Normalization

Brandywine Global quarterly letter 2Q 2017

Normalization

Brandywine Global's March quarterly commentary stated that the sustainability of the synchronized global expansion would turn out to be the main issue going forward. That has clearly become the case entering the third quarter of the year. Read on to find out why Brandywine Global believes that the reflationary expansion in the global economy is real and sustainable... and what the risks could be.

Economic growth could moderate slightly in the second half of the year, but Brandywine Global believes there is lots of evidence that the world economy is on a trajectory of sustainable growth.

There are tail risks to the outlook, some of them familiar:

  • Geopolitics, excessive debt levels in China and corporate America, as well as uncertainty over the Trump fiscal agenda.

  • But the newest and possibly biggest economic tail risk in the outlook is the Fed’s intention to shrink its balance sheet. Quantitative tightening will be an unprecedented form of monetary policy, just as quantitative easing was, making it difficult for markets to anticipate the consequences.

Overall, Brandywine Global remains constructive about the normalization of the business cycle, with the U.S. leading the way, and believes the early lift-off is beginning to rhyme with the old business cycles of the past.

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