If only predictive-economics was as accurate as Newtonian Physics
December 18, 2015 — DES MOINES, Iowa–(BUSINESS WIRE)–Principal Global Investors has released the 2016 Economic Outlook, “The Put and the Pendulum,” written by Bob Baur, chief global economist, Principal Global Investors.
The paper outlines the different economic trends that Baur sees transitioning over the next year. Much as a pendulum doesn’t return to the same location as it swings, neither will the results of different changes land exactly where expected.
There is a famous pendulum in Portland, Oregon named Principia (no relation to The Principal) that provides valuable insight as we look toward what 2016 holds for the global economy.
Principia is a special type of pendulum, called a Foucault pendulum, which is named after the original device’s inventor, French physicist Léon Foucault. Over the course of 18 hours, the arc of Principia’s swinging globe makes its way completely around the circumference of its crown, as it proves the rotation of the Earth. It also shows the slight error people make when using the pendulum metaphor.
Most will say, “The pendulum is swinging back…” implying a fluctuation between two predetermined states. However, after Principia swings away from its maximum angle, it will not wind up exactly where it was.
Newtonian physics and economics are vastly different in their predictive abilities. Indeed, physics has the advantage of being accurate; the forces that drive the pendulum are defined and predictable. Yet, the forces driving economic “pendulums” are indefinite, vastly harder to predict. Think of Principia as we examine the forces impacting the 2016 global economy. One can’t know the end point to which those forces will take us, but we may know the direction!
China and emerging markets
China’s economic engagement with important emerging markets has begun to falter
Surging commodity prices
surging commodities prices are starting to lose momentum due to the investment boom in China and an increased supply of commodities
Non-U.S. labor-pricing power
the pendulum is now swinging away from low-cost labor providers like China
The U.S. Credit super-cycle
following the Financial Crisis, there is a movement away from U.S. fast-spending, credit-driven growth, and home-equity borrowing
Equities likely have more upside than bonds in 2016
However, the best returns may be in real estate
The ‘Greenspan Put’
the Federal Reserve’s use of the federal funds rate to spur the U.S. economy may be losing its effectiveness
“While 2015 has witnessed a rebalancing of growth, we can expect that in 2016 developed economies will continue to improve and become more competitive,” states Baur. “While the forces driving economic ‘pendulums’ are indefinite and harder to predict, we can’t know the end point to which global markets and economies will ultimately take us but we may know the direction.”
Find the full paper, video and other resources at: The Put and the Pendulum
About Principal Global Investors
Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group®, with expertise in equities, fixed income and real estate investments, as well as specialized overlay and advisory services. Principal Global Investors manages $341 billion in assets1 primarily for retirement plans and other institutional clients2.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)3 is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $516.2 billion in assets under management4 and serves some 20.6 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1 As of Sept. 30, 2015.
2 Principal Global Investors is the asset management arm of the Principal Financial Group ® (The Principal ®) and includes the asset management operations of the following subsidiaries of The Principal: Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Principal Enterprise Capital, LLC; Liongate Capital Management LLP; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Edge Asset Management, Inc.; Morley Financial Services Inc.; Finisterre Capital, LLP; Origin Asset Management, LLP; Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd.; Principal Global Investors (Australia) Ltd.; Principal Global Investors (Japan) Ltd.; Principal Global Investors (Hong Kong) Ltd.; CIMB-Principal Islamic Asset Management Sdn. Bhd.; and the majority owned affiliates of Principal International, Inc. Assets under management includes assets managed by investment professionals of Principal Global Investors under dual employee arrangements with other subsidiaries of The Principal and assets managed in accordance with investment advice provided by Principal Global Investors through the delivery of a model.
3 “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
4 As of Sept. 30, 2015.