The Great Monetary Expansion

While winter weather will likely distort first-quarter economic data, accommodative monetary policy around the world means the long-term outlook remains positive.

March 05, 2015   |    By Scott Minerd, Global CIO


The European Central Bank will this month begin a program of full-scale quantitative easing to match what the central banks of Japan, the U.K., and the U.S. have been doing for some years now. The People’s Bank of China, by cutting its benchmark deposit and lending interest rates by 25 basis points last Saturday, provided further evidence—if any was needed—that the global economy will remain flush with liquidity for some time to come. The takeaway from this is that the great global monetary expansion is far from over and the outlook for stocks remains positive.

With regard to economic data here in the United States, we are potentially headed toward a period marred by winter distortions. This is nothing new. In the early months of 2014, key economic data points such as housing, retail sales, and even employment were negatively impacted by an extended winter cold snap. When the economy shrank by 2.1 percent in the first quarter of 2014, investors debated the fundamentals of the American economy. Of course, the economic soft patch of early 2014 proved temporary and the economy quickly regained momentum upon the arrival of the spring thaw. If similar factors are now at play, economic activity may be temporarily delayed, but not canceled.

If we do begin to witness a similar softening in economic data over the coming weeks, debate around the fundamentals of the U.S. economy will likely start afresh. Investors may even begin to question the Fed’s appetite for raising rates. However, I believe the underlying economy remains exceptionally strong and investors should not be panicked by seasonal setbacks. Indeed, considering the strength of the U.S. economy and the wave of liquidity emanating from various central banks around the world, the general investment environment should remain attractive.

Winter Weather May Weigh on Q1 Housing Activity

Last year, first-quarter gross domestic product was severely affected by cold weather and heavy snowfall, a pattern that could repeat itself this year. Measured by deviations from monthly average temperatures, last month was the coldest February since 1979. One of the most notable signals of the effect of winter weather last year was a slowdown in housing activity. With housing key to the ongoing recovery, first-quarter GDP may surprise to the downside due to the weather.

U.S. Temperatures and Existing Home Sales

Winter Weather May Weigh on Q1 Housing Activity

Source: Haver, Bloomberg, Guggenheim Investments. Data as of 3/2/2015. LHS = left-hand side. RHS= right-hand side *Note: Temperature data is a population-weighted average. Deviation from normal is defined as deviation from monthly average since 1970.

Economic Data Releases

Mixed Data in the U.S. as ISM Readings Diverge

Euro Zone Deflation Slows, China PMIs Rebound

 
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. ©2015, 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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