Tags: Karabell | Golden | Age | Capital

Money Manager Zach Karabell: Welcome to the 'Golden Age of Capital'

By    |   Thursday, 12 June 2014 09:13 PM

The world is awash in cash, but far from being a disaster, it's ushering in a "golden age of capital" in which financial assets will prosper, according to an optimistic take from author and money manager Zachary Karabell.

His view from the sunny side of the economic street is probably a contrarian one. Many economists fear there will be a price to pay from the Federal Reserve’s long period of ultra-easy monetary stimulus and huge bouts of asset purchases.

But Karabell noted most experts also thought that when the Fed began trimming its quantitative easing (QE), as it has done since December, that stocks could suffer and bond yields could go up. They have not.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

“We are in the midst of a cycle with no end in sight, one characterized by a supply of money that might not be endless and is surely not infinite but which is showing no signs of waning,” Karabell wrote in a column for Slate.

“In this Golden Age of Capital, financial assets are in a prime position to thrive and have constant new sources of fuel. And there is nothing evident on the horizon—no backlash beyond rhetoric, no movement powerful enough to curtail or channel the flow of capital to labor—that will halt this movement,” he predicted.

He noted that even as the Fed takes its foot off the gas, the European Central Bank has launched its own version of QE to boost business activity, and China is doing the same, even as Japan continues its own massive stimulus and India ponders whether to join the central bank party.

The result, according to Karabell, is a “global liquidity cornucopia.”

Adding to the global cash stockpiles are pools of money that are less than fully invested, from the $5 trillion on U.S. corporate balance sheets to the more than $6 trillion controlled by sovereign wealth funds in nations stretching from Saudi Arabia to Singapore, he said.

And that’s not to mention the huge sums held in individual savings accounts and money markets worldwide by owners who are too cautious to invest it – an estimated $2.6 trillion in the U.S. alone.

“What’s more, this Golden Age hasn’t even been that heady when it comes to returns, so the notion that we are in a bubble doesn’t hold up,” Karabell said.

He noted U.S. stocks are up from their 2009 trough by about 170 percent, but are still near or below their March 2000 peak, depending on whether you are looking at the Dow, the S&P 500 or the Nasdaq.

Also, home prices in the U.S. may be recovering but are still below their mid-2000s peak, and bond yields are lower, proving there is ample room for more profit gains in multiple asset classes, according to Karabell.

Bloomberg reported there is little reason to fear the Fed will take the punch bowl away in the short run. The Fed is planning to keep its balance sheet close to all-time highs for years ahead, Bloomberg said.

James Bullard, president of the Federal Reserve Bank of St. Louis, said officials worry that Fed bond sales would cause an abrupt rise in long-term interest rates, making it more costly for consumers to buy goods on credit and companies to invest.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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The world is awash in cash, but far from being a disaster, it's ushering in a "golden age of capital" in which financial assets will prosper, according to an optimistic take from author and money manager Zachary Karabell.
Karabell, Golden, Age, Capital
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2014-13-12
Thursday, 12 June 2014 09:13 PM
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