by Riaan Nel in Global Economy
According to minutes released today by the Federal Open Market Committee for their January 27-28 meeting it appears Fed staff economists were mostly upbeat. They estimated the economy grew faster in the second half of 2014 than they had anticipated. Also, the anticipated boost to consumer spending from declining energy prices allowed Fed economists to revise upward their outlook for the first half of 2015. “Overall, the risks to the outlook for US economic activity and the labor market were seen as nearly balanced,” the minutes said.
What stands out to me in the minutes is the detailed discussion and debate about when to raise rates and by how much? Essentially the debate revolves around the issues of inflation and stability risks on the one hand, and impeding the economic recovery on the other hand. If the Fed waits too long it could lead to a build up of inflation and financial-stability risks. Conversely, if the Fed moves too quickly the economic recovery could be impeded or choked off.
by Riaan Nel in News
I’m currently reading Zeihan’s book. It is pretty compelling. Although I am always skeptical of peering too far into the future and making bold conjectures. However, it is something that is essentially human – our ability to think forward. The future is where we’re going to spend the rest of our lives. Although I, like most people, worry too much about the future, I believe it is indispensable to think about the future in a rational way. Zeihan’s book so far is compelling and thought provoking. I agree that North American energy independence and dominance are probably inevitable. I also agree that we are probably many decades away from the United States’ decline. However, are we entering an Hobbesian world?
Thomas Hobbes was an English philosopher writing his famous Leviathan in 1651. In Leviathan Hobbes postulates what life was before governments. He calls this a “state of nature” – basically a world where each person pursues his own survival and interest. Over time humans formed groups, tribes and eventually nation-states. Individuals ceded power to an authority for protection and other utilities of organizing as societies. Hobbes, though saw the international order as in a “state of nature” where states/countries all vie for their own interest.
After World War II an international order came into being protected by the United States. Zeihan sees a fracturing of this world order. I do think there is merit to this argument. But I believe it is in the US’s interest to continue to protect and guarantee the current world order of relative free markets, free trade, and in integrated global capitalist system. I’m skeptical to the disintegration predicted.
Below I’ve pasted an excerpt of a review from The Wall Street Journal by Liam Denning. The entire review can be read here: http://www.wsj.com/articles/book-review-the-accidental-superpower-by-peter-zeihan-1417653112
Peter Zeihan begins “The Accidental Superpower” by declaring that he has “always loved maps.” From this unremarkable claim springs a lively, readable thesis on how the success or failure of nations may rest on the very ground beneath their feet. Rather than focusing on charismatic leaders or lofty ideals, Mr. Zeihan stresses the more prosaic forces that shape world events: topography, soil quality, access to water. Water especially, he says, sorts winners from the rest. It can be a highway, a barrier, a larder and a battery. Rivers make it cheap to transport goods and people, enabling the efficient mixing of ideas and markets. The capital that might otherwise be spent on, say, building a road may be used for other purposes.
It happens that the United States—the “superpower” of Mr. Zeihan’s title—is blessed with 12 major navigable rivers, including the Mississippi. Much else flows from this happy accident. A less pressing need for grand, land-based infrastructure projects, for example, may lessen the need for centralized coordination, encouraging small government.
by admin in Global Investments
As we look ahead to 2015, we see a year that will be marked by transitions. Likely changes in monetary policy around the world, the return of volatility, and the recent shift in the political balance of Congress could mean 2015 is a year that will have the global economy, markets, and central banks all on the move.
LPL Financial Research has identified significant elements that will be in transit in 2015, which include:
- The U.S. economy continues its transition from the slow gross domestic product (GDP) growth of 2011–2013 to more sustained, broad-based growth. Ongoing progress in the labor market, an uptick in wage growth, and continued improvement in consumer and business spending have propelled an uptrend in U.S. economic output. LPL Research expects that inflation—which has historically accelerated as the economy moves into the second half of the business cycle—is poised to continue proceeding higher, but only modestly so.
- Central banks around the world will also be on the move in 2015. In the United States, the economy is likely to continue to travel toward a point where the Federal Reserve (Fed) will begin raising interest rates, albeit gradually, for the first time in nine years. The Eurozone and Japan—the world’s second and fourth largest economies, respectively—could benefit, as central banks in those regions embark on more aggressive policy actions aimed at restarting and reaccelerating their long-dormant economies.
- Washington shifts from a relatively quiet 2014 to take a bigger role in 2015. The Republican takeover in the Senate and approaching debt ceiling limit might provide the opportunity for some movement out of the gridlock that has plagued Washington in recent years.
Against this backdrop, LPL Research forecasts the following:
- The U.S. economy is expected to expand at a rate of 3% or slightly higher in 2015. This forecast matches the average growth rate over the past 50 years, and is based on contributions from consumer spending, business capital spending, and housing, which are poised to advance at historically average or better growth rates in 2015.
- Tempered by increasing levels of volatility, stocks may be poised to advance 5–9%. LPL Research expects continued economic growth, benign global monetary policy, and a more favorable policy climate from Washington indicate that the powerful, nearly six-year-old bull market should continue. This forecast is in-line with the average stock market growth of 7–9%, since WWII. Supported by improved global economic growth and stable profit margins in 2015, expected earnings per share growth for S&P 500 companies is 5–10%.
- Expect flat bond market returns. With sustained improvement in economic growth, slowly rising inflation, and the approach of the Fed’s first interest rate hike, bond prices are likely to decline in 2015. LPL Research believes high-yield bonds and bank loans with their attractive yields can help investors manage this challenging bond market.
To help investors prepare for an expected market in transition, LPL Research has compiled timely advice into its Outlook 2015: In Transit publication. Transition, as is described in this publication, is just another word for change. The forthcoming change in the economic and market landscape in 2015 offers great opportunities, but also major challenges, likely in the form of increased volatility. However, as LPL Research forecasts relatively strong economic growth unfolding over the horizon, the bigger threat to most investment portfolios will be the pull of our emotions. It is human nature to weigh market struggles substantially more than the strong market returns between them. As investors, keeping our emotions in check when confronting increased volatility could be the key to potential success in 2015. With an investment strategy in hand and a destination in mind, we believe 2015 is poised to be a potentially favorable, though perhaps volatile, year for investors. View the complete Outlook 2015: In Transit.
by Riaan Nel in News
I thought Tim Geithner’s book “Stress Test: Reflections on Financial Crises” was an impressive contribution to the understanding of the 2008 Great Recession. I think Paul Krugman’s review was a little harsh on Geithner. Then again, Paul Krugman has no problem hammering people for being “wrong” according to him. Krugman always being so adamant irritates me sometimes; however, he does make very good points in the review worth considering.