"Kee" Points with Jim Kee, Ph.D.

I know it sounds like a broken record, but “mediocre” continues to be the word that best describes the US and global economies. That’s been the case for the past several years, which is sometimes difficult to see if you follow the volatile monthly data too closely. The press contributes to this difficulty when it hypes insignificant events, which occurs quite often. Overall, the outlook for the US is a bit better than the rest of the developed world (Europe and Japan), with perhaps 2 percent growth expected for 2016 (not real upbeat). Corporate earnings even excluding energy continue to convey a challenging environment, but positive data like the April ISM Non-Manufacturing certainly don’t point to recession.

 

Looking globally, I agree with The Conference Board that a lot of the concerns regarding China have already happened, but actual growth there is probably only about 1/2 of the government's numbers - maybe 3 or 4 percent (the Conference Board is an organization of business leaders founded in 1916). I continue to be amazed that the investment community equates communist country GDP with market economy GDP (I don't). Expectations for growth in Europe this year (Bloomberg consensus) run between 1 and 2 percent, and I'm a lot closer to the 1 percent -lots of potential risks there. Japan continues with low or no growth, as does Latin America. This is definitely a global environment where picking the right handful of stocks is key, because you are probably not going to get robust upward movements in entire indices. As for fixed income, Puerto Rico has had no chance of avoiding default and the key there is watching the workout or restructuring plans (like Greece). Well, the key there is really to avoid owning risky bonds in general!

 

Election thoughts: Election models continue to favor Democrats to win the White House, though the 53%/47% odds haven’t changed much since widening from 50-50 at the beginning of the year. Economists often describe US political party campaigns as “growth” (Republicans) versus “redistribution” (Democrats), because that characterizes much of their respective campaign rhetoric. This year we’ve seen rather extreme cases of each with Sanders (redistribution) and Cruz (growth), but both Clinton and Trump appear much closer to the center. If anything, both are emphasizing redistribution – within the US in Hillary’s case, and from the rest-of-the-world in Trump’s case. But both parties have been talking up growth as of late, with Trump emphasizing tax cuts and Clinton emphasizing simplifying the regulatory morass. So it’s not all zero-sum thinking, and that’s good news.