So who wants to talk about leverage shocks, monetary aggregates, quantitative easing, and dependency ratios? No, neither do I. Instead, let's talk about us! A while back we at Bishop & Associates were quizzed by our friends at the Credit Suisse Investment Strategy Research Group. They were surveying buy-side and sell-side folks about their respective short-term, mid-term, and long-term outlooks. We are considered buy-siders in the world of investing, and it seems that Bishop is among the more positive of our group. Credit Suisse recently send us their report from the survey, and it seems many buy-siders are more pessimistic than we are.
Many buy-siders are comparing our current situation with that of Japan a number of years ago. As you may know, Japan has been in an almost two decade long slump, with deflation and nominal GDP so low it's hard to measure. OK, it's not that hard to measure, but it has been low, low, low for a long time. We don't buy the Japan comparison for a number of reasons. For instance, Japan waited over four years to begin quantitative easing, and our Fed jumped right to it, and may again. The fall of Japan's real estate market makes our drop seem mere skip, with Tokyo housing prices dropping over 80%. Additionally, the regulatory and corporate structures in Japan were extraordinarily stifling, which made them both slow and cumbersome.
All in all, our peers seem to be expecting a long period (5 years plus) of sub-trend GDP growth. That is less than 3%. Our view differs in that we expect sub-trend growth to be in place for a much shorter period of time, and we currently do not believe that deflation will take hold. We believe that the continued loose monetary policy and strong emerging markets, particularly in South America, will continue to support a modest but slow recovery. In addition, we believe that the threshold for the Fed to reinstate quantitative easing is a good bit lower than our peers seem to believe.
Next week we will be watching Tuesday's FOMC announcement, and Friday's CPI and Retail Sales reports.
Enjoy your weekend!