And now…?
With most of the political wrangling and debate nearly over, one hopes, we are left to deal with the residue of their cacophony. Politically, I’m not astute enough to try and unravel the truths and un-truths spoken during the government budget debate and shutdown. But as an economic scientist, the numbers reveal an extraordinary landscape of congruent trendlines, missed opportunities, and plausible strategies for safely navigating the next 3 months. And, unfortunately, 3 months is now becoming the new “long-term” strategy, as exogenous news events and personal political brinksmanship supplant the “five year”, “ten year”, or “generational” investment strategy of year’s past.
We are likely to see a continued migration from bonds to stocks, as the political rhetoric “freezes” business activity, therefore limiting any upwards migration in interest rates. Thus, as a traditional investment alternative to equities, bonds are losing their appeal. By traditional comparisons, then, equities still look relatively inexpensive despite new highs in the averages.
Allocations into stocks in my portfolios should rise modestly through the end of the year as some bonds mature, cash sits on the sideline, or profits are taken in today’s key winners.
There is little doubt that economic activity will increase over time if the government can get its act together and if a lifeline can be thrown to an overburdened consumer. While there is no guarantee the politicians can get it right, most of them hope to avoid the precipice a second time. A potential rise in costs for consumers might either be onerous for a stagnant wage base or quite bullish for services-related equities. Similarly, tangible assets, such as basic materials, will flourish in an economy heavily oriented around infrastructure development and agricultural plentitude.
Most importantly, I see a renewed sense of purpose-based, or socially responsible, investing. This nostalgia is a shared phenomenon amongst those of us who remember government as a functioning body of statesmen who represented our long-term aspirations, and by the youngsters today who think the whole thing is quite simply a “mess”. Such thinking is not political, per se, but borne out of an opportunistic mindset that actually sees profits in doing the right thing. If there are competitive returns to be found in that sector, they are in community banking; food, water, and agricultural stocks; alternative energy; “new” industrials; and technology. I might add parenthetically that as a big fan of the space program in the 1960’s, I hope to see a rejuvenation either in private or public aerospace development and all the ancillary benefits such research provides.
It might make sense, also, to renew our focus upon global and emerging market equities. While it is safe to be ethno-centric about the United States, revenue growth in multi-lateral commerce is an opportunity for the future that represents inexpensive, broad potential for portfolios.
Finally, there is “no one size fits all” approach to solving these complex economic, political, and investment issues. Many of our clients have access to index funds or “sector specific opportunity” investments, but succeeding at generating portfolio returns requires a science, a discipline at transacting that science, and a customizable approach to balancing risk/reward, time horizons and individual perspectives. “Canned content” has never beaten my performance, and never will. While there are a number of credible content providers out there, it’s usually at a cost, or premium for time, and identical to each of their competitors.
Building loyalty takes time, empathy, and commitment to getting it right.
Scotty C. George
(212) 624-1147
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
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