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Economist on market volatility: 'This is a highly uncertain environment'

In this article:
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Robert Dye, Comerica Bank Chief Economist, joins Yahoo Finance's Kristin Myers to break down the latest market action amid the short-squeeze saga.

Video Transcript

KRISTIN MYERS: I want to continue on with this conversation, and now I want to bring on Robert Dye, Chief Economist with Comerica Bank. So, Robert, we have this frenzy in the markets lately. Its target, as we were just talking about, was GameStop and then AMC, and now it's on silver. I'm curious to know what this does to companies like GameStop or AMC or Express or some of the others in terms of their stability as you see their stock prices surge and then completely drop again in just a matter of hours.

ROBERT DYE: Well, as you see, it's like the Wild West out there. There's a huge amount of liquidity floating around in the system, Kristin. And if you're an executive in one of these companies, you're watching these-- the ticker just go in incredible-- with incredible velocity. And certainly when you compound with all the economic uncertainty out there and coronavirus and everything else, it's the understatement of the year to say this is a highly uncertain environment, and it's very difficult to plan through this. So I don't envy those executives who are dealing with this.

KRISTIN MYERS: So as you just mentioned, this is piling more uncertainty in already uncertain times. So as we look then more broadly, how do you see this at all possibly impacting the economy or even economic recovery?

ROBERT DYE: Well, we've got some huge issues that we're dealing with right now, Kristin-- of course the coronavirus and the efficacy of the vaccine and the potential for mutant strains of the virus; huge amounts of fiscal stimulus in the system, $900 billion coming at the end of last year, right at the beginning of this year; and now we have the Biden administration proposing a $1.9 trillion program and some-- a group of Senate Republicans, of course, coming back with a counterproposal of about a third of that. So there's a long way to go here before we reach some consensus about what we need to do for the remainder of this year in terms of some of these sources of uncertainty.

KRISTIN MYERS: Now keeping on that because in your notes you talk about how economic risk factors are already complex and how they are becoming even more complex as this time has been going on. I'm hoping you can talk us through that, how you see some of these economic risk factors becoming even more complicated.

ROBERT DYE: Well, like I said, we've got-- we've already got some stimulus coming into the system or in the system. We've got a proposal for more. We have the uncertainty of the vaccine distribution system. We don't really know exactly when that break-even date is that we start to put coronavirus behind us. Maybe it's around Labor Day. Maybe it's a little bit earlier, maybe a little bit later.

So what's emerging right now is this consensus forecast for a rebound in the second half of this year, but there's a lot of wiggle room around that in the second half of this year. We're talking anything from July through November, December. And on a day-by-day basis, we tend to sort of get pushed back to the end of that or pull it up. And so that's a very big window now, and I get concerned about that because, you know, I am concerned about the vaccines. I am concerned about the hybridization of it and the efficacy of the vaccines, and we can't take any of this for granted right now.

KRISTIN MYERS: When we were talking about, you know, those complex risk factors, in your notes you actually spelled complex with a K. Obviously a shoutout to that K-shaped recovery that we have going on. I'm wondering if there's a fear that perhaps that this recovery could become that K being even more exacerbated, especially if we don't get stimulus.

ROBERT DYE: Well, all recessions and recoveries are K shaped in that there are winners and losers, but we just see that in every way you can slice and dice the economy right now. Certainly in the housing market, if you're upper-- middle-upper-income households, you're driving a very hot single-family housing market. If you're caught up in the closures due to the coronavirus and perhaps working in the service economy, you might be falling behind on your rent. You might be very concerned about a possible eviction at the end of the day.

So again, vastly different worlds that we as a society are living in right now, and it's making this very complex because, as the Biden administration and Congress negotiate the next fiscal package, they're really having to do a lot of guessing and a lot of fine tuning about who gets what money. Where do they need the support? And that process is getting very, very difficult right now.

KRISTIN MYERS: All right, so I want one really, really quickly with you here because the Congressional Budget Office actually sees-- and you were mentioning that GDP rebounding by mid-2021, the labor force are turning by 2022. What did you make of that estimate? It seemed so much of a rosier forecast than I would have anticipated, especially given some of those things that you were just mentioning a moment ago.

ROBERT DYE: Well, the big caveat here is coronavirus. So let's say we get the vaccine out there. We start to put coronavirus in the rear-view mirror. We look at the second half of this year with very low interest rates, a huge amount of liquidity out there, improving consumer and business confidence, and then we have the spend-out of all this pent-up demand. I'm confident that every one of us listening now can think of about 10 or more things that they want to do once coronavirus ends or the world normalizes in some way. So a huge spent out of pent-up demand fortified by all the liquidity sloshing around in the system, and that's what's boosting those second-half GDP forecasts.

KRISTIN MYERS: All right, Robert Dye, chief economist with Comerica Bank, thanks so much for joining us today.

ROBERT DYE: Thank you.