Today I participated in an investment committee meeting with nine other investment advisors from around the greater KC metro area. We meet every six weeks, and in these meetings each advisor provides different information. But today the basic consensus was – it’s been a nice stock market rally and we are seeing some signs of economic recovery. However, it is by no means time to uncork the champagne. We have uncertainty as to what legislation may or may not be enacted and its impact on the economy. Secondly, inflation may not show its ugly head currently, but it will at some point and as a result interest rates will be going up. In addition, emerging economies and their respective stock markets, even though quite volatile, offer more potential for investors than the U.S. and other large developed countries.
On a much more extreme and pessimistic note, Societe Generale (a large French bank), released a report to its clients to be ready for a possible “global economic collapse” over the next two years. Without going into much detail, their solution to such a problem is either gold, natural resources or commodities or a combination of all three. However, I don’t know any advisor that would recommend this extreme approach and neither do I.
Ironically, linked to this article is another titled “12 Places To Go If The World Goes To Hell.” In this article, Kansas City is listed as one of the safe havens and the following is an excerpt from the article / slide show. Before you delve into it, how do you like the modern picture they selected for KC? It is obvious to me that neither of the authors of this article is familiar with nor located anywhere near KC.
Kansas City
“No matter what happens to the USA, Kansas City will probably be okay. It’s not at either one of the coasts, so you don’t have to worry much about security or a foreign invasion or rising sea levels. It is surrounded by plenty of farmland (suitable for raising grain and livestock), and it’s also at the intersection of several rail lines, so that if we experience an oil spike of unimaginable proportions, you’ll still have access to transportation — in fact, the city should thrive as a hub of activity.”
Bottom line, do I believe in hell – yes I do (biblically speaking). Also, I believe people can endure hell on earth via health, mental, emotional or financial devastation. However, I don’t believe the U.S. nor the majority of the globe is about to spiral into an economic collapse / hell in the next two years. Are we facing huge challenges? Yes, however, innovation and human spirit is a wonderful combination. Add in common sense and fiscal responsibility from our government and citizens, and there is no economic obstacle that we can’t overcome.
Paying for other’s mistakes
Some members of Congress are proposing a tax of financial transactions (i.e., the purchase or sale of stocks, bonds, etc.). The initial / proposed rate is ¼%, which the proceeds would be used to repay the federal government for all the bailouts. Unfortunately, this tax would affect all investors. For examples it would negatively impact mutual fund, brokerage, college savings accounts, 401-Ks, IRAs, pension plans etc. The vast, vast majority of these plans are professionally managed. Thus, anytime the managers of these plans buy or sell a security for the benefit of the investors, they would be hit with this tax.
The tax would be passed on to individual investors through higher fees or lower returns on investment. In addition, it would make the U.S. financial markets less attractive and less competitive in comparison with those countries that do not impose this tax. Many transactions would simply move overseas, which can’t be good for the U.S. stock exchanges.
How is Kansas City’s Commercial Real Estate Market?
Brutal is the word that comes to mine. The following information was provided by the Kansas Business Journal. Industrial building vacancies are a little over 8% currently, but office building vacancies are over 19%. In addition, new construction has basically ground to a halt.
Some property owners are in over their heads and will go into foreclosure, which is a further hit to banks and lending institutions. In addition, there won’t be much if any new construction until existing buildings are fully leased. Why would I build a new building with so much empty space on the market? Especially since current building owners will lower rents to attract or keep tenants. It’s much more expensive to build than to buy right now. All of these factors will keep rents down and restrain new construction, which ties into the next section on inflation.
Inflation someday, but not now
Unemployment is 10% + and overall consumers are cash strapped. This will result in cut backs in purchases from luxury to everyday items, which in turn hurts demand and prices for everything. The U.S. government is printing money at a record pace, and at some point this can result in an inflationary environment. However, there is no real push for prices and thus inflation to heat up in the near term. Thus, any increase in gold, precious metal, natural resource, and commodity prices will not be from the actual affects of inflation, but possibly from the fear of it long-term. Inflation is something to be concerned about and will occur, but not for a while. As such, the previously mentioned inflation-hedging investments have had a nice run up this year. However, they could be poised to take a break. It doesn’t make sense for them to continue on this upward trend unless inflation is actually impacting us.
Quotes
“A positive thinker does not refuse to recognize the negative, he refuses to dwell on it. Positive thinking is a form of thought which habitually looks for the best results from the worst conditions.”
Norman Vincent Peale, author, professional speaker, minister
“Anyone can be happy when times are good; the richer experience is to be happy when times are not.”
Susan Harris, writer
Tony Moeller
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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