:45 AM
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