That’s probably true, and not as sensationalist as it might seem.

In Is U.S. Economic Growth Over? Faltering Innovation Confronts The Six Headwinds, Gordon’s thesis is that even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt.

Robert Gordon’s Ted Talk is a brilliant summary of his view:

Interested in more from Robert Gordon? Register for BCA’s 2013 New York Investment Conference where we are delighted to welcome Mr. Gordon as a guest speaker.

C orporate credit spreads narrowed throughout 2006 even after the Fed had boosted its target lending rate above equilibrium. Spreads continued to trend lower in early 2007 even after our Corporate Health Monitor moved into “Deteriorating Health” territory. While these two factors together created a formidable headwind for credit, spreads still needed a catalyst before reversing direction.

That catalyst appeared in mid-2007 as the Senior Loan Officer survey revealed that banks were actively tightening lending standards. The supply of credit to low-quality firms was shut off and the market quickly handed high-yield investors a painful setback. High-yield bonds underperformed the Treasury market by nearly 2000 basis points between June 2007 and March 2008 as the index spread widened to 830 basis points.

Such a turning point is unlikely to materialize soon. Monetary policy is exceptionally easy and our measure of non-financial corporate sector health remains in improving health territory, although admittedly is showing some signs of decay. A further deterioration in corporate health will be an important signal for caution. That said, it will not be enough on its own to end the rally, especially given the strong starting point of corporate balance sheets. Therefore, spreads are likely to trend lower until both the Fed and the banking sector are tightening credit conditions. This point is probably several years away.

Bottom Line: The rally in high-yield has further to go, despite the dramatic narrowing in spreads to post-crisis lows.

We are tremendously excited to announce that President Emeritus at Harvard University and Former U.S. Treasury Secretary, Larry Summers, will be a guest speaker at the 2013 BCA New York Investment Conference, Easy Money versus Weak Growth: Can The Bull Market Be Sustained.

About Larry Summers:

M r. Summers was appointed to serve as the Director of the National Economic Council for the Obama Administration in 2009. As Director of the White House National Economic Council and Assistant to the President for Economic Policy, Mr. Summers served as a key economic decision-maker in the Obama administration. The Economist magazine referred to the “Summers Doctrine” of massive active response to economic downturn combined with respect for markets in the basic allocation of resources as defining the recent approach to economic policy. Mr. Summers was the Chief White House Advisor to the President on the development and implementation of Economic Policy; he led the President’s daily economic briefing and was a frequent public spokesman for the Administration’s policies.  Upon his departure from the White House, President Obama said, “I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team.” He returned to Harvard in early 2011 as the Charles W. Eliot University Professor and the Weil Director of the Mossavar-Rahmani Center for Business & Government at the Harvard Kennedy School. Click here for Mr. Summers full bio.

I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team. – President Obama

Risk assets have been rising high on a tidal wave of central bank liquidity, but there remains a major question about how long this can be sustained given the extremely weak global recovery, continued high levels of debt and lingering financial imbalances throughout much of the developed world.

Against this background, the conference agenda will include sessions on the following topics:

• The euro crisis: stumbling towards a solution or breakup?
• Is monetary policy doing more harm than good?
• What will the debt end game look like and when will it occur?
• Has developed economy growth moved permanently to a much lower level?
• Is the underperformance of emerging markets just temporary?
• Investment prospects in global real estate
• Global investment strategy, highlighting the major risks and opportunities

The following speakers have been confirmed for the event:

• Lawrence Summers, President Emeritus at Harvard University and Former U.S. Treasury Secretary
• Donald Kohn, Senior Fellow, Brookings Institution and former Vice-Chairman of the Federal Reserve
• Bill White, Chairman of the Economic Development and Review Committee, OECD and former Economic Adviser to the Bank for International Settlements
• Athanasios Orphanides, Former Governor, Central Bank of Cyprus and former member of the ECB Governing Council
• Woody Brock, President, Strategic Economic Decisions
• Jim Grant, Editor, Grant’s Interest Rate Observer
• Byron Wien, Vice Chairman, Blackstone Advisory Partners
• Dylan Grice, Edelweiss Holdings Ltd.
• Robert Gordon, Professor of Economics, Northwestern University
• Bill Raduchel, Strategic adviser on technology
• Nicolas Veron, Senior Fellow, Bruegel and Visiting Fellow, the Peterson Institute for International Economics
• Raymond Torto, Global Chief Economist, CB Richard Ellis Group.
• Sotiris Tsolacos, Director of European Research, Property and Portfolio Research

The conference program will allow plenty of time for discussion and interaction with the audience, and will also provide you with a unique opportunity to network with senior investment professionals from around the world together with BCA strategists.

We hope you will join us in New York for what is sure to be an interesting and worthwhile meeting.

The BCA New York Investment Conference sells out very quickly and space is limited. Click here to register today.

Where To Stay?

W e have arranged special room discounts for BCA Conference attendees at The Waldorf Astoria.

The rate is $469 (not including taxes) per night – for two nights (September 22nd and 23rd). Please note that there are limited rooms reserved at this rate for the two day booking, and that all rooms will be reserved on a ‘first come first served’ basis.

Register for BCA New York 2013 today and we’ll send you the Waldorf reservation link in your confirmation e-mail!

Originally published May 13, 2013

The bond market is selling off again on the most recent round of the Fed’s quantitative easing exit strategy speculation.

We’ve seen this movie before and we’ll see it again.

D espite that fact that U.S. GDP has been remarkably stable since the end of the Great Recession, market expectations about growth have been far more volatile. We have argued in past Insights that one of the reasons for this is that whenever growth hovers below 2%, any poor data reignites recession fears.

A data-dependent Fed reinforces this dynamic. With the Fed’s current tightening threshold for unemployment at 6.5%, investors have done the math: 100,000 monthly job gains keeps the Fed on a zero rate path combined with continued QE, but 180,000 does not.

Hence, it should be no surprise that uncertainty regarding the Fed’s prospective policy path has risen in response to upward revisions to recent payroll numbers and other signs of stronger economic data elsewhere (as covered in New Daily Insights, May 13, 2013).

Extrapolating the underlying trend in growth will remain challenging due to the impact of the federal sequesters and possible seasonal weakness similar to the pattern observed over the past three years.

This underscores why telegraphing the short-term path of Treasury yields remains challenging. However, our view remains that growth will return to an above-trend pace later this year: Treasury yields should be sustainably and significantly higher on a 12-month investment horizon.

Learn more about New Daily Insights – BCA’s first interactive service.

L aunched today, May 13, 2013 – New Daily Insights is now available as a completely online and interactive experience: research content will be delivered via emails that include hyperlinked titles and no static PDFs. In addition – through the power of responsive design – the service can be viewed across all platforms, including desktops, tablets and smart phones.

Our move to digital delivery coincides with the release of several new features:

Insights: Now with greater breadth and depth, in four categories:

• Featured Insights: Focused and brief analysis of global financial market trends
• Morning Meetings: A same-day snapshot into the ideas and debates of our strategists
• Key Releases: Detailed analysis of the day’s economic data
• The Week Ahead: Published Fridays, find out what BCA expects will move markets in the week ahead

Ask A Strategist: Interact with BCA strategists online. Ask your questions and access all QA to uncover what is relevant to the BCA community.

Inside BCA: Learn what our strategists are reading, view their comments on controversial themes and views, read interviews with members of the financial community, and discover suggested research from the BCA vault.

Polls: Share your opinion and search previous polls for insights on key topics. Suggest a poll – we’re listening.

We look forward to having our New Daily Insights clients engage with us through comments, questions and polls.

Nanci K. Murdock, CFA
Editor, Inside BCA
New Daily Insights

Originally published May 10, 2013

Last December, our European Investment Strategy service predicted that “2013 would be the year of the big U-turn on obsessive austerity”.

Recent developments now offer evidence that this prediction is coming true.

• Recent statements from key policymakers in the euro area indicate that the public debate on austerity is shifting.
• Most euro area economies have made big dents in their structural deficits. Indeed, many have moved into a structural primary surplus, giving Brussels plenty of excuses for leniency.
• Periphery current accounts have also moved into surplus, thereby reducing the risk of financing problems.

S everal factors are going to make it easier for Europe’s policymakers to backtrack on obsessive austerity. For example, the link between austerity and poor economic performance is very clear. Also, financial markets support some austerity slippage: the election of anti-austerity forces in Italy, budget deficit slippage in Spain, and the Portuguese Constitutional court’s decision to strike down some austerity measures has had no adverse effect on the ongoing bond market rally.

Also, as highlighted in our previous research, ‘Abenomics’ offers a template for Europe. Japanese Prime Minister Abe pledged a fiscal stimulus equal to 2.3% of GDP to be launched in 2013, which did nothing to dent the rally in JGBs. Abe has illustrated the importance of accumulating political capital through monetary and fiscal stimulus measures, in order to pursue structural reform later in his term. The idea is to establish credibility by generating nominal growth, and then to push through unpopular and painful reforms.

Bottom Line: We expect that European policymakers will de-emphasise austerity so that they can re-emphasise structural reform.

Interested in the market implications of decreased austerity policies in Europe? We’ve covered them in New Daily Insights.

Originally published May 9, 2013

The U.S. deficit is dropping much faster than the CBO projected only months ago.

F or the first seven months of the fiscal year, revenues are up by $220 billion, or 16%, versus the same period in FY2012. Outlays are only slightly lower than last year, but the sequester cuts are just getting underway.

The CBO will update their figures this week, but the deficit may come in closer to $700 billion this year (4.4% of GDP), and will be heavily revised down in 2014.

Some analysts have raised the prospect that a Treasury “shortage” could emerge, given that the Fed and foreign central banks are absorbing a large share of the supply of new bonds. We think this risk is overblown.

True, the Fed alone will soak up virtually all of the net new issuance of Treasury bonds this year. The Treasury has outlined its issuance calendar to the end of the third quarter, and will likely delay any changes to the pace of coupon issuance until 2014, irrespective of the budget deficit. Factoring in demand from foreign central banks, the stock of Treasurys available for private investors will fall from about 42% of the outstanding stock in 2012, to 33% in 2014.

However, the stock of privately-held debt in 2014 will still be $2604 billion more than in 2007, so one cannot really expect a “shortage” to develop in the next couple of years.

That said, any Treasury supply reduction will come at a time when there remains an intense global demand for safety and income.

Stay tuned.

Interested in a short trial of New Daily Insights? Click here.

Held in Paris every Spring, the EuroHedge Summit is Europe’s biggest hedge fund event which attracts the industry’s elite from around the globe. The event offers incisive and topical content about hedge fund strategies and addresses the overall outlook for the hedge fund industry and financial markets, as well as the opportunities, challenges and risks across a range of investment strategies. Register today!

Originally published April 16, 2013

Much appreciation to our friends and colleagues at HedgeFund Intelligence for the below synopsis – as excerpted from their bi-annual Global Review (Spring 2013).  Reprinted with full permission.

A ssets in global hedge funds continued to grow in 2012 on the back of solid average fund performance across the industry last year and new inflows from investors worldwide, according to the latest research from leading industry information provider HedgeFund Intelligence (HFI).

In the newly-published Spring 2013 issue of its bi-annual Global Review, HedgeFund Intelligence reports that assets in hedge funds of traditional types – which are mostly domiciled offshore or structured as limited partnerships in the US – reached $2.208 trillion (including parallel onshore versions) at the end of 2012.

That represents a rise of just over 7% compared with the corresponding figure of $2.059 trillion as at the end of 2011 – and an increase of over 20% from the hedge fund industry’s low point of $1.83 trillion at the end of 2008, in the wake of the global financial crash.

If other hedge fund strategies in standalone European UCITS onshore structures (with no parallel offshore versions) are also added, the latest global industry assets total rises to $2.339 trillion – up by some 8.5% from its level of $2.156 trillion a year before.

The bulk of the industry’s total assets are concentrated in funds managed from North America – which accounted for $1.615 trillion in assets at the end of 2012, some 73% of the global industry – with European-based funds managing $415 billion (19%), Asian hedge funds running a further $82 billion (4%) and the balance coming from funds based in Latin America, Australasia and Africa.

Given that the HedgeFund Intelligence Global Composite Index recorded a median return of just under 7% across all hedge funds in 2012, it is clear that much of the overall growth in assets during the year resulted from investment performance – with new capital inflows into the industry being offset to an extent by outflows in other areas at a time of flux and change across the entire financial services world.

But the industry has now recovered much of the earlier steep decline that it suffered in 2008 from the onset of the global financial crisis – when global hedge fund assets fell by over 30% from the brief peak of $2.7 trillion in mid-2008, as tracked by HFI – and the accelerating pace of growth is encouraging against a backdrop of continued macro-economic uncertainty, investor caution and regulatory upheaval.

The Big Firms Dominate

M eanwhile, the biggest players in the global hedge fund industry are continuing to get bigger, accounting for a rising proportion of total assets, according to the latest statistics on the Global Billion Dollar Club – the elite group of firms that manage $1 billion or more in hedge fund assets.

Collectively, the 367 current members of the Global Billion Dollar Club (up from 340 a year before) managed assets of $1.925 trillion trillion at end-2012, up again from $1.76 trillion at the start of 2012, and now represent 87% of the industry’s total assets – up from 86% in 2011, 84% in 2010 and 82% in 2009.

The lion’s share of this figure is further concentrated in the ‘super-league’ of biggest firms that manage $5 billion or more in assets. The number of firms in that category has edged up from 99 to 107 over the past year. Collectively these firms account for $1.36 trillion – up from $1.23 trillion a year before – and they now represent more than 60% of the industry’s total worldwide assets.

The US market remains firmly the top location for the world’s biggest hedge fund firms. There are currently 260 firms that manage hedge fund assets of $1 billion or more from the US. And New York is still the biggest single centre of the industry by a margin, with no fewer than 157 of those firms, up from 139 a year before – with the city accounting for over 42% of all Global Billion Dollar Club assets.

London remains in second place overall, being home to 57 of the Club members and representing just under 14% of the total Club assets. The Asia-Pacific region accounts for around 2.5% of Club assets, with Hong Kong housing 12 Billion Dollar Club members and eight member firms based in Singapore.

In addition to the global assets survey and the latest Global Billion Dollar Club analysis, the HFI Global Review also features detailed insight on regional hedge fund industry trends and developments in the Americas, Europe and Asia – as well as on funds of hedge funds and institutional end-investors.

The publication also contains exclusive global data sets on new fund launches, fund shutdowns and current/historical performance across all major strategy areas – as well as extensive analysis of key global regulatory trends and in-depth interviews with leading hedge fund managers and investors.

Note: The figures referred to here are for single-manager hedge funds only. They do not include or double-count money allocated to hedge funds via funds of funds. Assets in funds of hedge funds are tracked separately by InvestHedge, a part of the HedgeFund Intelligence stable.

I nterested in more of the Global Review and access to the latest hedge fund news and analysis? Take a free trial.

BCA Research, a world leading provider of independent investment research, is pleased to announce the launch of their first interactive service, New Daily Insights, May 13, 2013.

Moving to a completely online and interactive experience, research content will be delivered via e-mails that include hyperlinked titles and no static PDFs. Through responsive design, users can expect a rich digital experience that can be viewed across all platforms, including desktops, tablets and smart phones.

The service, New Daily Insights has been optimized to take advantage of digital technology, augmenting traditional investment research with an exclusive online community to provide a richer and more immersive experience.

Clients that expressed interest in greater interaction and access to BCA strategists – together with the ability to communicate online with each other – will be pleased with both the in-depth research content and the intelligent interactive features.”

The move to digital delivery coincides with the launch of a number of new and improved benefits.

INSIGHTS: Now with greater breadth and depth, in four categories:

Featured Insights: Focused and brief analysis of global financial market trends
Morning Meetings: A same-day snapshot into the ideas and debates of our strategists
Key Releases: Detailed analysis of the days economic data
The Week Ahead: Published each Friday, find out what BCA expects in the week ahead.

ASK A STRATEGIST: Interact with BCA strategists online. Access all Q&A to uncover what is relevant to the BCA community.

INSIDE BCA: Learn what our strategists are reading, view their comments on controversial themes and views, read interviews with members of the financial community, and discover suggested research from the BCA vault.

POLLS: Share your opinion with the BCA community. Search previous polls for insights on key topics. Have an idea for a future poll? We are listening.

Commenting on the launch, Lenka Martinek, Chief Strategist of New Daily Insights, says, “Clients that expressed interest in greater interaction and access to BCA strategists – together with the ability to communicate online with each other – will be pleased with both the in-depth research content and the intelligent interactive features.”

Interested in a short trial of New Daily Insights? Click here.

165,000 U.S. jobs were created in April, and prior months were revised higher. Including revisions, the 3-month average in payrolls has shifted to over 200,000 monthly gains. But we do not expect this pace to last: the impact of sequestration will only be evident in the data in May and beyond.

In addition, it is worth noting that although the unemployment rate ticked down slightly, the U-6 measure, which includes discouraged workers and the ‘underemployed’ ticked UP. This confirms our view that the official unemployment rate overstates the health of the labor market due to structural reasons.

In terms of Fed policy, policymakers may breathe a small sigh of relief knowing that payrolls have slightly improved during the past few months. But with core inflation barely above 1% and federal furloughs still in the pipeline, the doves still have a strong case.

Bottom Line: The better than expected April report will no doubt ease fears of a softening second quarter, but the impact of sequestration is still ahead. We expect a sustainable pick-up in trend payroll growth toward the end of the year.