Our team strongly believes in continuing education and meeting directly with world and thought leaders so that we can provide you with timely, unbiased and relevant information. The week of February 1st, 2016 was a truly amazing week as I had the opportunity to meet with Alan Greenspan (former FED chairman), Sir John Sawers (former head of MI6), Cokie Roberts and more than a dozen other influential leaders to hear their thoughts. We had more than a dozen meetings over five days in two cities. What is very interesting is that there are some common themes and insights which I outline below. As always please feel free to contact me, or your advisor, with questions, comments or if we can otherwise be of service.
There is a consensus that both the United States and world as a whole are facing some new challenges and threats which we discuss in more detail below including an existential threat from Russia and a more direct threat of cyber-attacks. With that being said, all of the leaders that I spoke with were very optimistic about the outlook for the United States and its place in the world – and more specifically our equity markets over the next three to five years. They believe we will remain the dominant super power and our currency will continue to be the reserve currency at least for the relative near term. As is generally the case in life there are some great opportunities for the country, and individuals, who have the courage to take advantage of them but also some significant challenges and risks ahead. There was general acknowledgement that it is virtually impossible to predict what will happen over very short periods of time (one to six months) and that ultimately if someone plans properly it really doesn’t matter.
Low oil prices are helping some poorer countries like India and will benefit the United States over the next few years. While there are some who have said that low oil prices could lead to a recession we believe the opposite is true- that this will lead to more inflation . In the near term the lower oil prices are helping put more dollars in the hands of individuals and the only ones really suffering are large oil companies. The impact on our economy of people having more cash is not likely to be seen in the statistics for another six to twelve months.
Nobody has a crystal ball and we believe that with proper planning short term market and interest rate changes should not matter. Having said that there is some consensus about the longer term outlook. We agree that over the next five to ten years interest rates will go up, inflation will go up, unemployment will go up and that the broader domestic markets will move up strongly. There will be increased volatility that will cause some to miss the potential for growth due to fear. Interestingly Mr. Greenspan expressed a different perspective.
“We are at this moment faced with a number of serious long term economic problems, all in a sense having to do with the underinvesting in our economic future. My most worrisome concern is our broken political system”, Alan Greenspan
One of largest global change factors in the world is China. China is struggling now as they transition from a command and control economy to more of a market economy. They also face challenges as they move from a net exporter to a domestic economy. China has a choice to essentially compete with the west or to partner. They are moving in the direction of a partnership but this presents challenges for several reasons including the planning perspective of our respective countries. In the United States things are planned for the next quarter, year or often at most the next election cycle. The Chinese think in terms of decade’s even centuries and plan as such.
While it was expressed that the biggest existential threat right now for the world is Russia – it was not felt that they are a direct threat to the United States.
The largest disrupter today is technology. Technology will help create efficiencies and reduce expenses but will also eliminate jobs both in the near term and more so in the future. One upside to increased technology is that ‘big data’ should expose any fraud, deception or discrepancies in markets or accounts creating more transparency and efficiency. With an increasingly connected world cyber security at a personal, corporate and National level is critical. There is consensus that cyber-attacks are the single biggest threat to the nation at this time which we are seeing currently addressed in Washington.
It is believed that while we hear a lot about government and tax reform but little will be done by Congress or the Senate before the Presidential election this fall. There is a need to address the Federal Debt which will continue to grow until there is entitlement reform as entitlements (Social Security, Medicare, Welfare, Medicaid, etc.) account for almost 60% of the federal budget. As interest rates rise so too will the interest on the debt which will need to be paid. The leaders that we spoke to feel that this will be resolved but it will be a long and painful process which will result in cuts to entitlements and most likely means testing. This is unlikely to affect anyone who is 55 – 60 year old today but will be directed towards the next generation and will take effect long after today’s politicians are out of office. This is why personal planning, rather than reliance on government programs will be critical.
In the US we have many baby boomers whose wealth planning is shifting from focusing on growth to generating income as they retire. The challenge is that they are living longer and will need their funds to last. This emphasizes the need for proper planning based on each person’s situation – not the previous generations or some rule of thumb. Our Personal Vision Planning® process address’ each person’s needs, resources and goals with a plan based on their situation – not a model or rule of thumb.
What should you do now?
As the pace of change accelerates and factors affecting become increasingly complex it’s important that your planning is monitored and updated on a regular basis. We do not advocate market timing or short term trading for investments but do believe it is critical to actively monitor and rebalance. In our opinion the idea of simply buying and holding a generic portfolio does not make sense as this must be a dynamic process based on both your evolving needs and changes to markets, interest rates and regulation. We believe that inflation and the ability to maintain and enhance our standard of living is a major risk for many people which may be negated by properly allocating your portfolio. Finally, it is critical to make decisions based on your situation and looking forward – not based on past performance or experience. Planning based on the past is like driving down the road looking in the rear view mirror – it’s fine unless the road turns. For example we have not seen interest rates rise for more than 20 years – planning based on bond performance over the last decade will not, in our opinion, produce similar results going forward.
The only things we can say with certainly are that change will continue and we cannot predict the future. Your overall planning is a process that is continually evolving – not a static onetime event. We appreciate the opportunity to partner with a select group to bring you timely and relevant information while being a partner to you and your family for generations to come. Please contact our team with any questions or whenever we may be of service to you or your friends. There are exciting times ahead and we look forward to helping you benefit from them.