The key theme in the second half of 2011 was one of moderate, sub-par economic growth accompanied by modest inflation pressures and no change in the federal funds target rate. Expect more of the same in 2012, with the economy expanding 2.0% for the year and small gains coming from many sectors of the economy.
Investment strategies based purely on expertise in a particular industry or asset class will be insufficient in 2012; developing a broader view is essential to navigate the increasingly correlated environment. This comprehensive overview is intended to help investors refine their perspective across a host of markets, economies, and industries.
The most likely outlook for the world economy in 2012 is a global growth recession with global real GDP growth in 2012 of about 3%. The overall economic outlook reflects a full-scale recession in Europe, stagnation or moderate recession in the U.K., near-trend growth in the U.S., continued expansion in Japan, and moderate slowdowns in China and mos...
Against the backdrop of a double decoupling in growth and inflation between economies in the developed and emerging worlds, investment experts gathered to reappraise and analyze the global economic and financial situation and outlook. The key points and conclusions from their discussions are presented in this new, annual publication.
Researchers predicted in late 2009 that large funds could need much more than their typical five-year investment period to invest their capital. Recent projections consider the more active transaction volume and suggest the overhang would more likely require only six years to fully invest.
This is an environment that will see policy mistakes and prompt many questions and likely new fears. But it is one strong enough to produce the cash flows the world needs to fund the pay-down of long-term debt as well as long-term investors' strategic investment management plans.
European Union leaders announced a "solution" to the Greek sovereign debt crisis during their July 21 meetings. The market reaction, as it was after earlier "solutions", was positive. Yet, many specifics are unresolved, and it is highly unlikely that these actions will resolve the solvency issue once and for all.
Forecasts for the demise of the bond market have popped up repeatedly during the past two years only to be deflated by yet another bond market rally. Arguably, it is different this time. Rising rates seem close at hand, and this paper provides detail on that view. At the same time, the paper cautions against overestimating the downside risk in bond...
The state of corporate profits, balance sheets and valuations make the author confident that 2011 is a much healthier environment for U.S. equities than 2008. Despite the emotional trauma investors experience in these types of markets, the silver lining is that the capital markets are forcing policymakers to confront the core issues.
Recent moves by the Fed are more symptomatic of the economic malaise and not the cause. As a result, their effect on the markets is fairly unimportant. The equity markets are weak not because of low rates but because of the characterization by the Fed and many market prognosticators that the economy is so much weaker than expected.
The lack of emphasis on jobs has caused unemployment to remain high and become increasingly structural. Structural unemployment typically lasts longer and, as workers lose basic skills, becomes less susceptible to monetary and fiscal measures. That, unfortunately, is where the nation finds itself.
While things may very well turn out well for risky assets in the coming months, the possibility of a messy European outcome or for further political and economic turmoil in the U.S. is significant and cannot be ignored. Emerging economies, while not immune to the travails of Europe, Japan and the U.S., remain resilient and their stock markets offer...
While high yield spreads are likely to remain volatile until Europe's problems are resolved, the purge of high leveraged credits during 2008 and 2009, coupled with a lack of aggressive re-leveraging of balance sheets thereafter, should limit the severity of the next default wave absent a severe recession or systemic bank failure in Europe.
As the balance of growth shifts from developed to developing nations, the world clamors for natural resources. Land capable of satisfying that demand can help investors reduce portfolio volatility and protect principal while providing steady income or appreciation as well as a hedge against inflation.
Senior investment professionals look beyond the near term and develop five-year forecasts for economic activity and financial market instruments, including fixed income, equities, real assets and alternatives. Their work can serve as a guide to risks and thematic developments that bear watching by investors.