All Eyes on Greenspan

This is a partial transcript from "Your World with Neil Cavuto," April 20, 2004, that was edited for clarity.

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NEIL CAVUTO, HOST: Are we too Greeny obsessed? Let’s ask a man whose business depends a lot on interest rates staying stable, Joe Moglia. Joe is the Ameritrade brokerage company chairman who blew away all estimates today.

Joe, what do you think?

JOE MOGLIA, AMERITRADE CEO (AMTD): Well, Neil, I think from my perspective, I don’t think there has ever been a time where Chairman Greenspan has spoken where fed watchers or economists haven’t been able to take two sides with regards to what he said. He’s usually somewhat controversial as far as the marketplace goes. And I don’t think that that is a fair way to evaluate him. I think you have to be able to, one, understand exactly what his job is and then, two, look at how he has performed that job over time.

CAVUTO: All right. Now, he’s done a good job over time. One could argue certain moments there where he botched it. I’m not going to belabor that. But I will say this: that he more or less put the cards on the table today and said, you know, this manna from heaven, it stops, nirvana stops.

Am I simplifying it?

MOGLIA: You know, you might be simplifying it a little bit, Neil. I mean, why don’t we put this in perspective? If he raises fed funds by 100 basis points, you’re at 2 percent.

CAVUTO: Good point.

MOGLIA: When you look at the level of inflation, short-term real interest rates are still only net out at zero. If you look at the long end of the curve, rates could go up by 250 to 300 basis points, and you are still at reasonable historic lows.

CAVUTO: I think you are right, Joe, on all those counts. I think mark perception is another thing. When you get spoiled for a while and have to adjust, that is the tough part. Normally, when the fed even sends hints that it’s going to hike, stocks take a bath. What do you see happening?

MOGLIA: Well, I agree with that, Neil, but that happens initially. I think in the last 50 years we’ve actually had eight recoveries. In seven of those eight recoveries, in the first 18 months of the recovery, interest rates actually went up around 200 or 250 basis points, and the market still turned out OK.

I think when the chairman first winds up saying something, you get a significant, perhaps even an emotional reaction by the marketplace. Then the market tends to settle in, and I think those things get ironed out over time.

CAVUTO: Now, clearly, your earnings and numbers have been piling up some enviable returns. You blew past a lot of estimates today. A lot of that has been based on this increased interest on the part of individual investors in the market. Could that be sullied a little bit if rates start backing up?

MOGLIA: Well, I think it could be. I think, for all practical purposes, the retail investor is a lagging indicator in terms of what goes on. So if the markets were to go through a difficult period for three to six months, you would see the retail investor back up a little bit with regards to their overall activity level.

CAVUTO: All right. Joe, congratulations again. Good having you. Joe Moglia, the man who runs Ameritrade.

MOGLIA: Thanks very much, Neil. Pleasure to be on.

CAVUTO: Same here, sir.

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