Interviews

Dow 17,000: Is Wall Street due for a major market correction?

This is a rush transcript from "Your World," July 3, 2014. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Meantime, forget Arthur taking aim at the North Carolina coast. Is Wall Street due for a major storm after this sunny run- up? Because it has been now more than 1,000 days since we have had a major market correction.

What that means is stocks are trading 10 percent or more from their highs, which is sort of like a cleansing process that folks like former New York Stock Exchange boss Dick Grasso say you kind of need markets to sort of weed out the bubbles.

Jonas Max Ferris says storm clouds are building nevertheless because we haven't seen that.

So, Dick, worried, not? What do you say?

RICHARD GRASSO, FORMER CEO, NEW YORK STOCK EXCHANGE: Well, Neil, great to be with you.

CAVUTO: Same here.

GRASSO: Happy early birthday to America.

You need a cleansing. OK? Nothing goes straight up nor straight down, so expect 7 to 10 percent at some time.

(CROSSTALK)

CAVUTO: Does it bother you that it's been 1,000-plus days?

GRASSO: Well, you know, the longer it takes, the more likely it will be closer to 10 or 12 percent. But that's OK.

Our jobs numbers today was good, not great. No reason for celebration.

Too much part-time, not enough what I will call core job creation, construction industry. When you see us hiring ironworkers and plumbers and carpenters, electricians, that means we're building, we're growing. That's got to come.

Right now, we have got the twin effect of a very accommodating Fed. And I think that the chair's comments last week and over the last few weeks about being cautious, about being mindful of looking at the economy -- a 2 to 2.5 percent growing GDP is not good for America, Neil.

We have got to ratchet it up to 3.5, 4.5, and that's when you will see a real acceleration in this marketplace. Look, markets never go straight in one direction. I have seen the Dow as low as 564 in the spring of 1974, and we see it today at an all-time high. The Dow is a bit narrow.

CAVUTO: All right.

GRASSO: Look at the S&P. Look at some of those broader indices. America needs to grow at 4 percent. When we do, that Dow will be 22000.

CAVUTO: All right. Well, the economy in America has not been growing at that rate, and yet the market has been growing at an alarming rate, Jonas.

You say those two can't -- can't be in synch like that.

JONAS MAX FERRIS, MAXFUNDS.COM: No, it just can't go on forever.

Look, you can flip a coin 10 times and get heads. You're not due statistically for tails. But with the market, you are. The longer it goes without a correction, it means people are too optimistic, investors.

Whenever they get a little too optimistic, it tends to not be a 10 or 20 percent correction, but a 30, 40, 50 percent one.

That's what happened in the late '90s. That was the last string of uninterrupted gains like this. It also happened to some extent before the '20s, the 1929 crash.

So you want a 10 and 20 percent drop. That's what I'm waiting for, so we don't get a 40 or 50 one...

(CROSSTALK)

CAVUTO: So, you argue the longer you delay that, the worse the hit could be.

FERRIS: Right. That's exactly right.

CAVUTO: All right.

So, we look around the globe, this is not just unique to us. We're pronounced, Dick, but this has been a global phenomenon, with the markets tending to see better times ahead or steady-as-she-goes recoveries. What do you think it is?

GRASSO: I think that you have had a coordination, whether it's overt or covert, amongst central banks to try and provide juice to a very weak global economy.

CAVUTO: But doesn't that, as a free marketeer yourself, doesn't that worry you, that what you're saying there, that this laissez-faire institution around the globe, they kind of love government help?

GRASSO: Well...

CAVUTO: Kind of depend on it.

GRASSO: It worries me in the context of the United States, because traditionally that's not the way we have grown this economy.

CAVUTO: But that's the way we have grown this market.

GRASSO: We have grown this market since the break in the fourth quarter of '08, OK, by an accommodating Fed, and thank God they were there to do that, because when the Fed tightened monetary policy after the crash in 1929, we went into a 10-year depression.

(CROSSTALK)

CAVUTO: So, you don't think all this is creating a new bubble?

GRASSO: No.

CAVUTO: OK.

GRASSO: I think what is -- I think what is happening, Neil, is we're going to have a slow rise from the levels of 2 to 2.5 to the 4 level.

CAVUTO: Yes.

GRASSO: The Fed will back out. You're going to have corrections. And Jonas is right. The longer it takes to get one, 12 percent, 14 percent may be doable, but in the long term, remember, Neil, when the Dow first hit 1000, the Nikkei Dow was 1000~~. In 20 years following that, the Dow went from 1000 to 3000 and back to under 2000.

CAVUTO: Right.

GRASSO: The Nikkei went to 38,000.

CAVUTO: No, it could be all over the map.

But one of the things I worry about, Jonas, to Dick's point here, is that we -- we all know the Federal Reserve is going to ease up eventually. We all know they would have to. But the devil is in the details, because once it does, in a clear and dramatic fashion, not just a little bit, then I think the medicine is going to go down rougher. That's just me. What do you say?

FERRIS: That would happen if it went down rough.

A flip side is, if they stay in this mode of low rates and we have another recession in a year or two, then what do they do to re -- to go back to low? They are already at low rates.

CAVUTO: Right.

FERRIS: There will be a panic in that sense.

I think Dick Grasso, when he was talking about this 4 percent growth rate, that's actually the problem is, investors and all these central banks think they can -- there's some mix to get back to that magic level. And these governments, ours in our country and others might not grow at those rates again for a long while, if ever.

And we can't just keep trying to get back there. And the market is anticipating that, that this is where we're going with the good jobs, it's going to go back to the good old days.

CAVUTO: All right.

FERRIS: And I don't know if that is possible anymore.

CAVUTO: Gentlemen, thank you.

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