Economic insight from Dr. Bob Froehlich, Vice Chairman/Chief Investment Strategist at DWS Scudder on last night's Kudlow & Company.
KUDLOW: There's always a wall of worry, there are always worries. Now it's subprime coming back. Is there going to be a contagion meltdown? I don't believe that for a minute, Dr. Bob. But what's your current thinking?
Dr. BOB FROEHLICH: Yeah. I don't believe it, either. I think what you have to do is put it in context, Larry, and I think if you look over the last two years—2005, 2006—over that two year period there were 16 million mortgages issued for both new and existing homes. Of that amount, only 20 percent of those were subprime, which means 3.2 million subprime mortgages in its peak. There's 114 million mortgages outstanding. Even if every single one when into default, which we know that isn't going to happen, that's 2 percent of the overall outstanding mortgages. I think this is a lot of hype.
Now, if you're invested in that area, maybe it's a problem, but as far as this spilling out to the overall economy, spilling out to the overall market, I absolutely don't see that happening...If you know you're investing in subprime, you shouldn't be surprised when people aren't paying you back. But at the end of the day, I still think the economy grows at above-trend growth. If the economy grows at above-trend growth, I still think we have a chance to see close to double-digit earnings. I still think the market is going to rebound from this.