![]() Developed market data encompasses the U.S., U.K., Japan, Canada, and Euro area. The misery index displays the sum of inflation and unemployment rates. Source: Haver Analytics, Arthur Okun, and PIMCO calculations as of September 2022. However, one thing we feel certain about: Borrowing from Arthur Okun’s misery index (created in the 1960s), which adds up inflation and unemployment rates to characterize economic performance, misery is increasing for central banks and policymakers (see Figure 1). ![]() As a result, although we discussed point forecasts for growth and inflation, we agreed that the range of possible outcomes was particularly wide. We discuss the case for bonds – and review other assets – in the investment implications, further below.Īs we worked toward these and other conclusions, we reminded ourselves of the concept of radical uncertainty, where uncertainty can’t be quantified by statistical distributions or probability-weighted average outcomes, but rather is unmeasurable and represents unknowable unknowns (see, for example, “ King, Keynes and Knight: Insights Into an Uncertain Economy,” July 2016). Investors can potentially earn higher income while pursuing resilience amid market volatility. We see this as a time for caution and flexibility in portfolios, and yet higher yields are adding to the attractiveness of bonds. Central banks are in a miserable position, having to address inflation while growth is already at risk. We concluded that a recession is likely to strike across developed markets and that elevated inflation is likely to stick around. We discussed these and other factors at length at our Cyclical Forum in September in Newport Beach. Geopolitical tensions, elevated market volatility, and the fastest pace of central bank tightening in decades are meaningful economic headwinds contributing to an unusually uncertain environment. ![]() This is a critical time for investors and policymakers alike. We also anticipate the more typical negative correlations between high quality bonds and equities will reassert themselves, thus improving the hedging and diversifying characteristics of core bond allocations.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |