Stein: High-Yield Bond ETFs Worth Risk

December 13, 2013

The economy is on the mend, but deflation is still a risk.

The U.S. economy is on the mend, and 2014 should bring another year of positive market action if economic fundamentals continue on their strengthening path.

But that’s not to say that the aggressive Federal Reserve policies have managed to completely stave off the deflation threat, at least not yet, Astor Asset Management’s CEO Rob Stein told IndexUniverse in an interview.

Below, Stein talks about his views on the economy, and how to position fixed-income portfolios for the realities we face. What are your fundamental indicators telling you about where the U.S. economy is today and where it’s headed?

Rob Stein: In a macro sense, it’s somewhat boring to the extent that it’s “the little train that could.” The numbers keep coming positive, or slightly better. ISM ticked up to the upper 50s. GDP is above 2 now. You’re adding 150,000 to 200,000 jobs each month. Those kinds of things seem to be supportive of an economy that’s going to continue on its path.

We don’t see a major acceleration, getting into 3 percent GDP and unemployment suddenly dropping below 7 percent. But that’s OK. We think the strength of the economy could be enough where we have another positive year in 2014, and we are positioned as such.

To tell you the truth, I think the interest-rate environment is a bit of an overreaction. While we do believe there’ll be something to the talk about tapering, we want to make it clear that it will just be a different level of low. Tapering is not raising rates as much as it’s setting just a different level of low rates.

Contrary to what you hear out there, I don’t think it’ll have a material impact on the economy. To the extent that slows down some things like autos sales, housing, I don’t think that rates will choke off economic growth. Do you expect any surprises in terms of Fed policy under Janet Yellen?

Stein: I think it will be steady course. The economic fundamentals are pretty clear: You have the unusual QE of the last few years that changed the shape of the yield curve, and perhaps interest rates at large. However, you have other factual things to consider: All inflation deflators are lower than expectation; CPI is very tame; PCE is below 1; unemployment is above 7 percent; GDP is at 2-ish percent.

It would be very hard for me to say take away quantitative easing and Fed policy, and rates are going any other direction than low. Based on what? Inflation? No. Growth? Don’t see it. Demand for money? No.


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