Monday, September 29, 2014

Still a "Risk On" environment

We believe that a 'risk on' investment climate still prevails, despite the many warning signs related to economic growth and financial markets here and abroad. So we continue our defensive stance towards equities and suggest Treasuries as a safe haven and beneficiary of possible deflation, especially in the Euro-zone, as well as the strengthening dollar.

Tuesday, September 9, 2014

De-leveraging is cause for slow world growth

We continue to believe that slow worldwide growth is the result of the global financial de-leveraging that followed the massive expansion of debt in the 1980's and 1990's and the 2008 financial crisis that inevitably followed, as detailed in our 2010 book, The Age of De-leveraging: Investment strategies for a decade of slow growth and deflation. We forecast back then that the result in the U.S. would be persistent 2% real GDP growth until the normal decade of deleveraging is completed. Since the process is now six years old, history suggests another four years or so to go.

We’ve also persistently noted that this deleveraging is so powerful that it has largely offset massive fiscal stimuli in the form of tax cuts and rebates as well as huge increases in federal spending that resulted in earlier trillion-dollar deficits. It has also swamped the cuts in major central bank interest rates to essentially zero that were followed by gigantic central bank security purchases and loans that skyrocketed their balance sheets.  

Without this de-leveraging, all the financial and monetary stimuli would surely have pushed real GDP growth well above the robust 1982–2000 3.7% average instead of leaving it at a meager 2.2% since the recovery began in mid-2009.