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 economys 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

…blend of mortgage rates, floating rate business debt, etc. On the y-axis is the DSR for the nonfinancial private sector as a whole. The upward sloping line means that consumers and firms dedicate more of their income to debt service as interest rates rise. Exhibit 2: Sustainable DSR achieved with low rates and/or low debt stock If we assume there is an equilibrium DSR in the economy—above which point higher borrowing costs create unsustainable f…

Interest rates — Farewell, liquidity trap

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

ued growth and further improvement in labor markets, the Federal Reserve (the Fed) looks likely to begin raising short-term interest rates in 2015, marking an end to the lengthy liquidity trap in the U.S. In our view, government bond markets are unprepared for 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. econom…

October — It always seems to happen in October!

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

…include high levels 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 val…

Asset allocation: Q4 equity strategy

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

…l favoring equities, we believed it was appropriate to begin to rebuild an equity overweight as we published our September outlook. For now, though, we favor building that overweight primarily using U.S. large-cap stocks. We believe that although U.S. stocks appear fairly valued, they can rise with earnings growth. U.S. corporate fundamentals look solid and supportive of earnings growth, with the U.S. economy on a clearly divergent path relative…

QE worked, but not as advertised

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

…bond investors know that while QE is ongoing the Fed will not raise the funds rate. And beyond that the program signals something about the central bank’s broader intentions. QE thus augments forward 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 econo…