How the Feds Influence Interest Rates; Explained

June 15th, 2015

Anyone watching the evening news has likely heard about the pending increase in interest rates by the Federal Reserve bank.  But what exactly are they doing.  This article from the Los Angeles Times does a great job explaining the tools at the Federal Reserve’s disposal and how they influences broader interest rate environment.  To view the article, CLICK HERE

Mortgage Rates Top 4% in Test for Housing

June 15th, 2015

Mortgage rates extended above the 4% threshold last week in concert with an increase in the yield on on the 10 year treasury.  Investors are demanding high yields on the 10 year treasury as they anticipate an increase in the Federal Funds rate.  Time will tell what impact these higher mortgage rates will have on the housing market, but clearly they will increase the cost of borrowing, which in turn will have an impact on housing prices.  To read the entire article, please CLICK HERE

College Graduation. A Time For Optimism.

June 3rd, 2015

I recently attended my daughter’s college graduation ceremony and can say, if you are ever feeling down and blue about the future, swing by a college commencement ceremony.  The graduates’ accomplishments and speeches are so uplifting, they will surely recalibrate your optimism.

And why shouldn’t they be optimistic.  For them, the consequences of failure are still so small that they can try and fail with near impunity.  And so they will, tackling the problems that most would not attempt, knowing the odds of success are so slim.  The young on the other hand will approach and conquer life’s biggest problems, only learning after the fact that the task was nearly impossible.  Maybe it’s all part of a grand design.  As the old become imprisoned by life’s challenges, they are replaced by the young, with their unbounded optimism and energy.

It’s fun to watch the process and fortunately, I’m still young enough to work with these up and comers, including my daughter who just joined us here.  Their enthusiasm is contagious and reminds me of the time when I too was a college graduate.

Yes, the young are the future and their time is coming, and not a moment too soon.  The problems that our world faces are huge and only the strongest, smartest and most optimistic will be able to find solutions.  It’s still too soon to pass them the baton.  But that time will come and I’m optimistic about all they will accomplish.  As Steven Jobs said in his Stanford commencement speech, “Everything will work out”.  I think he’s right.  After all, we’ve got youth on our side.

Marshall G. Eichenauer, Jr.
Owner and Managing Partner
 

Ps  If you don’t have time to get a commencement ceremony this year, I encourage you to watch Steven Jobs’ commencement speech to the Stanford class of 2005. It will move you. CLICK HERE to view it.

May Newsletter-Has the low-hanging fruit been picked?

May 4th, 2015

Each year I attend the annual conference of the Investment Management Consultants Association (IMCA), a group made up of some the brightest Investment professionals in the country.  Collectively, IMCA members advise a broad cross section of investors, from the largest pension plans and ultra-high net worth individuals to Millennials and Gen X’rs who are just getting started. It’s a wonky group for sure.  Who else would be willing to spend three days listening to economist prognosticate about the future?  But buried underneath those propeller heads is a group who genuinely care about their client’s well-being and is seeking to gain the best information with which to make informed decisions.

Having been a member of this organization since 2004, I have noticed that at each annual conference there seems to be an overarching focus that transcends the individual sessions.  In 2008 and 2009 obviously there was a lot of conversation about the state of the world economy, when could one expect it to recover and what forces would influence that rate of recovery.  In the years that followed, we watched as corporations trimmed the fat and consumers got their financial affairs back in order and slowly the wheels of greatest economic engine in the world again began to turn.  At this week’s conference, the overarching focus seemed to be on how long the economy will continue to grow and what rate.

After three days of looking at the data, it appears unlikely that the rate of growth in the three to five years to come will be as great as it was in the three to five years that just past.  There are a variety of reasons for this.  Globally, we are seeing slower growth rates from some of world’s fastest growing economies including China.  Some of this has to do with relatively tighter labor supplies there but demographics are also playing a part as China’s population ages and fewer children are being born as a result of their one-child policy.  Other factors weighing down future economic growth rates include a less accommodative U. S. monetary policy and an unwinding of the U.S. Quantitative Easing programs that were implemented to stimulate the economy, to name a few.  Bottom line; growth rates will likely slow.

So what do we take away from this?  Is it time to stock up on canned foods and head to the basement?  Maybe not.  History has shown us that the economy can continue to hum along at these slower growth rates for many years.  With that said, these factors do influence our asset allocation decisions as well as how we will guide our client’s expectations for future rates of return on their portfolios.  It will also influence our tolerance for taking risk in our portfolios as we consider the risk versus reward for asset classes and the sub-sectors of these asset classes.

What we can take away is that replicating past returns is always challenging but particularly so as the economic cycle matures.  Fortunately, this is not the first time that we have faced this phase of the economic cycle.  The way we see it is, even though there may not be as much low hanging economic fruit,  there is still fruit to be had and we are skilled at finding it.

Marshall Eichenauer, Jr.

Owner and Managing Partner, Sagent Wealth Managment