Macro Roundup, Feb 27
Being half-French, it was encouraging to see the success of the 'The Artist' at yesterday's Academy Awards. France and the U.S. have long maintained a love-hate relationship, but, in recent years, the latter half of that dichotomy appears to have been dominant. Jean Dujardin was gracious in accepting the award for Best Actor – the first words out his mouth at the podium were "I love your country."
Back to macro matters. There's a must-read interview with Jeremy Grantham in this weekend's Barron's, who describes the current U.S. stock market as a "business-as-usual overpriced market." He believes stock returns over the next seven years will amount to a goose egg (in real terms) and favors high-quality stocks. I'm a little more sanguine, with a 10-year return forecast return of 1.9% (see this week's issue of The Real Returns Report), but, either way, the outlook is hardly tantalizing.
PIMCO does a good job of describing the investing environment in their latest Credit Perspectives, with much of the discussion focusing on the impact of the Eurozone crisis. Caution appears to be one of the watchwords; I won't disagree with that (Not so fast, coping with slow growth, Barron's)
In yet another sign that the ECB's LTRO (Long-Term Refinancing Operations) has been successful, the FT reports that there is increased appetite on the part of emerging economy central banks and sovereign wealth funds for euro-denominated assets (Emerging markets regain taste for euro, FT.) In fact, the LTRO risks being too successful – it will be interesting to see the total demand from European banks for 3-year funds in the second offer of the European Central Bank's money gambit (the first operation provided roughly $500 billion in low-cost liquidity.) The risk – one we're well familiar with in the U.S. – is that some banks may borrow cheap funds to construct a low-risk carry trade instead of simply shoring up their liquidity position (Draghi must be wary of LTRO elixir's power, FT.) That would be a far cry from the Bundesbank's concern that the LTRO could create stigma around participating institutions.
***That's all there is: Find out why investors shouldn't expect to earn more than 2% from U.S. stocks in the latest issue of The Real Returns Report.***