Perspectives Blog

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

Both fiscal and monetary policy will begin to normalize in 2014 The economy’s performance will be an important metric for markets as growth needs to catch up The key to getting growth beyond 2% is for business to borrow to improve/expand productive capital It’s happening again—a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounc…

India’s new government fires investor enthusiasm

Natasha Ebtehadj, Fund Manager, Threadneedle International Limited | September 8, 2014

…l improve as economic activity accelerates and the new government puts incentives in place to encourage lending. 2. Consumption recovery: We are also targeting companies that should benefit from a recovery in consumer spending, particularly in urban areas where high inflation and a weak economy have dampened real wage growth. The penetration rate of vehicles is low in India, even relative to other Asian countries at 20 per 1,000 people. As consum…

Interest rates in a highly indebted economy

Zach Pandl, Portfolio Manager and Strategist | October 13, 2014

…tock of debt when the Fed eases. But what about during the exit process? Many observers have argued that today’s economy has a kind of “deleveraging constraint”—that interest rates are capped at low levels because the overly indebted private sector cannot bear higher borrowing costs. In this world, even 10-year Treasuries yielding 2.3% could be attractive because they still command a premium to cash rates pinned permanently near zero. There are a…

Interest rates — Farewell, liquidity trap

Zach Pandl, Portfolio Manager and Strategist | December 15, 2014

…this outcome at current yield levels. Investors should brace for a year of challenging returns. Better domestic economy but lower rates At this time last year we argued that the U.S. economy would continue to recover in 2014, and that gradually rising rates would prove a headwind to high-quality ­ fixed-income returns*.  We now know that the former view was correct, but the latter was not. Exhibit 1 shows changes in survey expectations for gross…

October — It always seems to happen in October!

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

…els of political risk around the world (Russia, China, ISIS), concerns about growth in Europe, a slowing Chinese economy and Ebola. In short, the stock markets in Europe and the U.S. were priced for a steady recovery with little margin for error. A correction was likely, although timing changes in markets is never easy. According to an adage in the investment world, “Everyone is wrong at the turn.” Exhibit 2: U.S. stock market valuation Exhibit…

Asset allocation: Q4 equity strategy

Columbia Management Global Asset Allocation Team, | October 27, 2014

…of Japan (BoJ) is continuing to expand its balance sheet as part of Prime Minister Shinzo Abe’s reforms (Exhibit 2). This divergence in policy is not an accident but a construct of the relative growth and inflation trends of these countries. Exhibit 2: Balance sheets continue to expand Source: Bloomberg Euro area recovery in Q2 was disappointing with growth skirting recession at 0.1% and inflation falling further, despite near-zero interest rate…

QE worked, but not as advertised

Zach Pandl, Portfolio Manager and Strategist | November 3, 2014

…ard guidance and reduces uncertainty about short-term rates, which in turn lowers bond yields and stimulates the economy. Third, QE reduced perceived tail risks. The unsung aspect of QE was its role in reducing perceptions about tail risks for the economy. When short-term interest rates are at zero, negative economic news can have an outsized effect because it feeds a perception that the economy will get stuck in a low growth and/or deflationary…