As Italy’s technocratic party prepares to exit , I asked Cosimo Marasciulo, Pioneer’s Head of European Government Bonds and Foreign Exchange, for his thoughts on pending elections in 2013 and how they might affect investors. I’ll share a few of those thoughts with you here:
Yesterday’s FOMC meeting was a surprisingly eventful one that injected some volatility into financial markets. As expected, the Fed left its target rate of 0 – ¼ percent unchanged and implemented more quantitative easing (QE). It announced additional monthly purchases of agency mortgage-backed securities of $40 billion per month and stated that “The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year at a pace of $45billion per month.” (more…)
It’s the season to talk about the man who delivers presents. No, not Santa Claus, but Fed Chairman Bernanke who has been delivering the green stuff for the past four years – in a helicopter, not a sleigh… My last installment introduced the Fixed Income Bond Deer – the investor caught in the headlights confused about what to do. This week we contemplate the following: should “Bond Deer” be grateful for the green stuff or frightened by the possibility that it is fueling the next bond “bear” market? The answer: it depends on how long this experiment continues. (more…)
At Pioneer Investments, we believe that global economic conditions are moving toward a phase of gradual improvement, thanks to a likely resolution of the “fiscal cliff” issue in the U.S., bottoming out of the Chinese economy, and stabilization of the euro zone. A summary of our thinking follows. For a more detailed discussion, see my 2013 Global Outlook.
The news media is breathlessly counting down the days until the arrival of the fiscal cliff on December 31. It may make for good television (tune in tomorrow) but it’s not good economics…or good political analysis. Here’s why:
• As we all know, “fiscal cliff” is shorthand for a broad array of tax increases and spending cuts scheduled to take effect December 31. It’s a catchy phrase but a misleading metaphor. It’s really more accurate to visualize the so-called fiscal cliff as a hill which the economy must climb if it is to continue moving forward.
• The steepness of that hill is variable: W2 withholding and Social Security taxes start taking a larger bite out of paychecks on January 1, but the higher taxes on 2013 capital gain and dividend income won’t be due until 16 months from now in April 2014. Likewise, the spending cuts, if they happen, will impact the economy at varying times.
• Another reason December 31 isn’t a drop-dead date is because Congress has the power to change tax rates retroactively. If we hit the cliff, the new tax rates would take effect, but they wouldn’t be carved in stone…they could be changed.
The bottom line is, there’s no real need to strike a deal by December 31 …or even during the lame duck session before the new Congress is seated in mid-January.