Kenneth Heebner, Capital Growth Management says the “future is bright,” for markets, and is enthusiastic about the Fed wanting more inflation. Michael Farr of Farr, Miller & Washington, says he would be cautious about this market.
for the first time in 40 years i’m hearing about a fed that’s wanted more inflation. i’ve never heard that before. it can only be positive. when you have an economy with ample surplus capacity, forces that stimulating growth are increasingly different and active. rising prices of stocks. rising price values of homes. the consumer is reliquifying and experience important balance sheet appreciation and the recent spate of negative fears associated with the political brinksmanship over default and the budget — and the government shutdown. that’s behind us. that scared people. we never had a real threat of default before. so now people are free to look at the future. which is really exciting and bright. ken, you have had a great record. you have ridden this bull for all these years. you’ve ridden this bull this bull cycle. you just nailed it. let me just ask you, if i’m right, i may or may not be right, but if i’m right the fed is going to continue to inflate the money supply, whether that works or not remains to be seen. i think that’s their policy. and profits are still rising, albeit slowly, ken. how long does this bull market cycle have left? i get this question all the time. does it have a year? does it have two years? what’s your take on this? it will end when the fed has to tighten because we’ve exhausted our resources. when we’re coming up against bottlenecks in the economy and inflationary forces are rising to a level that the fed finds unacceptable. when your inflation rate is 1%, it can move up to 3% or 4% without the fed having to reconsider its easy policy. rarely in the last 40 years have you had an economy where the fed was probably going to be your friend for three or four years and that is a really bullish, important fact. michael farr, what’s your reaction? i think what ken said is absolutely brilliant. absolutely on target. i know you do. what’s your reaction to that? easy. i think that janet yellen is our new monetary mamma is going to keep the good flow of lots of — empress. she is the empress — empress. okay? she was the queen of the doves but i’ve given her a promotion. she’s now the empress because i think the fed wants 3%, 4% inflation. they need to get this thing growing, because i mean, the fear i think is still deflation and they’ve got so much cash on the sidelines we’re not seeing that. but i worry in a market that’s up this much about new investors coming in with expectations it’s going to keep going up. you get 3% inflation or 4% inflation, you’re going to have higher mortgage rates. and we’ve seen what happened last time. just at the hint that they would taper. we saw those mortgage rates ratchet up. we saw the ten-year treasury ratchet up and the real estate market slowed. i don’t think we can have the recovery if real estate stalls. i’m concerned. cautious. we’re up 26% this year. i’d be cautious about this market. unbelievable. fair enough. i don’t know that the fed can even achieve higher inflation. they haven’t so far. i’m just saying that’s their goal. ken, as an optimist and a bull, what are your favorite investments right now? the industries showing the most strength are automobiles. and i also think that the