The Lord Abbett Review—Volume VI, Number 1

For Financial Investoraccs

Home

Corporate Home

With short-term interest rates expected to remain near record lows for at least the next two years, risk-averse investors may feel trapped in a world of "financial repression."

Investment Perspective

02/15/2013

PDF


	PDF: Click to View/Download

A recent research paper on financial repression argued that it was employed after World War II, and that new banking regulation and Fed interventions in the bond market suggest that it is occurring again today. The paper was widely touted in the financial press, and now many investors appear to agree.

But a closer look suggests otherwise. True financial repression has historically been used only in extreme situations in which a government has no other buyers for its debt. In "The Great Repression?" Lord Abbett Partners Walter Prahl, Director of Quantitative Research, and Rob Lee, Director of Taxable Fixed Income, weigh in, inviting readers to consider an alternate view.

Highlights of the issue include:

Global Boom and Bust: Is the Fed to Blame?

Milton Ezrati, Lord Abbett Partner, Senior Economist and Market Strategist, examines the cycle of boom and bust of the past two decades – from the Asian currency crisis to the tech crash, the sub-prime meltdown, and the European sovereign debt – and finds that massive dollar flows have played a large role. Can anything be done to break this cycle? Yes, says Ezrati. The Federal Reserve, along with other central banks, can mop up the flood of dollars and prevent it from swamping the markets. Central banks "can do this by adhering to targets for overall money and liquidity growth that are true to the economy's fundamental liquidity needs,” Ezrati writes.

Cloud Computing Storms the Globe

Cloud computing is transforming the business world. This next-generation technology capitalizes on the Internet and wireless technology, enabling people to do computing from nearly anywhere. It also affords small-business customers the opportunity to use software that previously had been prohibitively expensive. Convenience and cost savings are driving demand for this technology.

A A A |