Practical analysis for investment professionals
20 February 2015

Weekend Reads for Investors: “The Most Crowded Trade”

Posted In: Weekend Reads

The state of the global economy has been a hot topic of late. Bank of England chief economist Andrew Haldane, in a recent speech, titled “Growing, Fast and Slow,” examined historical drivers of economic growth and concluded that while the technological tailwinds to growth — principally in the form of a digital revolution — are considerable, the sociological headwinds, including excessive debt, rising inequality, and unfavorable demographics, are equally prominent. The result, he warned, could be “secular stagnation” rather than “secular innovation.”

Across the pond, Richard Fisher, soon-to-be-retired president of the Federal Reserve Bank of Dallas, was decidedly more optimistic about prospects for the US economy, noting that corporate balance sheets are the healthiest they’ve been in decades. Including Canada and Mexico, Fisher likened the North American economy’s potential to the racehorse “Secretariat at the Belmont Stakes in 1973.” (Recall that Secretariat won in spectacular fashion — by 31 lengths.) At the same time, he warned that the Fed, reluctant to raise rates prematurely, is at risk of “monetary Alzheimer’s.”

The economic backdrop figures prominently in the chatter among investment strategists of late as they debate the sustainability of the “decoupling” of the US economy from sluggishness in the rest of the world. Bank of America Merrill Lynch strategists have called the decoupling trade — long US stocks and the dollar — “the most crowded trade in the world.” The decoupling meme also seems to be belied by the forward guidance issued by US firms along with their fourth quarter earnings. FactSet notes that we are seeing the largest percentage decrease in earnings estimates for the S&P 500 Index since 2009. As US stocks hover near all-time highs, those with a contrarian bent may be receptive to the latest missive from Joe Calhoun at Alhambra Investment Partners. In “Is It Time to Zig?” Calhoun suggests that investors might want to look outside of the United States for more rewarding opportunities.

Below are some other stories that caught my eye in recent weeks.

Strategic Thinking

Valuation

Retirement

Moving Markets

High Profiles

Big Business

Twitter Troubles

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockPhoto.com/JLGutierrez

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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