Perspectives Blog

Gaps, not growth

Zach Pandl, Portfolio Manager and Strategist | February 25, 2014

…sign that this persistent trend has changed. Economists think about the relationship between spare capacity and economic growth using a relationship called Okun’s Law. In the form that will be most intuitive here, this equation says that the output gap—which is just a technical name for spare capacity or economic slack—improves when growth is above potential, and worsens when growth is below potential: Output Gap = β * (GDP growth – Potential GD…

October — It always seems to happen in October!

Ted Truscott, CEO, Global Asset Management | October 20, 2014

Markets are now asking what happens if growth slows again in the U.S. and/or weak and slowing growth in Europe, Russia and China drags down U.S. and U.K. growth? The stock market downturn is a reaction to changes in growth expectations and the volatility of that growth. Market assumptions for steady growth did not necessarily account for all the other risks. While we continue to see equities as an important pillar of longer term allocation stra…

Bond yields are too low somewhere

Zach Pandl, Portfolio Manager and Strategist | July 14, 2014

…forward rates are not just a U.S. phenomenon: there’s been a similar shift in the relationship between rates and growth across developed markets. If global rates remain persistently low, financial conditions will eventually need to tighten in other ways to offset this unexpected stimulus. The big surprise in bond markets this year has been the low level of long-maturity rates despite continued economic growth. To see these changes most clearly i…

Emerging Markets: Waiting on exports

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | March 31, 2014

Exports by emerging market economies are the most important factor in explaining long-term growth. EM exports have remained sluggish for the past three years due in part to the subpar nature of global growth. As emerging markets struggle to overcome the challenges to their growth story, the EM landscape will likely face significant challenges ahead. Equity markets in the developed world did very well in 2013 while the picture was far more mixe…

Harvesting a New Moderation in Asia

Soo Nam Ng, Head of Asian Equities | June 23, 2014

Companies with competitive strengths still intact should have positive profit growth once adaptive change gets underway. The ability to control cost is essential to surviving the growth slowdown in Asia Pacific ex Japan. We do not just need companies to be adapted; we also need them to be positioned for adapting. A New Moderation in Asia In my previous article, I argued that conditions are in place for the slowdown in Asia to evolve into a sus…

Neutral funds rate going up?

Zach Pandl, Portfolio Manager and Strategist | May 16, 2014

…e are two distinct (but often conflated) ideas for why the neutral funds rate has come down: (1) lower potential growth, and (2) headwinds driving a wedge between risk-free rates and broader financial/economic conditions. Activity data strongly suggest that potential growth increased at a slow pace over the last five years—which economic theory says should translate into a lower neutral funds rate. On average, GDP growth has increased only about…

U.S. rates — play for growth

Zach Pandl, Portfolio Manager and Strategist | December 10, 2013

More signs that U.S. growth is accelerating; with 7% unemployment rate, look for qualitative communication changes at next FOMC meeting. Higher odds of December taper but we still think January is more likely (with possible hint in December press conference). We wonder whether front-end rates can remain anchored as growth picks up. The November employment report brought more positive news on U.S. activity, with a healthy gain in nonfarm payrol…