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

I would guess that these are difficult times for financial journalists. There just aren’t a lot of clear signals from the data regarding the key questions that investors have. Those questions are: Is Europe going to stabilize? Is the global economy going to accelerate or decelerate? Will the Fed start reducing asset purchases early (i.e. later this year)? Will the U.S. economy have a stronger second half or will we stall?


The recent underperformance of government bonds and of “bond-like stocks,” namely Real Estate Investment Trusts (REITs), and regulated utilities, suggests that the market may be starting to price in rising interest rates. Given that inflation expectations are nil, that would reflect an expectation of more normalized growth and higher real rates, as well as slowing Fed asset purchases. I do expect the U.S. economy to be a little stronger in the second half than the first, but I don’t see unemployment moving down to the 6.5 percent range this year (it’s currently 7.5 percent), which is the number Fed Chairman Ben Bernanke pointed to as his signal for changing monetary policy.  


Unfortunately, the international data are similarly vague, or rather unremarkable. Many of the economic data series are more or less tracking last year’s performance. In fact, the Organization for Economic Cooperation and Development (OECD) recently lowered its forecast for the global economy this year from 3.4 percent growth (last November’s forecast) to 3.1 percent, just above 2012’s 3.0 percent growth number. But most of the proprietary (private sector) forecasts I see expect accelerating global growth in the 2nd half. A lot of this has to do with the fact that global monetary policy has been “accommodative,” meaning half of the policy mix (fiscal policy being the other) is conducive to economic growth. Higher asset values have also contributed to higher spending. But Europe remains a source of concern and, because it is China’s largest export market, that causes uncertainty regarding China’s growth rate as well.


Keep this in mind: Sometimes these periods in which the economic data fail to draw a clear picture are confusing for investors. That’s because the press will tend to attribute importance to things like Fed statements and international data releases out of all proportion to their actual relevance.