The Federal Reserve’s massive easing campaign is no panacea for the economy and may well cause harm – in the form of inflation, says Zina Spezakis, a partner at MA Capital Management.
“Pumping money into the economy doesn’t address other things, such as demographic issues,” she told Newsmax TV in an exclusive interview.
“The population is getting older. There is also huge deleveraging that’s still in place. It’s almost like adding high-octane fuel to an engine that’s not able to accept it.”
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Continued global easing will simply increase market volatility, Spezakis says. Ultimately, inflation will be the result. “You’ve just got too much money out there and too few investments to put it in. So it’s generally not a good thing to be pumping anymore.”
The Fed has set an unemployment target of 6.5 percent, which would lead it to raise interest rates from near zero. The jobless rate stood at 7.8 percent in December.
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
“To get to a 6 or 6.5 percent unemployment rate is a very difficult thing,” she notes. “We just don’t have the economic growth right now to get there.” The economy expanded 3.1 percent in the third quarter, and economists expect growth of about 2 percent this year.
“When you pump money into the economy, you assume that it’s going to be productive,” she adds. “But when banks are sitting on huge amounts of cash, when private companies are sitting on huge amounts of cash and don’t want to deploy it by hiring people because of whatever uncertainty they see in the market, it’s not going to be as effective.”
As for investment opportunities, Spezakis likes frontier markets, which are step less developed than emerging markets. The investment environment there is stronger than in developed markets, she says.
She recommends “markets such as some in Africa that have increasingly good fundamentals, good risk-return measures and are benefiting from the fact that China is a huge exporter of commodities.”
Other attractive markets are Thailand, the Philippines and Turkey, Spezakis says. “This is where we think the opportunities are to really add alpha [return] to the portfolio. The developed world is really one of a beta [volatility] story. It’s becoming increasingly hard to add value for managers there.”
She warns against merely copying what other investors do. “Herd mentality is a dangerous thing,” Spezakis states. “What you’ve seen, especially in the last 10 or 15 years is what we call risk-on/risk-off states of the market, where you have these huge pools of money that are chasing dwindling returns, dwindling interest rates, and they move in and out of risky assets based on the current risk environment.”
If you’re in the wrong asset at the wrong time, these moves can cost you a lot of money. “But the herd mentality is something that can be avoided if investors just keep their calm and keep emotions out of investing,” Spezakis says. “I tell folks, keep emotions to your love life.”
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
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