Saturday, February 27, 2010

Another US Slowdown Will Jolt Private Markets

Reuters reports that according to ECRI, U.S. economic growth to ease by mid-year:

A forward-looking measure of U.S. economic growth was unchanged in the latest week, while its yearly growth gauge continued to slide, bolstering expectations that economic growth will ease by mid-year, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at 128.4 for the week ended Feb. 19, unchanged from the previous week.

It was the lowest reading since November 13, 2009, when it stood at 127.5.

The index's annualized growth rate declined for the 11th straight week to 14.9 percent from 17.0 percent the previous week, revised from an original 17.1 percent. It was the yearly growth gauge's lowest level since Aug. 7, 2009 when it read 14.6 percent.

"The decline in WLI growth to a 28-week low reinforces our earlier expectation that economic growth would begin to ease by mid-year," said ECRI Managing Director Lakshman Achuthan.

The chart above was taken from the Pragmatist Capitalist who also covered this story. Given ECRI's strong track record, it's worth paying close attention to their warnings. What is worrisome from a pensions' perspective is that commercial real estate is still in the doldrums and private equity is struggling to regain its footing. If the US economy slows down again, then private markets will experience a long, tough slug ahead, leaving many pensions funds exposed to more downside risk.

This is why I agree with Peter Boockvar who thinks more money printing will go on until inflationary expectations pick up. Listen to the interview below and keep in mind that even if the Fed eventually succeeds to reignite inflation, private markets will still struggle over the next few years. And if deflation does materialize, then it's game over for private markets and global pensions stand to lose trillions.

No comments:

Post a Comment