By DANIELLE DiMARTINO / The Dallas Morning NewsApril 12, 2006In 1983, Susan Byrne founded the investment management firm Westwood Holdings. Back then, she called New York City home.
Though she gets back to New York regularly, she said she has no regrets about moving Westwood to Dallas more than 15 years ago. Westwood managed $400 million in assets when Southwest Securities purchased it in 1993 and managed $4 billion when Southwest spun Westwood off again in 2001.
In a crowded industry, differentiation is more important than ever. Luckily, Ms. Byrne's opinions on the prognosis for the U.S. economy and the financial markets – which she airs regularly as a guest on CNBC programs – are anything but standard fare.
Wall Street's favorite guessing game right now is when the Federal Reserve will quit raising interest rates. The central bank's nearly two-year campaign has resulted in a flat yield curve, in which long-term interest rates pay investors about the same as short-term rates.
Meanwhile, stocks rally at every hint that the Fed is ready to pause. The inherent expectation is that the central bank would lower rates if the economy slows.
Ms. Byrne shared her perspective on why this conventional wisdom is premature.
Where do you think the consensus is off in its outlook for the economy?
People believe that if the yield curve inverts, it will lead to a recession.
Right behind it, people believe the Fed will be easing and we'll be right back to a positive curve.
You can tell by people's behavior in the markets.
But we don't believe short-term rates will come down any time soon.
What we will have is a slowdown, not a recession. That means for at least the next year, we'll continue to see flat short-term and long-term rates. If the yield curve does invert, it will only be a result of long-term rates coming down.
And that's a good thing?
Yes, because this kind of a curve allows people to shift out their liabilities to longer-dated debt. For example, homeowners with 15-year mortgages can move out to a 30-year mortgage. Obviously, there will be people who think they're too brilliant who try to flip condos who will get hurt, but normal people should be able to shift out.
Is this coming slowdown in the U.S. the only thing keeping a ceiling on long-term rates?
No. With the help of the U.S. consumer, other countries continue to grow.
When we buy their products, we send out dollars to their countries.
They, in turn, put those dollars into our Treasury market, keeping interest rates lower than you'd otherwise expect.
That dynamic is also behind the flat yield curve.
You seem to be echoing our new Fed chairman, Ben Bernanke.
The new Fed chairman gets it.
In a recent speech he said, "Look outside the United States."
This was taken as a very confusing statement by the New York City marketplace, which doesn't get it yet.
But the fact is, a lot of the data dependency comes from outside the U.S.
If, for example, China slipped into recession, the Fed would shift quickly to cut interest rates.
Are there risks associated with "not getting it"?
There are signs all over the place of protectionism and the fear that comes from a leadership vacuum.
A better response would be to ask what we have to offer as a country. We've always been a high-technology, creative nation.
If we have neighbors who are gaining industrial wealth, instead of competing on price for natural resources, we should be looking into a pure research and development alternative.
We should get ahead of the curve as we always have, and I don't just mean wind power or something along those lines.
I'm talking about technology that could allow for the storage of electricity, for example.
The transition of the U.S. economy being "it" to being part of a world pie is psychologically rough, but it doesn't have to be us vs. them.
But isn't it playing out as "us vs. them" in front of our very eyes?
As long as the jobs being lost were in the old Rust Belt, everything was OK.
But when your child – who played by the rules and got a good education – is being replaced, you have a real challenge to the social fabric.
If it is someone who could, perhaps, read X-ray charts, it doesn't fit the American social compact of playing by the rules.
It's funny – when we look at France, we're slack-jawed that the leadership has failed to prepare its people for globalization.
But what's happening here is not so different.
For now, though, it continues to work – they still need us to buy their products, and we still need them to buy our Treasuries.
With midterm elections around the corner, we could well see protectionist legislation. Is there risk of a backlash from other countries?
In recent years, the real source of growth in this country has come from BRIC countries.
Brazil, Russia, India and China – they all buy Otis elevators, Caterpillar tractors and Boeing airplanes.
If the U.S. is going to have a recession, it will come from a slowdown in the BRIC economies that would then back up into our economy.
After all, recessions come from something that's been doing really well slowing down.
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