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Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager

Industry experience

With Wellington

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Brij is a portfolio manager and his focus is on global total return and unconstrained fixed income portfolios. He draws on the perspectives of Wellington Management's global industry and credit analysts, specialist portfolio managers, and global macro strategists and conducts top-down and bottom-up research to identify and deliver actionable investment ideas across sectors, regions, and themes, primarily within the global fixed income markets.

 

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The job gains cited in the May 2021 non-farm payrolls release fell well short of what the market had hoped. A fluke? Maybe, but this disappointing jobs report suggests to me that US inflation dynamics are beginning to shift from “demand-pull” to “cost-push” inflation.

The perils of cost-push inflation

Demand-pull inflation is the upward pressure on prices that occurs when aggregate demand outpaces aggregate supply. Cost-push inflation, by contrast, is caused by increased costs for raw materials, wages, and other inputs to production. The latter type of inflation tends to be much more harmful to an economy, as it forces companies to choose from among three distinct (and all undesirable) options:

  1. Seek to cut their capital costs elsewhere to preserve profit margins
  2. Invest in productivity-boosting solutions to reduce their labor costs
  3. Pass their increased costs on to consumers in the form of higher prices

The most probable scenario, in my judgment, is…

MACRO
Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston

In my last blog post, I asked, “Is this the end of secular stagnation?,” which I defined as low nominal economic growth due to insufficient aggregate demand. While I didn’t (and still don’t) have a simple “yes” or “no” answer, I shared my latest thinking on the topic, including some investment positioning ideas for clients.

This time, I’d like to look more closely at one of the main causes of secular stagnation — a global “savings glut” over the past decade-plus — and whether it’s likely to persist going forward.

How did we end up with a savings glut?

Outside the US, the “savings glut” to which I refer dates back to before the 2008 global financial crisis (GFC). Following the GFC, the US also began to accumulate…

MACRO
THEMES
Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston
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My team and I often say recessions wipe the slate clean and create new investment patterns that will likely be dissociated from the last cycle. If there was a dominant theme of the last cycle — from the global financial crisis (GFC) in 2008 up to the onset of COVID-19 in March 2020 — it may have been “secular stagnation,” which I define as low nominal economic growth due to shortfalls in aggregate demand. Naturally, this begs the question of whether or not secular stagnation will still have legs in the post-COVID era.

I don’t claim to have a simple “yes” or “no” answer yet, but for now would like to share my latest thinking on the topic, to be followed by deeper dives on specific aspects of it (and hopefully more definitive answers) in additional blog posts throughout 2021.

Whence secular stagnation?

By way of context, it’s helpful to consider how we got here in the first place. Economists have attributed secular stagnation to…

MACRO
THEMES
Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston

Baseball legend Yogi Berra famously remarked that “it’s tough to make predictions, especially about the future.” Political elections are no exception, of course. But as difficult as forecasting an election can be, predicting market reactions is arguably even more challenging. That being said, with the 2020 US elections only a few weeks away, now seems an opportune time to think through the various potential outcomes and their implications for fixed income and currency markets.

While most market participants are focused on the presidential election, which party controls the Senate is of equal importance in the event of a Biden victory; it matters less under a Trump presidency given that Democrats control the House of Representatives, with little chance of a flip there. Thus, the three possible outcomes to consider are…

MACRO
Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston
Joe Marvan
Joseph Marvan
Fixed Income Portfolio Manager
Boston

I think the US Federal Reserve (Fed)’s newly unveiled framework for its long-run goals and monetary policy strategy, combined with its recent statements, signals a fundamental change in how the central bank will conduct monetary policy from here on.

Prior to the 2008 financial crisis, the Fed would tend to hike interest rates when the unemployment rate fell below NAIRU.1 The Fed’s latest statement made clear that this is no longer a sufficient reason to raise rates, unless accompanied by inflation exceeding its target in order to deliver a 2% average inflation rate.

A closer look at the new framework

In general, the communique was dovish in that the Fed is basically saying that it will need to see both low unemployment and above-target inflation before it will consider hiking rates. The Fed’s policy rate is likely going to be…

MACRO
Brij Khurana
Brij Khurana
Fixed Income Portfolio Manager
Boston
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