David Roberts

730 billion reasons to be cheerful

David Roberts

As regular readers of our team’s fund commentaries and blogs will know, we are reluctant to expose client capital to extremely expensive bond market ‘beta’ at the moment, preferring instead to play directional themes.


I’m often challenged in this assessment by those reminding me that central banks are “really worried” and “moving to ease monetary policy”, offering support for longer duration strategies. Last night’s move from the US Federal Reserve to enact a “mid-cycle adjustment to policy”, cutting rates by 25 basis points to a range of 2.0%-2.25%, may further entrench this view.


The Fed’s decision has received a mixed reception, disappointing some commentators who had called for a clearer signal of further rates cuts to follow this year. But the fundamentally pessimistic view from the Fed, that this rate cut insurance is required to protect against economic uncertainties and downside risks, seems to be at odds with the inflation and growth data that I’m seeing. Given that we are 11 years into an expansion, the data look pretty good to me.


Although manufacturing and investment are rock bottom, so far the global economy has plodded along just fine. The IMF may have recently downgraded its economic forecast, but it has hardly taken a scythe to its projections. Global growth for 2019 is now expected to be 3.2% rather than 3.3%, and the 2020 figure has edged down to 3.5%-3.6%. This is not really a shocker.


Why has the economy remained so resilient? Well, a few “did you knows” may give us some clues:

  • US wages are now worth US$9.3trn per annum.
  • They grew at an annualised 3.7% in the first half of 2019.
  • This was the fastest pace in a decade.
  • Put an “extra” US$350billion into consumer pockets.


A happy consumer with a bit of money in his or her pocket normally leads to a bit of growth. And while US$9.3trillion is a lot of money, it is only around half of US Personal Income (wages plus rental income plus investment income, etc.). The current annualised change in the US is actually even greater: 4.1% or a nice US$730billion increase from a year ago.

David Roberts: 730 billion reasons to be cheerful

Sure it’s easy to worry about tariffs and trade - about the negative impact on business confidence and investment and a spill-over effect to the consumer.

But perhaps if Draghi, Carney and Powell concentrated on some of the economic facts and reminded people there are at least 730 billion reasons to be cheerful, they might be surprised at the impact on confidence and consumption.


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Key Risks

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Thursday, August 1, 2019, 1:45 PM