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

Looking globally, near term concerns are (1) a potential US recession following May’s poor payroll report, (2) Fed Chair Janet Yellen’s press conference on Wednesday (following Fed talks on Tuesday and Wednesday) and whether the Fed will raise rates this month or next, and (3) the British referendum (vote) next week on whether to exit the European Union. The odds of any of these happening are low, but they aren’t zero, and I expect the press to be churning these stories in earnest over the next few weeks. Touching bases with some general indicators, the Atlanta Fed’s GDPNow model is anticipating 2.5% GDP growth for the second quarter, and PollyVote indicates that the odds of Clinton over Trump in the US Presidential election have narrowed to 51.9%.


One of the key things that markets are struggling with is global growth, described by the International Monetary Fund (IMF) as “too low for too long.” The IMF expects about 3.2% global growth this year (consistent with last year), accelerating slightly to 3.5% in 2017. Advanced economies are expected to grow at about 1.9%, with the US growing at 2.4%, euro area at 1.5%, and Japan growing at .5%. Emerging markets are expected to grow at 4.1% this year, weaker than previously expected primarily because of the continued slowdown in China and because of deep recessions in Brazil and Russia. Like most forecasters, and just about all government agencies (US and global), the IMF has been overly rosy in its forecasts. In my opinion (following Bernanke here) they have had somewhat unrealistic expectations as to what monetary policy can accomplish.


Here’s a big picture view: But the world is getting richer, and investors’ time horizons are surely longer than the data-point-to-data-point horizons of the business press. Twenty years ago the developing economies comprised about 20% of global GDP; today that is closer to 40%. These emerging economies have had very high savings rates, which is partially a function of the lack of social safety-nets in those countries, and partially because of the “Asia Meltdown” that occurred at the turn of the century (1997-2000). This impacted many people in emerging markets the way the Great Depression of the 1930s impacted that generation here (very frugal). Eventually, however, as “western” consumption patterns emerge (they usually do!), particularly with the onset of instantaneous global information sharing, this will likely change. Less saving and more spending on both consumption and investment goods around the world should lead to somewhat higher and more normal “real” interest rates, growth rates, and asset values (La Jolla Economics). That’s a longer-term view for sure, but I think it is an accurate one.