As it rises in the years ahead, it could be a headwind for expansion of P/E multiples. The benchmark 10-year US Treasury yield remains near a multi- decade low. Hard political choices need to be made or currency values are at risk.įalling US home prices-the first time since the Depression- continue to be a drag on US consumption. Sovereign debt burdens are too high in several DM countries. Many are not as seasoned as DM policymakers. Global growth is overwhelmingly dependent on EM policymakers. Is Europe the next Japan? The continent is at risk of slipping into a “lost decade” triggered by lack of leadership and institutional inflexibility at the European Central Bank and elsewhere. The ongoing deleveraging in the major developed-market (DM) economies will take several years to run its course historically, the byproduct of this has been sluggish growth for a long time. Remember the old adage: when goods cross borders, soldiers don’t. By almost any metric, the planet is now more peaceful than at any time in human history.Price pressures are thus unlikely to pose a problem in most economies for an ex- tended period. Global inflation is low and likely to go lower.What’s more, EM consumer growth is in its infancy: for example, only 2% of Brazilians have a mortgage. Incremental consumer spending in the emerging markets eclipsed US consumer spending several years ago.Despite recession in Europe, US and global growth will likely remain positive, the latter driven by slowing but still strong growth in most emerging market (EM) economies. Equities are also cheap relative to bonds and cash.
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