Sunday, October 11, 2020

Extraordinary Market And Economic Snapback

Consuelo Mack conducts another insightful WealthTrack interview with Nancy Lazar, Partner and Chief Economist at Cornerstone Macro. Nancy Lazar remains one of the top economist on Wall Street as ranked by Institutional Investor and she highlights how the recent monetary stimulus benefits the key drivers of the economy's economic growth, i.e., capital spending, housing, manufacturing, etc. In short, these drivers benefit from lower interest rates and today's near zero rates are a tailwind for further economic growth. As Nancy recently stated, "In the last expansion it took almost 9 years (until 2018) for unemployment to fall to 4.0%. Today the Fed expects (more likely wishes) to see 4.0% just 4 years into this expansion. And since this cycle’s Drivers are leveraged to the Fed’s main policy tool – interest rates – the Fed’s in a good position to make it happen." A few highlights from the interview.
  • technology spending is tied to liquidity, i.e., capex, and this crisis has resulted in companies embracing technology spending which tends to improve profitability.
  • in the last expansion 50% of capex was in new economy areas.
  • the digital economy is 9% of GDP and 30% of GDP growth.
With the last point above in mind, one might see where Nancy's view that the manufacturing side of the economy can be the key driver of future economic growth. The consumer remains important, but after World War II, investment was the driver of economic growth and it lasted for nearly thirty years and the U.S. economy may be in a similar place today. More at the below video link.

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