After a turbulent August and September, a semblance of calm has returned to global financial markets. Fears that China is on the verge of economic Armageddon have subsided. Policy makers have soothed markets by doubling down on monetary stimulus. The fundamentals were never as troublesome as the market feared. But they aren’t great either. Growth is slowing … everywhere, including the U.S. where soft third quarter growth is probable. Inflation is hard to find. Slow growth and low inflation is the order of the day. The only good news is that recession is probably not imminent. This month’s letter includes an examination of the impact of macroeconomic trends on long-term rates of return on Investments and discusses the consequences of a persistent low-inflation/low-growth environment and the challenges that will pose for fiduciaries who are responsible for pension funds and endowments. Read the full letter.
The prospect of a longer period of low interest rates from the Fed has calmed financial markets this week as most of the major indices ended higher. A report from Blackrock blamed rules designed to protect investors from market volatility backfired, instead hurting some investors during the August rout. Blackrock, along with other major ETF providers State Street Global Advisors and Vanguard, have held discussions in recent weeks to discuss how to prevent another August 24th.
The IMF has been busy this week ahead of their Fall meetings set to convene next week. They first issued a warning on the large positions that mutual funds in the United States have built in high-yielding bonds issued by risky US companies and in emerging markets around the world. They also issued a statement regarding the potential for higher US interest rates to trigger a wave of emerging market corporate defaults. Today’s disappointing non-farm payroll report diminished the fear of an October rate rise.
Save the date for the CFP’s next conference on November 11th in Washington, DC co-sponsored by the CFA Institute: The Next Crisis: A panel discussion on fixed income market liquidity and transparency.
Primarily courtesy of Chinese policy communication bungling and China’s slowing economy, turbulence has returned once again to global financial markets. Financial conditions in the U.S. are the tightest they’ve been since the panic of 2007-09. Yet another round of falling commodity prices has raised investor fears that the global economy is slowing, perhaps materially. But, on the home front all is well … or, is it? The Fed didn’t raise rates … perhaps there is reason to worry. Productivity is barely discernible, inflation refuses to rise, and in spite of a plunging unemployment rate, labor wage rates show no sign of acceleration. Is recession around the corner? Probably not just yet, but growth certainly could slow down. Could it be that monetary and fiscal policies are fostering malaise rather than growth? Bill Longbrake ponders these issues and questions and more in this month’s letter.
All eyes were on the Fed this week, but their decision to continue to keep rates on hold means financial markets will continue to scrutinize every speech and piece of economic data until the next meeting.
“In light of the developments that we have seen and the impacts on financial markets, we want to take a little bit more time to evaluate the likely impacts on the United States,” Fed Chairwoman Janet Yellen said Thursday at a press conference following a two-day policy meeting.
SAVE THE DATE: On November 11th the CFP and CFA Institute will be hosting a panel discussion on liquidity and transparency in the fixed income market. Details will be posted on the CFP’s website as they become available.