Most bond bears continue to pound the table expressing their concerns that interest rate are going to rise rapidly causing bond prices to crash and yields to explode. Sorry, the chance of this happening here in the US by our calculations is low. Instead we believe that the global turmoil primarily in Europe will create an environment that will increase bond prices in the US as a flight to quality. Say what you want about the US financial situation, the rest of the world, primarily Europe is in much worse shape.
We should as investors understand that the real risk to a stable financial recovery here in the US will be on the backs of the consumer. Most other aspects of the economy here in the US are well on their way to recovery. The consumer makes up nearly 70% of the overall economy. We are starting to see some signs that corporate hiring should pick up this spring and into the summer. If corporate earnings and top line revenues increase over the next few quarters, the consumer will begin to feel more confident with their overall financial situation, because new jobs will follow. Overall, things are improving globally, but before investors double down their bets in the equity markets, new hiring needs to increase.
Finally, two issues need to be addressed before we can rule another recession, Employment and Sovereign debts issue in Europe. If we start to see jobs being created, and confidence that the EU can deal with their debt issues in an orderly manor, expect a fruitful and measured recovery globally. We are still cautious and remain fully hedged with regards to risky assets.
by David A. Mascio
