Europe is stagnating and global demands remain inadequate.
ITAÚ: You Can’t Always Get What You Want
The Rolling Stones have many hit songs, but a personal favorite is the above titled song from their 1969 album Let It Bleed. Its refrain is, “You can’t always get what you want, but if you try sometimes, you just might find, you get what you need.” This seems quite appropriate for the fall financial market setup. Investors want QE to never end, and while they are unlikely to get what they want, they may well get what they need, a lower-for-longer global economy that supports risk assets.
PENSIONS&INVESTMENTS: Emerging markets portfolio globalization: The next big thing
One of 2014's great investment surprises has been emerging markets equity performance. Notwithstanding negative news (from Ukraine to China, Turkey to Thailand) and record foreign investor outflows, MSCI EM equity is up 5% in the first half of the year in line with MSCI All Country World Index equity. Emerging market financial assets have been remarkably resilient; the question is why? The answer lies in the greatly underappreciated fact of emerging markets' domestic financial asset expansion.
ITAÚ: Halftime
A week of marketing meetings can sharpen one’s perspective and extend one’s thinking. This is especially true when discussing China with Brazilian money managers, as Stephen Li Jen and I did last week. China is high on the list of Brazilian concerns along with the upcoming elections, the economy and a host of other issues. One thing not high on the topic list was the World Cup, a sure sign of worry.
ITAÚ: Every Country for Itself
A week of marketing meetings can sharpen one’s perspective and extend one’s thinking. This is especially true when discussing China with Brazilian money managers, as Stephen Li Jen and I did last week. China is high on the list of Brazilian concerns along with the upcoming elections, the economy and a host of other issues. One thing not high on the topic list was the World Cup, a sure sign of worry.
THE FINANCIAL TIMES: China’s boom is over, but Beijing will avoid bust
Country will not be catalyst that alters markets landscape, writes Jay Pelosky.
ITAÚ: The Sound and the Fury
The blizzard of headlines just keeps on coming: Crimea, copper collateral, China, Turkey, winter weather, Fed timing, etc., etc. The pace quickens, but clarity suffers. At times like this, one can do worse than taking a step back and letting things settle a bit.
ITAÚ: Ready weather or not
Being a macro investor is hard enough without taking on a side job as a weatherman, but that’s what seems to be required today. The U.S. economic outlook depends on the weather, the outlook for commodity prices – depends on the weather, the outlook for interest rates, equities, inflation, consumer demand – depends on the weather. In some ways it might be a good trade, after all, weathermen get it wrong all the time and still get paid.
THE FINANCIAL TIMES: Growth must deliver or policy must change
Investors should favour none-US developed economies, writes Jay Pelosky.
THE WALL STREET JOURNAL: Ominous Signs for the Global Recovery
U.S. growth may be ready to cool, Europe faces a serious deflation risk, and emerging markets are in disarray.
As the feel-good talk emanating from the World Economic Forum gathering at Davos last month fades and equity investors contemplate the possibility of a major market correction, a combination of factors suggests that something ominous may be afoot. Taken together, these three factors—simultaneous liquidity withdrawal by the Federal Reserve and China, a U.S. stock market on a knife's edge, and emerging markets in disarray—indicate that the global economy could be in danger of snatching defeat from the jaws of victory.
THE WALL STREET JOURNAL: Emerging Markets’ Unsettling Tune
The opening lines of “Don’t Cry for Me Argentina” seem like the right musical accompaniment for investors as they shed money, and maybe a few tears, over emerging markets.
Explaining the turmoil that has gripped Argentina, Turkey, Thailand and other developing economies won’t be easy, but you’ll think it strange that many smart fund managers aren’t recommending a complete retreat from emerging markets.
The facts are pretty stark. Emerging-market stocks lost nearly 7% in January alone, many currencies got hammered and central banks had to resort to emergency measures to stanch the bleeding. Unsurprisingly, investors bailed. Exchange-traded funds that focus on emerging-market stocks saw their second-biggest withdrawal on record in the week ended Jan. 29, according to Lipper.
ITAÚ: Walking the Knife Edge
America’s famed 2200-mile Appalachian Trail begins at Springer Mountain Georgia and ends at Mount Katahdin, Maine. Katahdin is not an especially high (1600 meters) or demanding mountain, but it does feature an aptly named summit route called the Knife Edge. Some years ago, a group of family and friends decided to summit Katahdin via the Knife Edge. Summit day came and, with it, lousy conditions of wind, rain and fog. As we made our approach we commented on how few other people we saw – less than a handful. The Knife Edge features a narrow (three foot wide) ridge traverse with sharp, steep drops on either side. After some adrenalin filled moments we made it safely across, summited and returned to our campsite. Safely down, we asked a park ranger why we didn’t see more people making the summit, to which he replied, “Climbing the Knife Edge under such conditions is not advisable.”
ITAÚ: Thanksgiving Comes Early
Fall in the northeastern United States is a time of change: the weather turns cooler, the leaves turn color and the stomach rumbles at the thought of Thanksgiving turkey, fresh from the oven. The bird is cut, the stuffing prepared and the seasonal vegetables brought to the table as all give thanks for the harvest bounty.
ITAÚ: Stick to the Script
So the Federal Reserve has sprung its non-taper surprise on the financial markets – now what? The good news is twofold: the decision avoids the worst-case scenario of taper plus economic stagnation, while the Fed retains the element of surprise and demonstrates that it is not in thrall to the markets. The bad news is also twofold: the Fed remains stuck in a policy mix that both distorts financial markets and does little to help the real economy (one can argue that it even hurts the real economy, given the 100-bp run-up in yields since May). Investors and policymakers alike remain focused on the search for growth, a search the Fed decision implicitly suggests will continue for the foreseeable future.