Sunday, September 23, 2012

Where Does the Economy Go From Here?

After massive stimulus efforts by global central bankers in recent years, many asset prices have increased and credit markets are calmer, but economic growth and employment trends remain muted. The commentaries below are worth considering as we assess – “where do we go from here?”

Howard Marks – Chairman of Oaktree Capital Management – a $78 billion fund (Memo to clients - Sept. 11, 2012)
“The world seems more uncertain today than at any other time in my life.” and “Economic growth doesn’t just happen. Its vigor depends on a combination of population gains, a conducive infrastructure, positive aspiration and profit motive, advances in technology and productivity, and benign exogenous developments. In many ways and to varying degrees, I think the future for these things in the U.S. is less good than it was in the past. The birthrate is down; our infrastructure is out of date; it’s uncertain whether technology can add as much to productivity in the future as it has in the recent past (but perhaps it always is); and mobility up the income curve has stagnated.”
Richard Fisher - President Federal Reserve Bank of Dallas (NYC Harvard Club Speech, Sept. 19, 2012)
"Nobody (at the Fed) really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course.” and “ Nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before” and “One of the most important lessons learned during the economic recovery is that there is a limit to what monetary policy alone can achieve. The responsibility for stimulating economic growth must be shared with fiscal policy. Ironically, and sadly, Congress is doing nothing to incent job creators to use the copious liquidity the Federal Reserve has provided”
Full text at

After significant positive moves from the market bottom in 2009, uncertainty continues and economic headwinds persist. While there are suggestions that the recent rally can drive the markets into “escape velocity”, prudent expectations for economic growth and investment returns are likely warranted.

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