Dan Fuss: Prepare for 1970s-Style Inflation
Dan Fuss, vice chairman of Loomis Sayles and one of the world’s best-known bond investors, will be the first to tell you he is confused about the markets. But count him in the camp that doubts the U.S. economy is headed for a V-shaped recovery.
He is confident, however, that the long-term outlook includes a resurgence of 1970s-style inflation.
Fuss, who spoke Tuesday during a webcast hosted by the Boston chapter of the Professional Risk Managers’ International Association (PRMIA), was joined by Lisa Emsbo-Mattingly, an economist who is director of research, global asset allocation, for Fidelity Investments.
“The one thing I do know,” said Fuss, “is from just looking at what the analysts are saying, and in particular, talking to some of the loan analysts: Credit fundamentals are not good in a fairly broad area. Hopefully this recovery will be a ‘V,’ but it looks to me more like the possibility it is going to be a couple of Ws hooked together with a slightly upward slope.”
Fuss said the closest historical analogy to what is happening was more than 60 years ago. During 1957, the U.S. slipped into a recession, was recovering by the end of 1958, and then was back in a recession in 1960. “I think that was all one downturn,” Fuss said. “It just started to ripple through. It never felt like there was this magnificent recovery. I was out in the business world trying to make a living, and to me, it was 1963 before you could really see that things were moving again.”
Emsbo-Mattingly also questioned prevailing Wall Street sentiment. “The markets have basically priced in a V-shaped recovery at this point. … they’re implying that everything is in the rearview mirror and everything is going to go just swimmingly going forward. … I’m a little bit skeptical of the Happy Days Are Here Again narrative that the markets are telling us at this point.”