Janus Capital’s global headquarters are in Denver, and I live about an hour northwest in Boulder. Many of you have heard of Boulder, as it was one of the hardest-hit areas in the flooding that devastated parts of Colorado in September. My house flooded, as did most of my neighbors’ homes.
As my community grappled with the ramifications of a 100-year flood, we saw firsthand the positive effects of government support. From the local fire and police departments to Boulder County Housing & Human Services to the Federal Emergency Management Agency (FEMA), our government was there to help us out of a crisis. This is not unlike what Americans experienced during the 2007-2008 financial crisis.
The question we now face is how to wean ourselves off that government support and grow our economy from within. The word to describe this is “tapering,” defined as “to reduce gradually, to become smaller in size or amount, or less important.”
I wonder how difficult will be the challenge of reducing gradually the support central banks around the world have provided to the global economy. Is it possible to successfully wean us from that much support and intervention?
As the Federal Reserve recently stated, it isn’t easy and it isn’t time yet. Tapering will occur when the U.S. economy is on sound footing, not before. As global economies attempt to manage through the effects of government intervention, be it by reducing financial system liquidity or through austerity policies, the main issue is employment.
In this quarter’s macro report, “Inching Closer,” we examine what companies around the world are telling us and what the prospects are for global economic growth. Our Company View this quarter focuses on the costs and effects of U.S. health care reform. We wonder if higher insurance costs will prompt small companies to reduce headcount or could reduce incentives for companies of all sizes to hire. This would have implications for the U.S. employment rate.
In the Sector View, we look into a reversal of fortune, as it may be automakers’ turn to bail out Washington and Europe. Automakers have been recovering very well. This is organic growth, the type of growth we need for a sustained global economic recovery. While European automakers have lagged behind the U.S. in taking necessary steps, including production cuts, in the long run they are beginning to take the actions that lead to growth and jobs.
In the U.S. View, we focus on the continued unevenness of future growth. Companies are telling us that consumers are investing rather than spending, meaning they will spend on houses or cars…but luxury purses, not so much. This uneven but generally improving growth picture has been in place for a while now. The U.S. government shutdown may weigh on growth, but as I write this it is too early to tell how long it will continue and how significant the impact will be.
Our Global View highlights growth in Europe. Our work shows that Europe has turned the corner — particularly, as we noted last quarter, on the business side, in sectors including hotels, car rentals and autos. Government support in Europe will take the form of moving from austerity to pro-growth policies. The next big question: Will the pain from austerity turn into a sharp, pent-up-demand rally in growth? We also discuss the potential for the Chinese middle class to be the driver of future growth.
When we are in crisis, we rely on our friends, neighbors and our governments to help us through. In the case of my hometown, the support we have shown each other has made all the difference in the world. At some point the dust will settle and we will move toward independence again. How gracefully we accomplish this on the global financial stage will be the difference between economic growth or not, prosperity or not. As always, we will continue to talk to companies around the world to help understand how this experiment will end and what the prospects are for global economic growth.
For a more comprehensive view of the U.S. and global economies, please read Janus’ Q4 Company-Informed Macro Report “Inching Closer.”
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 877.33JANUS (52687) or download the file from janus.com/info. Read it carefully before you invest or send money.
The views expressed are those of the author as of October 2013. They do not necessarily reflect the views of other Janus portfolio managers or other persons in Janus' organization. These views are subject to change at any time based on market and other conditions. and Janus disclaims any responsibility to update such views. These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any Janus product.
Mutual fund investing involves market risk. Investment return and fund share value will fluctuate and it is possible to lose money by investing.
Janus Distributors LLC, 151 Detroit Street, Denver, CO 80206 (10/13)
C-1013-49521 12-30-13
