Risky business: an investment climate in flux.

AuthorHaraldsen, Tom

Europe's economy remains unsettled--to say the least. Japan can't accelerate out of its decades-long funk, and China's investment market seems more volatile than ever. The markets in the United States are producing better returns, but remain risky--as evidenced by the hair-trigger reaction to the Fed's plans to taper off its asset purchases.

Here, top investment experts take a look at the overall investment climate and offer an in-depth perspective on the global situation.

The Wealth ni Nations

No matter how you re-price wealth, it's not necessarily increased wealth.

"What is wealth?" asks Stephen Sexauer, chief investment officer with Allianz Global Investors Solutions and a board member of GIC--the Global Independence Center. "Real wealth is human capital, physical capital and a combination of technology and knowledge. Growth in real wealth is the size and quality of the labor force, investment in the project and innovation. It's measured through the growth in the GDP per capita, how much of the labor force is working and how productively, and with the market values of assets and liabilities."

Using those measuring sticks, Sexauer refers to the track record of "the remarkable U.S." Case in point: from 1880 to 2010, U.S. productivity has increased at just below 2 percent each year. It has slowed to about 1.6 percent a year since. At that rate, he says, "wealth is doubled essentially every 23 years."

Japan, by contrast, has had 17 different governments in the past 23 years and is averaging just over 1.1 percent productivity growth. From the standpoint of investments, the equity return prices for the U.S. over the past eight years have been positive by 2.1 percent. Japan's score: a negative 1.2 percent. Some European countries have done even worse over that period of time--Italy down 7.7 percent, Germany down 7.5 percent and Spain down 1.3 percent.

Healthy banks, strong profits and a budget deficit under 5 percent and shrinking are all good indicators for the U.S. investment climate. Though there are risks, "and there's always risks," Sexauer says, the U.S. still looks the best, barring another bank failure. The biggest risk is that no one is larger in the bond market than America, and "bonds cannot get ahead of the Feds."

An Over-manipulated Market

Martin Barnes, chief economist with BCA Research is a bit more cautiously optimistic. He outlines five key investment question areas for the future: a possible bear market for bonds, overvalued...

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