Eagle Asset Management's Richard Skeppstrom says we're in no danger of a recession and asks investors not to panic. Continuing market volatility and the possibility of a slight increase in interest rates do not necessarily spell disaster.
"Don't Panic
The market’s momentum was ebbing with the slowing of global growth. The return of volatility was inevitable and corrections are a fact. People panic for a reason; there’s generally no shortage of reasons and happily there are very few good ones. Unfortunately, in the last 15 years, we’ve had two wrenching stock collapses and they remain fresh in everyone’s minds. In the first, the U.S. Federal Reserve tightened to rein in the tech bubble (that it had ignored/blessed) and associated nonsense but there’d been too much excess and the economy fell into recession. In the second, the Fed tightened to rein in the housing bubble (that it created) and associated nonsense but there’d been too much excess and the banking system nearly collapsed, dragging the economy into the Great Recession.
In fact, the last bubble was so magnificent, so perfect – Who is genius enough to bet the banking system’s capital on a housing bubble? – that people actually have resisted borrowing. So, try as it might, the Fed has failed to ignite another significant spending bubble in the U.S. economy. The Fed has no bubble to pop and we are in no danger of a recession. It only wants to raise rates (a little) because zero is ridiculous and it’s afraid of what will happen if it can’t ever lower them to save us from the collapse of the next bubble it is, so far, failing to inflate. It’s just that simple.
More Chinese problems
As for China, it is attempting to rebalance an economy dangerously dependent upon debt-financed fixed investment but it simply has borrowed and built too much useless stuff to accomplish a smooth transition. How would an inscrutable, corrupt bureaucracy with absolute control, a plague of hubris and a hunger for power and prestige spend its riches? Somewhere between wastefully and foolishly is my bet. Tens of trillions conjured and spent at a pace never before seen is finally mashing up against the realities of markets, compound growth and debt. Thousands of gleaming towers, dozens of new cities, countless factories, new interstates, rail ... you name it, they bought or built it: Who’s to say what’s real and what will go to the weeds? A tsunami of growth swamps all before it. But the tide, as they say, is turning and in time it’s likely to uncover considerable unpleasantness." Download below to read the full report.
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