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By Miriam Sjoblom, CFA | 09-02-2010 01:20 PM

Landmann: Government Intervention Working for Now

Though deflation is one of the biggest risks today, the government has the tools it needs to keep the economy going, says Analyst Pick MetWest Total Return Bond Fund manager Laird Landmann.

Miriam Sjoblom: Hi. I'm Miriam Sjoblom, a mutual fund analyst with Morningstar. I'm here today with Laird Landmann, who is the Generalist Portfolio Manager of MetWest Total Return Bond and that's an Analyst Pick in our Morningstar intermediate-term bond category.

So, I appreciate you taking the time today.

Laird Landmann: Very much appreciate being here. Thank you.

Sjoblom: We hear a lot of reports about concerns about deflation. It's a new thing that has cropped up. We've got an economic data that's not looking so great. What are some of the challenges that you are facing as a bond manager in this environment?

Landmann: I think one of the biggest challenges we are facing is really there is a secular change going on in the marketplace, which is related to what we're seeing with the issuance of government debt, When all the crises began to hit in December of 2008, and a little bit before that, we looked at that at MetWest and what we decided was that really the government was going to have to step in and provide a huge Keynesian stimulus in order to get the economy back on track.

And we've really seen them follow through with that. And the one warning sign that we've been looking for where this might not work, where it might lead to a deflationary outcome was really a lack of acceptance on the part of the market of U.S. government debt or a crack in the dollar, and we've clearly seen neither of those. We've actually seen it go quite the other way. That's been very surprising I think for many market participants. But it clearly shows that the government has the tools it needs right now to keep the economy going. And we believe that they will use those tools to the fullest extent.

There are certainly lots of political winds out there right now that are insisting that we go the other way, that we move towards a regime of fiscal rectitude. We don't believe that the political will exists for that and that we'll continue to see stimulus from both the Federal Reserve and the fiscal government, and that they'll step into deal with the problems at hand.

And so we'll see this slow growth environment continue, where basically the private sector in a secular basis continues to pull back, savings rates move higher, the consumer becomes a less important part of the overall U.S. economy, and the government continues to step in and fill that gap. It's not necessarily a healthy long-term situation, but it certainly will keep growth going in the short term.

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