The BBC's former economics editor, now a strategist for JP Morgan, gives her views on interest rates, the economic recovery and the joys of being able to say just what she thinks
She was the face of economics on the BBC, grilling politicians and bankers, and even creating her own brand, "Stephanomics," for Radio 4. But in September Stephanie Flanders quit the corporation, joining Wall Street giant JP Morgan as a strategist for its asset management business, on a rumoured salary of £400,000 a year (before bonus). The former presenter of BBC2's Masters of Money, who once wrote speeches for US Treasury Secretary Larry Summers, is no longer analysing what others say, but presenting her own views and advice. So what nuggets of wisdom does the 45-year-old Flanders – who in the 1990s briefly dated both Ed Miliband and Ed Balls – have for us now she no longer has to maintain BBC neutrality? Just three weeks after joining JP Morgan Asset Management she gave her first question and answer session to journalists.
Where should we be putting our money in 2014?
It's emerging markets and Europe that interest Flanders most. China's stock markets have been weak over the past year, seriously underperforming Wall Street or the FTSE. The Shanghai Composite index is down nearly 10% since February, and is still trading at little more than a third of the peak level it hit in October 2007. Contrast that with the Dow Jones index in New York, which is at an all-time high, and the FTSE 100, which has recovered to its pre-financial crisis level, albeit still marginally below its end-1999 peak.
"I think that if you are brave and prepared for the bumps along the way, then emerging markets look cheap at the moment. An intelligent approach to Europe would also pay off, if you take advantage of the differentiation between European economies, including those outside of the Eurozone. It's time to be overweight in emerging market and European equities. I'm not saying that I'm pulling all my money out of the US or the UK, but they don't look cheap compared to Europe."
She says the US and UK stock markets look surprisingly high, given that we are only just coming out of recession. "Financial markets [in the US and UK] are at a level you'd expect to see in a mature recovery," she warns.
When will the Bank of England raise interest rates?
The Bank of England says it won't consider raising interest rates until unemployment drops to 7% or below, and Flanders is of the view that won't be in 2014, and may not even be in 2015. "I continue to hope it will be a long time yet, and that the Bank of England will err on the side of lower for longer. That was very clear from the speech that Mark Carney gave this week."
Is the euro out of the woods?Although Flanders thinks European stock markets are good value, she says smaller companies, vital to job creation and growth, are struggling to find capital to survive or expand. She worries that companies in the periphery countries, such as Greece, Spain and Portugal, are having to pay significantly higher interest rates to borrow compared with their German rivals, although there are signs that "in the last few months those rates have strated to come down". But, she adds: "The flow of credit in the eurozone is still one of its biggest challenges. Small and medium-sized companies are the most affected by this, and they are more important in the peripheral European economies compared to the US, UK and Germany."
What should George Osborne be doing that he's not doing?
Getting British companies investing, boosting productivity and exporting – and improving the nation's infrastructure.
"Investment as a share of GDP is lower than it has been for 30 years. But the Treasury is designed in every fibre of its being to say 'no' to whatever scheme is put in front of it," Flanders says. "Osborne also needs to do more directly to support capital investment. There is a lot of cash that companies are sitting on, and we should be making it more worthwhile for companies to invest that, such as better capital allowances.
"We need real earnings to pick up and for productivity to improve. During the recession we saw the protection of human capital and we maintained employment levels, but the downside is the shortfall in productivity that resulted. We need to make that up."
How strong is the economic recovery?Flanders points to figures which show that, in most developed countries, the "purchasing managers index" – which reflects levels of economic confidence – is on the up. "People aren't just trying to be optimistic. Fiscal austerity is going to be much less. Last year the US economy grew despite an unprecedented amount of tightening. If the US can do that against a negative fiscal thrust, it makes you think next year is going to be a better year … even a fairly sombre view of the economic perspective in the UK should see us growing faster than the Office of Budget Responsibility suggests."
What is the risk that the economic recovery will fizzle out?
The big debate in economics, says Flanders, is between those who say there is a big output gap – who believe that the UK economy can grow briskly for quite a few years before it hits a wall of inflation and interest rate rises – and those who say that despite the recession there is little spare capacity in the economy, and therefore it can't grow much from here. Flanders is broadly on the side of the optimists. "We should be wary of writing off the recovery before the economy has even got back to where it was."
Is everything you say now scripted by JP Morgan? Are you missing the cameras?
No, insists Flanders. "The BBC was wonderful, but I was there for 11 years in total, and I really don't miss being in the limelight. I am getting used to the thrill of having my own opinions, and they [JP Morgan] really want me to be saying what I think, although I suspect that if they thought I was a raving communist they wouldn't have hired me."
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