Being friends with your broker can have a unique set of perks. Flying wingman to an economic round table turned out to be just that, a fantastic perk. I wound up in the audience for a Morgan Stanley Smith Barney market discussion moderated by Consuelo Mack that included the following:
*Jeff Applegate {CIO MSSB}
*Bob Dole {Sr. Managing Director at BlackRock}
*Dr. David Kelly {Chief Market Strategist at JP Morgan}
*Christopher C. Davis {Chairman of Davis Advisors}
Below are my notes, a few quotations, and a comment or two
All four men stated, unashamedly, that they expect to see the next ten years produce 8-10% inflation adjusted returns from equity holdings. In order to achieve this rate of return in an individuals portfolio they suggested being overweight equities, underweight bonds, and an acute focus on Emerging Markets {BRIC}
Davis argued that we're doing ourselves a huge disservice by staying in Money Market Accounts. He noted that the Perils of Passivity {being in a safe haven like cash} are essentially backward thinking. He equates cash to "The Returnless Risk", citing that in the lifespan of his father, the dollar has lost 92% of its purchasing power.
Kelly proposed that the idea of current massive volatility in the market becomes much more muted when you change the time period to a 10 year moving average. He said that historically speaking, current volatility is very average when viewed through this lens. His recommendation was, "have a plan, stick to it." I found it rather cliche and dull. Remember that the further out you take your volatility lens, the less muted weekly, monthly, even yearly events become. I expected deeper wisdom from a Ph. D in economics.
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| 10 year moving average of the S&P yearly volatility. We're average right now, huh? |
Applegate had a unique outlook for the near term. He mentioned the date December 1st. No one in the media has said a thing about this to my knowledge and he made a compelling argument. Obama's Committee on Deficits makes it official recommendation about how to fix our current situation. The only other time this type of committee has been around was during the Reagan years. The outcome of that committee was a change in the retiring entitlement age from 65 to 67. Applegate said that this will happen again and the result will result in pushing our debt further out the curve. The 'media' effect will say that our budget is looking much better and the stocks will continue to head higher. I don't have an opinion on whether this will happen or not, but it was interesting.
Here are a couple of one-liners and some of the interesting correlations they cited though providing no actual data were:
*14% of disposable income went to debt servicing in 2000, now we only use 12.1%
*The largest component of Consumer Confidence is the Unemployment Rate
*Attractive P/E ratios are the precursor for gains in Consumer Confidence
*High Unemployment is the precursor of gains in future equity valuations
*QE2 is coming
*The Bush Administration Tax Cuts will be extended for at least 2 or 3 years
On the whole, it was an interesting night with some people that I would dub "perma-bulls." I was a touch disappointed that there were no contrarian viewpoints to their arguments, though I am sure that bearish comments where NOT what they were hired to talk about. I'll finish with a quote from Sir John Templeton that I'm sure they would have engraved on their desks. {especially knowing where we've just come from and where they believe we're headed}
"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
