How quickly things can change. After rewarding ourselves for stellar performance in 2017 and the first half of 2018, things have gone south. The reasons are as many as fleas on a front porch dog. But no matter the reasons, our investment outlook has changed.
The once popular strategy of ‘buying on the dip”, which has worked for several years, now seems less of a certain thing. There’s talk of slower growth, lower corporate earnings estimates, slower oversees growth because of a strong dollar, and crude’s slide foretelling an ominous story. What seemed like a certainty only a few weeks ago, a Fed hike in December, is no longer a sure thing. A pause in rate hikes has become more of a possibility. This uncertainty creates confusion for the market, and volatility is likely to remain a part of the dialogue.
Yet, there are some real positives that should keep the markets optimistic. The recent tax cuts along with the curtailment of many regulations have greatly enhanced the business environment in the US. Domestic corporations are now very competitive in the global market. This may be longer lasting than many academics are willing to admit. Business confidence is high and hiring has continued to be strong. Lower tax rates of corporate income and repatriations have created an uptick in business investment as evidenced by recent upticks in productivity and lower unit labor costs (Lower despite increases in hourly wages). Sustainable growth closer to the 3% level is achievable, but the Fed must not make any missteps.
Remember the Fed runs the game through its discounting mechanism and the implied tax that higher interest rates create on many sectors. Housing, autos and a few other cyclicals have already begun to suffer. Our economy runs on consumption and this consumption is typically fueled by debt. Debt has a cost and when interest rates rise so does the margin of safety for those who incur and buy debt. The Fed had monetary policy too loose for too long. Let’s hope the plan to normalization doesn’t result in too much symmetry.
SCI HIGHLIGHTS
SCI Monthly Webinar
SCI leaders Bob Dunne and Jim Baldwin will discuss SCI heading into 2019
Tuesday, December 11th
@ 12:00 pm CDT
Join from PC, Mac, Linux, iOS or Android:
Click here for Conference Login
Meeting ID: 325 159 0655
Dial In Audio: 669-900-6833
Ocean Park’s Market Minute
Listen to Ocean Park CIO Terri Spath talk about supply and demand within the municipal bond market and how the recent midterm elections could have an influence:
SCI Video Content Coming…
Stay tuned. LSIA VP Bob Dunne and LSS Business Development Associate Zak Sandeman are working on multimedia content for you and your clients to provide more color on the specifics of the Salt Creek Investors asset allocation strategy.
Feel free to reach out to Bob Dunne to make any requests or suggestions:
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