Only Flexibility Can Restore Growth
Rigidities in Global Markets are Impeding Recovery
By Andrew Foster | Posted: 09-28-11
http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=128096.xml&part=1[Andrew Foster is the CIO and founder of Seafarer Capital Partners, a newly-formed firm focused on overseas markets. Prior to Seafarer, he worked at Matthews International, advisor to the Matthews Asian Funds, where he was a portfolio manager, director of research and acting CIO.]
Comments
Jeffrey Gundlach's DoubleLine Capital LP is invested only in U.S. dollar-denominated assets in a bid to avoid losses stemming from Europe's debt crisis.
"All of our international exposure is in dollars," Gundlach, the founder and head of Los Angeles-based DoubleLine, said at a panel sponsored by the firm in New York today. "There's a big loss in Europe and all we want to do as investors is make sure as best we can that we're not the ones taking the loss. How do you do it? No investments in Europe."
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"I like junk bonds a lot better than I did six months ago, but I am not ready to buy them yet," he said. "The high yield bond market is going to have a default problem in late 2012 or 2013."
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"We're not going to be ready to jump back in to high yield basically until Greece is solved," said Bonnie Baha, head of DoubleLine's global developed credit group.
Even with the yield on the 10-year Treasury notes below 2 percent, long-term government bonds make sense as a hedge, Gundlach said.
http://www.bloomberg.com/news/2011-09-28/gundlach-s-doubleline-has-zero-euro-exposure-as-losses-loom.html
'Course, the little bit spent here and there by Mr. and Mrs. Consumer eventually becomes very sizeable amounts of monies when all is added together.
Only using the U.S. as a sample, one must consider the circumstance that after 3 years (since the market melt) that many with available monies to spend (especially the very large consumer sector of baby boomers) are in a spending slowdown mode more to the fact of the "old" wants list, vs the "current" needs list. For all of the other age sectors in the U.S., one must weigh the fact of unemployment, jobs that do come about, but do not pay a wage that allows for much more then "living". Many of the young folks who find no work available; and those young ones with work; but have opted to rent vs buy a house. This does not include many I know about who are now again back at the home of their parents, as they literally can not affore to even rent on their own.
This pull back will continue for a very extended period of time (10 years, at least) to find what new direction emerges. As to this lack of growth here; it must be assumed that this will cause the growth of emerging countries to scale back, too.
Pile upon this (again related to the U.S.) another push to "force" China or any other country determined by a quasi-intellectual group of folks in the U.S. to have an unfair or manipulated currency exchange and one finds a new problem for growth; being that indeed China may be playing funny with their currency, but one must understand that if the U.S. could "force" just China to revalue their currency against the $US by a value of 10%, that those who buy just the trinkets...toys for kids and such that are imported from China will find another form of inflation for their purchases.
Whether one finds China to be unfair with their currency or not; or whether their products are junk or not, if not for the pricing that comes from China or other similar emerging countries, true product price inflation in the U.S. would have been and would could to be another barrier to growth, as the U.S. consumer would further reduce their discretionary spending.
The feel good days of consumerism in this country is missing in action at this point in time. Many average persons in this country have finally come to the realization of their follies with debt, put it on a credit card and related.
Our house has never thrown money around in this fashion, but we also have known few who didn't.
One has seen and will continue to see any number of programs and policies that will attempt to "get" the consumer to spend more again. Until the realization by program and policy makers begin to face real facts that exist with many consumers worldwide of a retrenchment of their spending habits.
A most vicious cycle is in place, and I do understand the nature of some of the programs that have been brought forth to "make jobs". I don't have all of the answers either, but some of the programs are ill conceived and have wasted great amounts of money that has become more debt to the U.S.
Michigan may begin playing a similar funny game of monies; some of which (pending the results of a MI supreme court ruling) will shift taxpayer dollars to offset a reduction of business taxes. Michigan's problem with attracting new, large businesses has more to do with the high cost of labor, versus what was a sloppy tax structure for a company doing business in Michigan. If this were not the case, the numerous foreign auto companies over the past 20 years would have not built their factories in other states, but would have moved to Michigan to take avantage of the infrastructure and a pool of workers. So, beginning in 2013; new tax laws will be in place that will have a negative impact upon many familes in the state. One such item is the elimation of a tax credit for children in the home. Whether one feels this should be in place in the first place on a state or federal tax form is another question. But the result will be less net income in the pockets of the taxpayer.
The grand scheme is to increase taxes at and upon the pensions of those retired or retiring and also increase taxes upon those currently employed by eliminating credits and other features. The reason for this change in tax policy is to offset the tax revenue loss that will come from reducing the tax upon a company in Michigan.
Not unlike the folks with the "I will work for food" signs; I feel I should find a good spot at a road crossing into Michigan from another state/country stating that I will pay for you to move your company to Michigan with a tax shift upon my income to offset your new and improved tax burden. "Please, please move your business to my state."
Ya, right.
I did take the time to assure the govenor and those who voted in favor of this tax structure change, that for every dollar they choose to take from my income; to play the false game of enticing a business to move to Michigan, is a dollar that I will not spend in our local economy. I also asked the question of whether this reality was programmed into the computer model program used to project the overall benefit to the state overall.
Such are the follies. For those who do not follow events in this state; many Republican voters will be surprised when calculating their 2013 taxes.
I will eat my words, if the "business attraction" plan works; but I do not think I will have to perform such a task.
Growth? Some politicians and economists understand the withdrawal of spending by the "public". This "change" will be a long and winding road.
Mr. Rant has left the building, and away to work.
Regards,
Catch
dear mr. Rant,
at our household We also have decided no newer car for this and several years <2-3>
At zero interest return it would take our lifetime to replace our monies spent on an
newer car. Maybe someday Mr. Ben will realize we seniors also contribute to the economy so zero interest does not encourage us to spend.as much as we would like
Thanx much for your work on the fund boat
REGARDS
circa33
Uh, yeah. I'd be curious to see the price changes that would occur at Wal-Mart and elsewhere and how well that would go over. China says that it is intent on refocusing its economy on domestic consumption, but we'll see how well that goes and if successful, it will not be overnight. They are not going to be forced into anything on anyone else's schedule and are not going to change their minds thanks to some loudmouth senator from a country whose inability to get its own house in order makes its demands look all the more foolish.
There's a lot of "desired" changes going on in various economies around the world; these proposed shifts are very large and are not going to happen overnight. Additionally, they rely on countries that may not be able to work together terribly well and governments that do not exactly have terrific records undergoing large changes.