PREVIEW
Stephen Dover, chief market strategist and head of Franklin Templeton Investment Institute, interviewed Joseph E. Stiglitz, Nobel prize economist and professor at Columbia University, on June 29, 2021.
KEY TAKEAWAYS FROM THE INTERVIEW
- Post-2008, the extremely loose monetary policy and high levels of deficit spending sparked concerns over the long-term impact that excessive debt-to-GDP ratios could have on economic growth, and the threat of potentially excessive inflation. While this is certainly something to be monitored, some inflation may be positive for the economy, and we may need to accept additional deficit spending to get there.
- According to Stiglitz, we need interest rates to rise somewhat so that we have a more accurate cost of capital. Capital allocation needs pricing, and pricing gets totally distorted when you get down to zero interest rates. It would be healthier for the economy over the long run if we returned to a world with more normal interest rates.
- According to Stiglitz, we would have better economic performance overall, a better return on capital, if we had a better balance between the private sector and the public sector. And that includes a better balance in investments in infrastructure. There’s a strong complementary relationship between private and public investment; they’re not substitutes. They each have a role in our society.
- If we want companies to make sustainable decisions, they need to be aware of the consequences of those decisions. Right now, they don’t get any signals. And that’s where a carbon tax could play a very important role.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values-based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating. Investment in the commercial real estate sector, including in multifamily, involves special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector. Investments in infrastructure-related securities involve special risks, such as high interest costs, high leverage and increased susceptibility to adverse economic or regulatory developments affecting the sector. Investments in fast-growing industries, including the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies. Investing in the natural resources sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector. Diversification does not guarantee profit nor protect against risk of loss. Buying and using blockchain-enabled digital currency carries risks, including the loss of principal. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk. Among other risks, interactions with companies claiming to offer cryptocurrency payment platforms or other cryptocurrency-related products and services may expose users to fraud. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. Investing in cryptocurrencies and ICOs is highly speculative and an investor can lose the entire amount of their investment. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.