But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Must-read: Why low rates lead to capital misallocation
Finally, unconventional monetary policy of recent years has encouraged significant bouts of capital misallocation, resulting in crowded trades, correlated risks and the overly stretched valuations seen in markets today.
In recent years, the labor market has split into two segments thanks to a mismatch between the skills required for jobs and the skills that workers have.
Companies are taking advantage of extremely easy corporate financing conditions at the expense of reinvesting in organic business growth.
Excessively low rates are making it expensive for individuals to retire, as potential retirees view investment income generation from fixed income products as too meager to support a reasonable standard of living.
Like quantitative easing before it, the Fed’s zero interest rate policy may actually be inhibiting economic growth and job creation in unintended ways. Rick Rieder explains.
With the exception of Indonesia and India, the major countries in Asia have generally sizeable current account surpluses. And even in the case of India and Indonesia, both countries have posted significant improvements in their current accounts.
Compared to other regions, emerging market countries in Asia appear to be experiencing a more pronounced cyclical upswing.
Despite some signs that Chinese growth momentum is reversing from previous highs, the Chinese economy is still growing at a decent pace and government officials seem committed to growth of around 7%.
EM Asia valuations are currently largely in line with their historical average, providing some room for future multiple expansion should EM fundamentals continue to improve.
Where in the EM world do I see opportunities? On a relative basis, EMs in Asia, including China, appear particularly attractive. Here are three reasons why.
But despite EMs’ recent performance, I still believe that EM stocks represent a long-term opportunity and that investors underweight the asset class should consider bringing their exposure back up to at least a market weight.
Though EM stocks have been struggling of late, Russ still believes investors should have emerging market exposure, particularly in emerging Asia. He provides three reasons why.
The Fed repeatedly stated that it isn’t looking to raise rates for a “considerable time” after asset purchases end. If the Fed’s employment and inflation goals are reached sooner, the rates would increase sooner.
When the Fed’s inflation and employment targets aren’t reached in a certain amount of time, it impacts the normalization rate. If the Fed overestimates the labor market recovery, a slower normalization pace is needed.
When employment is higher, there’s higher demand for goods and services. The economy’s total consumption increases. When the supply of goods and services is constant, this causes price pressures that lead to inflation.
Fostering economic price stability is one of the Fed’s dual targets. Stable prices are vital for bond markets. Inflation benefits debtors, but not creditors. It reduces the value of future interest and principal payments.
Chicago Fed Chief, Dr. Charles Evans spoke about the need for patience in normalizing monetary policy. Although inflation and employment conditions have improved since the Great Recession, they were short of the Fed’s goals.
Since 2008, the Fed’s monetary policy has been extremely accommodative. However, as the recovery progresses, there are increasing calls for policy normalization.
After the 2008 financial crisis and Great Recession, U.S. monetary policy has been designed to boost economic growth and create jobs. The Fed has kept the federal funds rate at near-zero levels since December 2008.
First, we shouldn’t put too much weight on the weak August numbers. As my colleague Rick Rieder pointed out in a recent post, August’s modest print was mostly a reflection of seasonal weakness and is likely to be revised higher.