The turn toward free market policies beginning in the 1980s, notably the financialization of U.S. economic activity, has contributed to rising income and wealth inequality and ultimately triggered the recent emergence of populist movements. A couple of charts will underscore this argument.
Why is income inequality important to economic growth? Economic justice concerns aside, if the bottom 80% are not generating sufficient income and are unable to spend, aggregate demand and economic growth will suffer.
The Fed will enter uncharted waters as it begins to reduce its balance sheet, in addition to raising short-term interest rates. How should investors respond?
What causes financial crises? Unfortunately, mainstream macroeconomists have very little to say about the subject, given their decision to ignore the role of money, credit and finance.
The devastating crisis in 2008 provided clear evidence that mainstream macroeconomic models ignored risks associated with debt and the financial cycle and were rendered moot when the crisis hit. In recognizing these endogenous risks, an investment framework should integrate financial cycle and macroeconomic risk.
We have created an adaptive regime-based investment framework that generates multi-asset and equity-sector-rotation model portfolios. The investment objective of these model portfolios is to combine downside protection with upside participation. Many firms say they do this – but our process integrates macroeconomic and financial cycle risk.
Understanding the interplay between credit and finance is critical to recognizing the signs of economic distress. Yet this was precisely the failure that plagued economic analysis leading up to the financial crisis. Let’s take a look at the recent history of credit, finance and the underlying nature of market stability.