June 30, 2012
Nervous investors have caused stock, bond and commodity prices to gyrate widely over the past few years as fears of a new economic recession have come and gone. We believe this increased market volatility is a side effect of U.S. and other developed country economies being stuck in an extended period of subpar growth. Mired by a secular trend of personal debt reduction – a trend that must continue for several more years to remove the excesses amassed prior to 2008 – it will be difficult, in our opinion, for the U.S. economy to sustain real annual growth of much more than 2% for some time to come. This limited growth potential makes the U.S. economy more susceptible to temporary shocks that can cause growth to slow.