May 15, 2013 | By Scott Minerd, Global CIO
The monetary policies pursued in Japan, informally known as “Abenomics,” may indirectly save the European Union. Japan, which is a direct export competitor with Germany, has devalued the yen by approximately 30% since last September. The euro, on the other hand, is currently overvalued by roughly 20% on a purchasing power parity basis. This means German goods have become relatively more expensive and German export data has begun to slow as a result of this.
This dynamic could lead the European Central Bank to act more aggressively in devaluing the euro, which would help the periphery. Importantly, the measures could be carried out under the banner of stimulating economic growth through boosting exports in Germany and France, thereby avoiding the political backlash from the core, which is reluctant to provide help to the periphery. This development, combined with the recent announcements that the European Union is not likely to implement any further austerity measures, can be interpreted as evidence that Europe could return to modest economic growth within the next 6-12 months.
The eurozone’s economy is expected to return to growth in 2014, according to official projections. The region’s most drastic fiscal cuts have already been implemented, meaning the public sector may cease to be a drag on growth over the next few years. Additionally, the private sector should respond favorably to the cessation of government austerity, which will further propel economic recovery.
Source: EU European Economic Forecast Spring 2013, Guggenheim Investments. *Note: 2013 and 2014 are forecasted projections. Core countries include Germany and France; Periphery refers to Italy, Spain, Ireland, Greece, and Portugal.
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.
Should the mood this year at Davos prove once again to be a contra-indicator, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues.
What would be a normal seasonal correction is turning into the worst December selloff in equities since the Great Depression.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2019 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.