Resistance is Futile, for Now

The U.S. “risk-on” trade is still in place, even as some leveraged credit is showing signs of overheating.

April 23, 2014   |    By Scott Minerd

Global CIO Commentary by Scott Minerd

The U.S. economy is on solid ground as the effects of the difficult winter soft patch fade in the rear view mirror. While some may argue that U.S. financial markets are past due for a correction, all indicators remain strong, and so for now, the great “risk-on” trade continues. In fact, with optimism over corporate earnings rising and the New York Stock Exchange Advance/Decline Line reaching a new high last week; the U.S. equity market looks poised to continue its rally.

The reversal of flows into loan funds last week was disturbing, but, it is not reason enough to be overly anxious for the moment. Our research indicates that certain sectors of the credit market are showing signs of overheating, with triple-C corporate debt particularly overvalued. Against this backdrop, I look forward to attending the annual Milken Institute Global Conference next week, where credit market conditions will likely be a topic of hot debate.

Beyond the U.S. economy, monetary policy and credit markets, I look forward to discussing issues as diverse as the economic emergence of sub-Saharan Africa, rising geopolitical risk in Asia, and slowing economic growth in China. As I noted during my trip to Davos in January, the big cat is out of the bag about the opportunity in Africa. Sub-Saharan African nations have made significant political and structural advances. Nigeria has recently overtaken South Africa as the continent’s largest economy. Indeed, the opportunities are now so great that it is no longer reasonable for long-term investors to ignore the growth opportunity the continent represents.

In the coming days, I will be writing about these and other issues on Guggenheim’s Milken Institute Global Conference blog.

Africa Poised for Demographic Boom

The countries of sub-Saharan Africa have been among the fastest growing economies in the world over the past decade, a trend set to continue over the next decade. In addition to improved governance and stability, a primary reason for Africa’s acceleration has been, and likely will be even more so in the future, the demographic dividend from a booming working-age population. This economically active population is set to double in the next 25 years, and within 30 years, the African workforce will likely have surpassed that of China or India. If managed effectively, Africa could reap many of the same economic benefits that Asia has enjoyed over the last several decades during its own demographic surge.

WORKING AGE POPULATION: 2000-2050

WORKING AGE POPULATION: 2000-2050

Source: Haver, Guggenheim Investments. Data as of 4/23/2014. *Note: Regions follow the U.N. Statistics Division definitions.

Economic Data Releases

Housing Weakness May Be More than Just Weather

Faster European Expansion in April, China Slowdown Persisting

 
Important Notices and Disclosures

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.


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