Welcome to The Outlook archives, where you can view several past issues featuring our investment and economic thinking. The Outlook is available in both PDF* and HTML format. We recommend that you review the PDF format, as it is closer in appearance to our printed version.
Investment Strategies for an Unprecedented Business Cycle
The market has reached record levels this year in the face of geopolitical events in Ukraine, the South China Sea and throughout the Middle East, which in other economic cycles would have likely led to a significant pullback. Clearly, the current market is being driven by other forces. Russia’s aggressiveness in Ukraine and conflict in the Middle East now pose major risks to political stability. While the term “complacency” has been used to describe the stock and bond markets this year, we believe that today’s market reflects a more complex set of dynamics resulting from the combination of a prolonged low-growth economic expansion, a lack of sensible alternatives available for investors (given the low and declining yields on fixed income) and the deflationary forces which exist in the global economy. The disequilibrium present in the global economy continues as the major economies struggle with muted growth due to excess capacity and debt in the system.
The Virtues of U.S.-centric Investing in the Current Geopolitical and Geoeconomic Environment
“The major powers have yet to undertake globally cooperative responses to the new and increasingly grave challenges to human well-being – environmental, climatic, socioeconomic, nutritional, or demographic. And without basic geopolitical stability, any effort to achieve the necessary global cooperation will falter… As China’s influence grows and as other emerging powers – Russia, India or Brazil for example – compete with each other for resources, security, and economic advantage, the potential for miscalculation and conflict increases.”
- Zbigniew Brzezinski – excerpt from “Strategic Vision”
Time to taper the tapering talk: Why interest rates and inflation rates matter more
“Making monetary policy is sometimes compared to driving a car, with policymakers pressing on the accelerator or the brakes, depending on whether the economy needs to be sped up or slowed down at that moment. That analogy is imperfect, however, for at least two reasons. First, the main effects of monetary policy actions on the economy are not felt immediately but instead play out over quarters or even years. Hence, unlike the driver of a car, monetary policymakers cannot simply respond to what lies immediately in front of them but must try to look well ahead–admittedly, a difficult task. Second, the effects of monetary policy on the economy today depend importantly not only on current policy actions, but also on the public’s expectations of how policy will evolve. The automotive analogy clearly breaks down here, for it is as if the current speed of the car depended on what the car itself expects the driver to do in the future.” Federal Reserve Chairman Ben Bernanke 11/19/13
Looking Through the Politics – Why Equities Should Benefit from A Low-Growth Environment
The character of the post-crisis US economy augers well for a period of continued low growth, low inflation, low interest rates and rising corporate profits. One of the reasons this period has been so challenging for investors is that we are operating in an economic and investment environment that is unprecedented. While certain characteristics of this period are reminiscent of those past, there are critical differences as well. Few investors have operated in an environment that enjoyed the prospects for reaccelerating US manufacturing growth along with expectations of continued low inflation and near zero interest rates for a sustained period of time. The political dysfunction in Washington highlighted by the debt and deficit debate will likely continue to be a major distraction for investors until a long-term solution is established, but investors who take a longer-term view should be well rewarded.