Bond Outlook September 20th

Let us put aside for a moment the question of whether the US economy is slowing to the point that no further rises in the Fed rate are needed or tolerable, and turn to two other key issues decisive for future investment outlook:

• Is the commodity boom actually a bubble about to go the way of all bubbles?
• Is the emerging world becoming the dominant force in the global economy?

As with the outlook for US interest rates, solid arguments are put forth for both sides of the first question, and, consequently for the second. For example, The Economist, in its new survey of emerging markets, stresses the continued growth of emerging economies and, therefore, of demand for metals, cement and energy; a “super-cycle” is underway, which will keep prices high for the foreseeable future. The counter-argument is that supply is perfectly capable of expanding to match the higher demand and that there will probably be over-investment in supply. (It may not be a “counter-argument” but just the far side of the super-cycle.)