/perspectives/global-cio-outlook/resistance-is-futile,-for-now

Resistance is Futile, for Now

The U.S. “risk-on” trade is still in place, even as some leveraged credit is showing signs of overheating.

April 22, 2014    |    By Scott Minerd

Global CIO Commentary by Scott Minerd

The U.S. economy is on solid ground as the effects of the difficult winter soft patch fade in the rear view mirror. While some may argue that U.S. financial markets are past due for a correction, all indicators remain strong, and so for now, the great “risk-on” trade continues. In fact, with optimism over corporate earnings rising and the New York Stock Exchange Advance/Decline Line reaching a new high last week; the U.S. equity market looks poised to continue its rally.

The reversal of flows into loan funds last week was disturbing, but, it is not reason enough to be overly anxious for the moment. Our research indicates that certain sectors of the credit market are showing signs of overheating, with triple-C corporate debt particularly overvalued. Against this backdrop, I look forward to attending the annual Milken Institute Global Conference next week, where credit market conditions will likely be a topic of hot debate.

Beyond the U.S. economy, monetary policy and credit markets, I look forward to discussing issues as diverse as the economic emergence of sub-Saharan Africa, rising geopolitical risk in Asia, and slowing economic growth in China. As I noted during my trip to Davos in January, the big cat is out of the bag about the opportunity in Africa. Sub-Saharan African nations have made significant political and structural advances. Nigeria has recently overtaken South Africa as the continent’s largest economy. Indeed, the opportunities are now so great that it is no longer reasonable for long-term investors to ignore the growth opportunity the continent represents.

In the coming days, I will be writing about these and other issues on Guggenheim’s Milken Institute Global Conference blog.

Africa Poised for Demographic Boom

The countries of sub-Saharan Africa have been among the fastest growing economies in the world over the past decade, a trend set to continue over the next decade. In addition to improved governance and stability, a primary reason for Africa’s acceleration has been, and likely will be even more so in the future, the demographic dividend from a booming working-age population. This economically active population is set to double in the next 25 years, and within 30 years, the African workforce will likely have surpassed that of China or India. If managed effectively, Africa could reap many of the same economic benefits that Asia has enjoyed over the last several decades during its own demographic surge.

WORKING AGE POPULATION: 2000-2050

WORKING AGE POPULATION: 2000-2050

Source: Haver, Guggenheim Investments. Data as of 4/23/2014. *Note: Regions follow the U.N. Statistics Division definitions.

Economic Data Releases

Housing Weakness May Be More than Just Weather

  • Existing home sales were mostly flat in March, inching down to 4.59 million from 4.6 million, slightly above expectations. Sales have fallen for three straight months.
  • New home sales plunged in March from 449,000 to 384,000, an eight-month low. The median sales price reached a record high.
  • The FHFA House Price Index rose 0.6 percent in February from January. On a year-over-year basis, prices were up 6.9 percent, the smallest annual increase in a year.
  • The Leading Economic Index was better than anticipated in March, rising 0.8 percent, the most in four months. Financial indicators and the manufacturing workweek added the bulk of the increase.
  • Initial jobless claims were mostly flat for the week ended April 12, rising by 2,000 to 304,000.
  • The Philadelphia Fed Business Outlook Survey rose for a second consecutive month in April, reaching the highest level in seven months at 16.6.

Faster European Expansion in April, China Slowdown Persisting

  • Euro zone consumer confidence climbed to a six-and-a-half year high in April at -8.7, up from -9.3.
  • The euro zone manufacturing PMI accelerated in April to 53.3, up from 53.0. Services also rose to 53.1, the fastest pace of expansion in nearly three years.
  • Germany’s manufacturing PMI rebounded in April to 54.2, after falling the previous two months.
  • France’s manufacturing PMI fell for the first time this year in April, showing a slower pace of expansion at 50.9 versus 52.1 in March.
  • China’s HSBC manufacturing PMI showed a fourth straight month of contraction in April at 48.3, up slightly from 48.0.
  • Japanese export growth slowed sharply in March, rising just 1.8 percent from a year ago after a 9.8 percent gain in February. Imports jumped due to increased consumption before the sales tax increase, resulting in a significantly wider trade balance.
 

FEATURED PERSPECTIVES

May 16, 2018

Positioned for Choppier Waters

After several quarters of low volatility, tight spreads, and abundant liquidity, financial conditions are shifting.

May 09, 2018

Forecasting the Next Recession: Updating Our Outlook for Recession Timing

New developments in fiscal policy, the labor market, and the neutral interest rate suggest that the expansion could extend into the latter half of our recession range.

April 26, 2018

Seeking a Return on Sustainable Development

A framework for transitioning sustainable investing to an institutional asset class.


VIDEO

Forecasting the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.