Eagle Asset Management's Richard Skeppstrom discusses the Fed's approach to debt and credit in this month's Market Perspective."Betwixt and between
The easy money’s been made. That’s not gloomy talk. It’s not controversial. It’s not a recommendation to do anything. It’s a fact. You can expect high returns from stocks when margins are depressed, valuations are low, interest rates can be slashed and the U.S. Federal Reserve is about to juice the system. But that’s simply not where we are now. We are in a new market where the returns will be lower, fewer things will work and volatility will be higher. We will be in this environment for the foreseeable future. This is sort of like getting older. As they say, it’s better than the alternative. Cheer up.
Byron Wien, the legendary strategist, says the market can go higher from here even without the Fed’s help. Of course it can. In fact, I suspect it will slowly grind higher. What’s been working so far this year is growth. Highgrowth names in healthcare, technology and consumer cyclicals have led. Michael Goldstein of Empirical Research Partners has identified a group he calls the 75 “Big Growers.” They have the most “unimpeachable (growth) credentials” and they’ve done exceptionally well. That isn’t surprising. Economic growth has disappointed, compelling investors to seek growth that’s unmistakably independent of the economic backdrop. They’re expensive at about 33 times earnings but not stupidly so. They’ll likely lead until economic growth turns decisively in either direction. As unhelpful as this is, I suspect the next leadership change will be easier to spot in hindsight. We’re betwixt and between.
The Fed: friend forever
It’s certainly appropriate for Mr. Wien to consider markets post-Fed rate increases but I doubt the Fed can ever again take its hands off the markets. As I see it, it’s let too much debt build in the system at too-low rates to ever disengage. And this is the state of things pretty much everywhere in the world. We gorged on debt over the last few decades to keep growth going and when the inevitable retching began in 2008, the central banks conjured the most powerful medicine imaginable (0 percent interest rates and Fed asset purchases) and the symptoms subsided. But the disease (debt) is still there; the therapy assured it. Is that unfair? Perhaps there was nothing else they could do; we’ll never know. Easier credit is the traditional remedy for a recession and I have no doubt that a less-robust response would have been more painful, and likely much more..." Download the full report below.
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