The world’s markets will see a “global growth recession” in 2012 as economies tend toward monetary easing and low interest rates that are not yet inflationary, said BNY Mellon Chief Economist Richard Hoey in New York on Tuesday at a Dreyfus-BNY Mellon investment symposium.
Also at the conference, Dreyfus Chairman and CEO Jon Baum recommended an extension trade on short duration securities, saying he expects to see a trend toward more active management of portfolios as investors move amongst short-term government bonds, equity income and international bond funds.
Hoey (left), noting that the current European crisis is the tenth economic crisis he has witnessed, said that Europe’s situation mirrors the same pattern he’s seen over and over in his career as an economist.
The first phase is “total panic” with the belief that things are different this time because the world is plunging into depression, Hoey said. In the second phase, “the fever breaks, and you start to see that this is a cyclical event and not the next Great Depression.”
Europe has now entered that second phase, Hoey asserted, and worldwide markets have seen a normalization of credit. Southern Europe will see a severe recession through 2012, while Northern Europe and the U.K. see a moderate one. Emerging countries and the United States are due for a slower pace of expansion, with U.S. growth near its long-term trend of 2.5%, he said.
Monetary easing in many countries, however, is a key reason why Hoey anticipates the global economy will avoid full-scale recession in 2012.
“When you have all the big central banks of the world easing monetary policy, you don’t want to bet against growth,” Hoey said, adding that accommodative money policy is what prevented the U.S. from sliding into a double-dip recession.
Two other speakers on hand at the symposium recommended fixed income opportunities in a low-yield environment and volatility-managed strategies.
David Leduc, chief investment officer of active fixed income at Standish Asset Management, also pointed to greater synchronization of monetary policy among central banks, which leaves him cautiously optimistic in 2012. He recommended–acknowledging that these picks might be somewhat counterintuitive considering the recent banking crisis—European residential mortgage-backed securities, U.S. consumer structured assets such as subprime auto loans and U.S. agency mortgage securities.
Tineke Frikkee, lead manager of U.K. Equity Income Strategy at Newton Capital Management, said she believes that dividend yield will be a key driver of growth this year. “Please think of dividend yield when you invest in equities,” Frikkee said. “It will be very important going forward.”
Read Hoey on “debt hangovers” at AdvisorOne.com.