BlackRock: The 2013 Macro View

I don’t totally agree here, but this is is a nice macro overview of the current landscape via BlackRock:

Fiscal Cliff: A huge policy blunder has been averted (for now), but fiscal tightening will take place. With additional negotiations to come, markets will be volatile, but long-term investors could find buying opportunities.

US Economy. The United States will maintain slow but positive growth, much like in 2012, but should not enter a new recession. Look for stronger growth as the year progresses.

Interest Rates and Inflation. The 10-year US Treasury yield should gradually rise through 2013 to 2.25%. Inflation should remain in the 2% range unless growth or oil prices spike.

Europe. The European Central Bank (EC B) changed the game by taking the risk of banking collapse off the table. But key reforms are likely a year or more away. In the meantime, growth is elusive.

China and Emerging Markets. China and emerging markets regain their growth trajectories in 2013, helping cushion any weaknesses in the United States and Europe.

Risk-On/Risk-Off Redux? Markets are likely to remain volatile early in the year, but should respond more to fundamentals as clarity emerges.

US Stock Market. While risks are elevated and valuations are relatively high, we still see opportunities, particularly in US mega caps.

Global Stocks. Emerging markets offer faster growth, cheap valuations, lower inflation and relatively muted volatility.

Fixed Income. What used to be “risk free” (i.e., Treasuries) has actually become risky. Over the long-term, we suggest migrating toward credit sectors.

High Yield Bonds. Investors should consider diversifying their exposures in high yield to include loans and secured credit. The asset class continues to offer compelling yield and return potential, and default rates remain low.

Municipal Bonds. Municipal bonds offer compelling taxable equivalent yields in the face of higher taxes. Munis are unlikely to lose their taxexempt status.

Volatility. Alternative asset classes and strategies are increasingly mainstream and offer the opportunity to enhance portfolio diversification.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. “Munibonds are unlikely to loose their tax exempt status”. And that’s precisely why the investment sheeple WILL flock to this “asset class” in droves and then WILL loose (more than) their shirts when (NOT IF) rates are going through the roof.

  2. These are hardly “edgy” views and most are difficult to disagree with unless you are under the mistaken belief there will be a great rotation from credit to equities which we will not see because of tame inflation stemming from stagnating incomes, excess capacity and output gaps of 5% to 13%. We may see equities move higher but that is not to say bonds will collapse.

  3. The idea that Emerging Markets will raise to save the day seems far fetched to me. I think there is way too much optimism on China’s “recovery”.

  4. The US will have to use fiscal policy rather than interest rate policy as/if the recovery continues. If they use interest rate policy the bond and high yield losses will be large.

    Inflation can be controlled by reducing government spending into the private sector, (or by increasing taxation) as much as by increasing interest rates.

    The changes in spending from the sequestration or a deal that is done to avoid sequestration will have to balance efforts to reduce unemployment against allowing fast growth causing inflation by demand from the “haves”.

    If the Congress gets it wrong then its either no jobs growth (too much increased taxes/spending cuts) or higher interest rates from the Fed (if consumer inflation starts to rise. (The Fed won’t be worried about house price inflation at least while it is largely bringing people out of negative equity as this will reduce pressure on banks and households.)

  5. “Global Stocks. Emerging markets offer faster growth, cheap valuations, lower inflation and relatively muted volatility.” Ian Bremmer says he sees Emerging Markets as the number one risk as we work our way through this year. Especially risks in all four of the BRIC countries.