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Russ Koesterich, CFA
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Russ Koesterich, CFA, Managing Director, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a founding member of the Blackrock Investment Institute, delivering BlackRock's insights on global investment issues. Mr. Koesterich's service with the... More
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The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How to Invest Now: How Deficit Economics Will Change our Global Financial Climate
  • Weekly Market Intelligence 0 comments
    Feb 8, 2011 2:39 PM

    Taken from iSharesblog.com

    As we head into the week, investors can take comfort from a number of economic releases that paint a picture of a recovering global economy in the developing world.  This recent data continues to support one of our central investment themes for 2011: overweight equities vs. bonds and developed markets vs. emerging markets.

    Starting in Europe – last week witnessed the release of a number of economic statistics, the vast majority of which were better than expected, including manufacturing surveys in France, Germany, and the UK. In particular, we continue to see strength in the German economy where the IFO Business Climate Index recently climbed to 110, eclipsing the 2006 high.

    Even in Japan there are signs of stabilization. Last month Industrial Production rose by 3.1% month over month – best reading in 11 months.

    In the United States we had two very strong numbers from the ISM Institute.  The Manufacturing Survey hit its highest level since 2004 while the Services component reached its best level since 2006.

    Finally, while Friday’s US Non-Farm Payroll print was much weaker than expected, it is worth remembering that the number was likely distorted by the fact that January witnessed a number of brutal winter storms in the Northeast that dumped over 3 feet of snow in the region. Taking a longer term perspective on the US labor market, it is an anemic recovery but conditions are slowly improving. Non-Farm Payrolls are up ¾ of a percent year-over-year, and while still uninspiring this is the fastest pace of job growth since December 2007.

    Now, the good news in the economy was decidedly bad news for US Treasuries which continue to trade lower. The yield on the 10 year Treasury closed last week at 3.65%, its highest level since last spring.  US long term yields are still low on an inflation-adjusted basis, and government deficits guarantee a steady supply of new bonds throughout the year. While I don’t see a ‘94 style bond market meltdown over the next 6-12 months, I do think rates will continue to grind higher.

    The bottom line: at least from an economic perspective the world is becoming a bit less scary. Cyclical conditions in most developed markets are improving. The risk of a double dip is receding, and most developed market central banks are unlikely to tighten soon.  All in all, an environment that should favor global equities over bonds and in particular segments of the equity market that benefit from an improving economy, such as value, technology, industrials, and energy.  The one asset class that is unambiguously pressured by improving conditions is likely to be US Treasuries.

     

    Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737), or by clicking the Prospectuses link. Read the prospectus carefully before investing.

    Investing involves risk, including possible loss of principal.

    The iShares Funds (“Funds”) are distributed by SEI Investments Distribution Co. (“SEI”). BlackRock Fund Advisors (“BFA”) serves as the investment advisor to the Funds. The iShares Blog contributors are affiliated with BlackRock Fund Distribution Company (“BFDC”), which assists in the marketing of the Funds. BFA and BFDC are affiliates of BlackRock Institutional Trust Company, N.A. (“BlackRock”), none of which is affiliated with SEI.

    The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy.

    The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.

    Neither BlackRock Institutional Trust Company, N.A., and its affiliates nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

    This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

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