06.29.2012
By Terry Flanagan

Institutions Focus On Chinks Of Light Amid Doom And Gloom

PNC Wealth Management, an asset manager, sees some positive signs in the U.S. markets, despite overarching fears of macroeconomic difficulties ahead.

“The U.S. economy is teetering on the brink with consumer activity down, business investment weak and unemployment high; there is the prospect for a recession in 2013,” said Jim Dunigan, executive vice-president and managing executive of investments at PNC Wealth Management. “But there are some bright spots; there are signs of hope, such as with durable goods orders up. We see a slow recovery ahead, but a recovery nonetheless.”

After a quick start to the year, where the markets surged to four-year highs, uncertainty has once again set in as policymakers struggle with a European sovereign debt crisis resolution while U.S. domestic economic prospects have slowed. Many expect U.S. economic growth to continue at a moderate pace in the final six months of the year, although macro concerns will continue to weigh heavily on the overall global outlook.

“Looking at the yield curve by itself, you might think that we were in the worst recession of all time,” said Kevin McCreadie, president and chief investment officer at PNC Capital Advisors.

Indeed, the economic signs are not entirely matching up with reality. Earnings forecasts haven’t slowed down as much, and companies continue to sit on excess cash as they await the outcome of any potential fiscal policy changes later this year stemming from the U.S. presidential elections in November.

Other institutions are also trying to keep a positive outlook on the economy.

ING forecasts a return of consumer spending, which will help bolster the U.S. economy in the wake of reduced government spending and continuing strong growth from China and Asia as a whole. Chinese policymakers have recently acknowledged that their economic numbers had been very disappointing, and thus it has begun to implement a relaxation of its credit policies. The nation’s central bank, the People’s Bank of China, cut its key interest rates for the first time in four years, the latest in a series of measures to spur growth.

Allianz, meanwhile, asserts that potential long-term solutions to the ongoing European debt problems are out there. Most importantly, there needs to be a resolution to the banking system, with a system of joint liability, where the whole of the European Union underwrites the banking system, according to Allianz. The European Central Bank (ECB) needs to be a proper lender of last resort, akin to the U.S. Federal Reserve or the Bank of England. As of now, the ECB cannot directly engage in buying government bonds on the open market, as statutes forbid that, while Allianz believes that there also needs to be a joint underwriting of excess debt and full public support of any European monetary union.

“Right now, the trickle of news out of Europe is like water torture,” said McCreadie at PNC.

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