The emerging markets led by China may prove to be an attractive investment proposition, according to Jay Pelosky, consultant at J2Z Advisory. Jay also helps Morgan Stanley create global and emerging markets equity products.
Speaking on Bloomberg about the domestic economy, Jay said there are four key issues – which he likes to call “sustainable issues,” that need to be addressed.
First, can the US economy return to a self-sustaining growth path without the monetary stimulus from the Federal Reserve?
Second, can the US banks maintain their leadership position in the equity market?
Third, can the LTRO blanket keep the problems under wrap in Europe and fourth, can the Asian reflation efforts be sustained? (The act of increasing money supply or reducing taxes to stimulate the economy)
On the issue of the Fed doing another round of QE, Jay said it’s unlikely that the central bank would undertake another round of monetary stimulus in the near future, at least not in the next six months. With the economy growing at 2.5 percent currently, the situation doesn’t warrant another round of stimulus, unless the S&P takes a deep dive or the growth loses steam, driving the equity markets down.
Talking about the yield from equity markets, typically a correlation is observed between S&P 500 and the yield on thirty year Treasuries. The current yield on the S&P 500 is much higher than the yield on 30-year bonds than they were six months ago.
Since Europe started the reflation efforts at the turn of the year, the S&P 500 has taken off strongly, widening the spread between the yields. You can watch the video here.
While these are interesting thoughts, the most important line to watch when considering any ETF is its respective long term trend line, which as a technical tool is the only reality we can rely on to provide us with some directional guidance.
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