Oil suffered its worst quarter in six years. Other commodities also fell amid fears about China’s economy. The big overhang was the endless speculation about when the Americans would finally raise interest rates.
“God knows where this is going,” said Icahn, who has been a consistent critic of the U.S. Federal Reserve for keeping its benchmark interest rate close to zero since 2008. “It’s very dangerous and could be disastrous.”
I bounced those pessimistic views off Myles Bradshaw, an Oxford-trained economist who was in Toronto this week as part of a summit by NEI Investments. NEI is a mutual fund company that sells the Northwest and Ethical groups of funds.
Bradshaw heads up global strategies in London for Amundi Asset Management, which manages some funds on behalf of NEI. Amundi is Europe’s largest asset manager and one of the world’s 10 largest.
Far from being a pessimist, Bradshaw sees a future of low inflation, low but gradually rising interests rates and a rebalancing of the economic landscape. That comes with bumps, but he believes the low interest rate policies of the past 10 years have been the right course.
Bradshaw says Germany’s focus on price stability and the American reluctance to raise rates are rooted in their 20th-century experiences. For the Germans, the lessons of hyperinflation during the 1920s, and the resulting political and instability in the ’30s leading to World War II means a bias to stamping out inflation at all costs.
Bradshaw says it’s true that traditionally risk-averse savers are heading into stock markets because there’s little choice if they want a higher turn. But that higher risk can be low to moderate. Consumer debt levels are high, but low interest rates mean the costs are lower than in the past.
Bradshaw admits the global economy is more sensitive then ever to rate increases, which means increases will likely be small and gradual. He points out that the ratio of American debt to GDP (its economic output), is about the same now as it was at the end of World War II. The ratio fell steadily as economic activity grew.
So what does that mean for us? In Bradshaw’s view three things:
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