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

Monday, 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

Case-Shiller: Home prices continue steady march upward

Thursday, April 30th, 2015

This week the Los Angeles Times reported that home prices continue to rise here in Southern California and elsewhere in the Nation. Denver and San Francisco lead the pack with 10% and 9.8% year-over-year growth rates. The LA metro area came in at 5.8%. This bodes well for the overall US Economy since housing prices greatly influence consumer confidence as well as spending and employment.  To view the entire article CLICK HERE.

Falling Oil Prices Are A Good Thing. Right?

Tuesday, December 16th, 2014

As the price of Oil continues its decline, the equity markets continue to grapple with the effect that this will have on corporate earnings for the broad markets.  As a recent Bloomberg article (CLICK HERE) points out the answer is not clear.  Although consumers and manufactures will definitely benefit from lower prices, energy companies will not.  Consensus seems to be centered around a long term positive impact to the overall economy but as with most economic matters, that opinions is certainly not unanimous.

Stocks tumble with drop in oil

Saturday, December 13th, 2014

U.S. Stock markets dropped significantly on Friday as investors tried to assess what effect dropping oil prices and slow growth in Europe will have on the economy and if now is the right time to take profits for what is turning out to be a fairly strong fourth quarter.  Although lower oil prices will certainly affect oil stocks, many argue that the broad benefits to the overall economy far outweigh the negative effects to the oil industry.  As this article states, many analyst believe that falling oil prices will have a positive impact on consumer spending, a huge driver to domestic GDP.  For a complete transcript of the Los Angeles Times article please CLICK HERE.