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Payden & Rygel: CEO Message
CEO Message

July 2014

Joan Payden, CEO Six months into the year and two questions occupy everyone’s mind: First, are interest rates going to rise? And second, will inflation be a problem?

In the last week of June, information related to both of these questions emerged. The core PCE (Personal Consumption Expenditure price index) for the month of May showed an increase of 1.5% compared to a year ago. Even though it was below the US Federal Reserve Bank’s (Fed) 2% target, the immediate concern was: “Is inflation back?” Also this week, the government announced a first quarter GDP revision of negative 2.9%, the worst non-recession number since World War II.

What does this mean to investors and your investment manager looking to preserve clients’ capital but also to satisfy longer term objectives of growth?

As you know, we have been on the side that economic growth would be moderate, unemployment still a challenge and higher short-term interest rates would be at least a year away. We continue to stand by this outlook, and it appears that the Fed Chair remains very concerned about the employment situation. In particular, the lack of wage growth and the number of underemployed Americans concerns policymakers.

Another point of interest is the significant increase in global demand for bonds compared to the amount of investable securities. We believe that this calls for further emphasis on liquidity and being very aware of future global structural changes. Against this background, we continue to believe that a diversified income approach can help cushion the shock from higher interest rates. This approach includes both fixed-income bonds and income-oriented equities with growth potential.

Our very best wishes for the summer to you and your family.

Joan Payden
Joan A. Payden
President & CEO