US economy remains on positive trajectory; captives urged to invest in equities

The US economy is performing well and remains on a positive trajectory – but there are concerns over it overheating and the medium-term implications of the deficit, two notable economists agreed at a panel discussion held on Wednesday morning at the annual  Bermuda Captive Conference, which is taking place at the Fairmont Southampton Hotel on Bermuda this week.

The session, called ‘The Economists’ View’, was chaired by Tom McMahon, president, Citadel Management Bermuda, and featured two economists: Henk Potts, director of global investment strategy, Barclays; and Daragh Maher, head of FX strategy US, HSBC Securities.

Potts said that Barclays retain a positive outlook on the US economy as its main driving forces remain in good shape. He said its biggest driver, the US consumer, is benefitting from low unemployment, some wage inflation, tax cuts boosting disposable income and the feel-good factor of the stock markets increasing and house prices also growing.

“And business confidence is high,” he said. “The stimulus package is still having a positive effect and businesses are benefiting from cuts to corporation tax and new commitments to spending on infrastructure.” Barclays suggest the US economy will enjoy growth just shy of 3 percent this year.

But he added that there remain some risks around the implications of the stimulus package on debt and the deficit and there are risks of the economy overheating.

Maher agreed that the US economy was looking positive but noted that there were some concerns about the Federal Reserve Bank’s strategy that appears to be moving interest rates to ‘normal’ levels in the coming years – an approach that is in stark contrast with other central banks around the world.

“From currency perspective that means more bullish dollar,” he said. “So the policy of the Fed and also the impact of Donald Trump’s rhetoric on trade especially as we reach mid-term elections,” he said.

McMahon asked the panelists at the end where investors should put their money. Potts pointed out that captives should take advantage of their long-term time horizon. “Be invested, diversified and look at equities,” he said. “The longer you hold equities, the more likely they are to outperform the market”