Fear and greed have characterized the markets in 2014, according to Adam Geiger, chief investment officer at New Legacy Capital. “Fear has been generated by geopolitical issues, whereas greed has been exacerbated by macroeconomic policy,” he told Markets Media. “There has been so much liquidity, with globally coordinated quantitative easing and other types of monetary stimulus, that markets are generally going up. To the extent that business fundamentals are improving, a lot of that is a function of the monetary policies that central banks around the world have been employing.”
The fear factor has been at work throughout the year. “When the markets correct like they did in the first half of October, generally there is some kind of political scare that acts as a catalyst,” Geiger said. “Whether it is Putin rattling his saber or terrorists getting a little too close to home in the developed countries, or an outbreak of Ebola, it’s some kind of a non-economic factor that comes into play.
The biggest challenge in managing money in 2014 has been to take advantage of the general upswing in the markets while being very mindful of potential risks and not falling into a complacency trap. There are unknowns out there that can throw a serious monkey wrench into things.
“I don't think that it's fair to look at the world as one global economy,” Geiger said. “If you dissect the situation in the U.S. relative to the situation in Europe, in the U.S. we can have a coordinated monetary and fiscal policy. It isn't easy, because Congress argues with itself and with the President, but we have a unified economic system.”
In Europe, there’s a unified monetary system but more than a dozen fiscal regimes and cultures that are uncoordinated. “So the factors that are driving their markets may be different than the factors that might be driving our markets,” Geiger said.
The U.S. economy is improving, albeit gradually. Geiger is unimpressed with the employment numbers and has concerns about widening income disparity “and how the policies that we've pursued in the post-crisis period have exacerbated the problem. I haven't been able to figure out what the ultimate ramifications are.”
Featured image via Granik/Dollar Photo Club