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Five Good Items on the Market's Menu

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to a special Thanksgiving edition of the Friday Five.

There's a lot on the market's menus this holiday season, including a few items to be thankful for. Here with me to offer the rundown is Morningstar market's editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: Jason, I'm always very thankful that you join me on the Friday Five.

Stipp: What do you have for the Friday Five this week?

Glaser: Well, as you may know, my favorite part of Thanksgiving, like a lot of people, is the eating. And I think that the things I prefer are mostly food related, being that we didn't turn into pumpkins when we got to the auto bailout, that monetary policy remains easy as pie, that we've had a lot of gravy in corporate earnings, that the Tryptophan from the Turkey seems to be keeping us pretty calm, and finally that we're being stuffed with relatively good news about the consumer.

Stipp: GM's recent IPO and our analyst take on it seems to show that the domestic auto industry, at least in GM's case, did seem to benefit from some of the government assistance and may have a brighter outlook. What's your take on that?

Glaser: We talked about this a little bit last week, but I was extremely skeptical when the auto bailout was happening at the height of financial crisis. It seemed like we were throwing a lot of good money after bad and that was hard to see how General Motors and Chrysler were ever going to become profitable institutions again.

But I've been proved wrong. Really the kind of forced bankruptcy and the rushed bankruptcy allowed these companies to re-tool and has created a really blossoming domestic auto industry, and along with that the ecosystem of the suppliers and the dealers and the other people who service the auto industry.

So it's hard to imagine that without that bailout, without that bankruptcy, how many jobs would have been lost. We probably would have lost the domestic auto industry forever. I think, Ford certainly would have gone under. So I think, we're thankful that it did happen, that it did work, even if I was and a lot of other people were skeptical of it while it was going on.

Stipp: In national news and on the economic front, the Fed had to push the accelerator a little bit again recently hoping to stave off deflation. Do you think it's really going to be as easy as pie with the Fed's additional stimulus?

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Glaser: Well, it's good to have, I think, very loose monetary policy, very easy monetary policy right now. One of the big fears has to be deflation. If you look what's happening with the Consumer Price Index, if you look at the fact that prices just haven't moved that much, we could run into a situation where if the price level is continuing to decrease, it's not going to do any wonders for helping us delever.

One of the big problems right now is that consumers are out there trying to repay their debt; the corporations are out there trying to repay their debt. And if those dollars become relatively more expensive, their debt dollars, which is what would happen if deflation really took hold, it would be almost impossible, and I think that trying to entice a little bit inflation in the market probably makes a lot of sense.

Could they go too far? Absolutely, you can always have one too many slices of pumpkin pie; you can always end up being too stuffed. I think it's certainly something that's a real possibility and something we really need to be afraid of, but as of now I'm glad that we're trying to tackle it and not just hope that it won't happen.

Stipp: Well, certainly, it seems like the economy may need to have a little bit of appetite stimulation. One area where it seems to be doing pretty well, though, is on the corporate front. We've had a few earnings seasons now where we are really worried that, is it going to continue, is it going to continue? But so far corporations have kept it up.

Glaser: It looks like it has. Corporations are doing a great job in managing through the downturn and now through the recovery. They cut costs where they needed to. They made investments in the areas that were absolutely necessary. They did invest in some areas that might have been somewhat superfluous.

They are really focused on their core products, focused on their core visions. And we've seen it in results that margins have looked great, revenue is starting to come back, especially companies that have exposure to emerging markets are doing exceptionally well. I think it's something that we thought corporate earnings will take a little bit while to go back, and they are back. I mean, they look really nice, supporting the higher stock market valuations, the higher stock market levels that we have right now, which has put a lot of smiles on investors' faces. I think the fact that corporations were able to handle the downturn so well, were able to be so flexible, It speaks volumes about the strength of corporate America and shows the recovery really can take root for good.

Stipp: So, things seem to be looking little bit brighter on the corporate fund. Have the markets really calmed down? I know I feel a nice sense of calm after eating a nice holiday meal, but how is the market feeling recently? Is it still as jittery as it was?

Glaser: I think the market and investors in general are a lot calmer now than they were a year ago or two years ago. Things like the Irish bailout, even the attack this week of North Korea and South Korea. People were certainly jilted, the market's fell, but it's not just this absolute panic, absolute freefall the world is coming to an end.

These are serious issues and ones that could have serious implications on corporate earnings, could have serious implications on the path of a lot of different economies, but instead of overreacting, people take a measured approach to it, a wait-and-see approach. I think it's one that's a lot healthier and one that, A) get people to sleep at night and get rid of some of that volatility that was just killing the market.

Stipp: Sure, lastly Jeremy, this being Black Friday, a lot of people are going to be focused on the consumer. What are the indicators been saying recently about the consumer? It seems like consumer might be feeling a little bit better. Can we hang our hat on that yet?

Glaser: I don't know if we can hang our hat on it yet, even if it's a lovely pilgrim hat, but I think that certainly the consumer is much stronger now, this Black Friday, in this holiday shopping season than they were last year.

Unemployment, although still very high, we're starting to see that track in the right direction. Consumers are willing to spend the money that they have. The retailers for the most part are very bullish about the holiday shopping season, and are expecting inventory to turn pretty well. It's going to be better. I don't know, if it's all the way back, if it's ever going to get back to where it was at the peak, but I think the fact that consumers are truly out there, that consumers are feeling a little bit more confident is a good sign for the economy as a whole.

Stipp: Well, Jeremy, thanks for joining me and hope you have a great holiday.

Glaser: I will, Jason. You too.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.