"It’s clear to us now that the US economy just isn't going to reach escape velocity," said Andrew Law, head of Caxton Associates (one of the hedge fund industry’s most successful money managers) in a wide-ranging and rare interview with the Financial Times [9]. "Tapering is off the table for the foreseeable future." As we have explained numerous times, Caxton notes the Fed has little option but to continue its policy of extraordinary monetary easing indefinitely, adding "what happened [last week] was just another can kicking exercise. The problem has not been solved and the hopes for a grand bargain are in tatters." Simply put, he concludes rather dismally, "there are no incentives for the corporate world to go out and spend right now..."
Via The FT, [9]
One of the hedge fund industry’s most successful money managers has warned that dysfunction in Washington has damaged the US economy, leaving the Federal Reserve with little option but to continue its policy of extraordinary monetary easing indefinitely.
“It’s clear to us now that the US economy just isn’t going to reach escape velocity,” said Andrew Law, head of Caxton Associates, in a wide-ranging and rare interview with the Financial Times. “Tapering is off the table for the foreseeable future.”
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Mr Law’s stark outlook for the US contrasts with widely-held expectations that the US economy will bounce back quickly in the coming months. Most investors and Wall Street analysts expect the Fed to begin “tapering” its programme of quantitative easing in December.
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The 47-year old Mr Law said the shutdown and debt-ceiling debate in Washington had “undoubtedly” caused damage to the country’s economy.
“What happened [last week] was just another can kicking exercise,” he said of the political deal reached between Democrats and Republicans in Washington to raise the cap on the government’s ability to borrow. “The problem has not been solved and the hopes for a grand bargain are in tatters . . . the lack of visibility is very damaging.”
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“We just don’t see how the economy is going to accelerate in the foreseeable future,” he said.
“Sequester spending cuts, the debt ceiling and shutdown have all taken their toll . . . there are no incentives for the corporate world to go out and spend right now . . . that, and the housing market are critical. You’ve already seen earnings release statements for companies mentioning shutdown as a reason for a drop-off in orders.”
The grim outlook, while contrarian, is shared by a number of hedge funds.
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Caxton also believes the dollar will continue to weaken against the euro – potentially precipitating a currency fight with the eurozone.
“It will be fascinating to see how the ECB [European Central Bank] responds,” said Mr Law, adding that one likely option for Frankfurt would be for it to lower rates. “They are not going to be too pleased [with a weakening dollar],”