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| Adrian Mastracci, president
of KCM Wealth Management, says “Opportunities
always present themselves. The question is
whether they are appropriate for the portfolio
in light of the goals being pursued."
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For Immediate Release
Vancouver, BC (August 5, 2003):
Adrian Mastracci, investment counsel &
financial advisor with Vancouver based KCM
Wealth Management comments on the slumping
job prospects and dealing with portfolio volatility.
Some healthier data is surfacing for the North
American economy. The 2.4% GDP growth in the second
quarter and the better corporate earnings are
two examples. On the other hand, precious jobs
are slipping away overseas daily.
Cost issues do matter for businesses. Companies
are still looking to reduce their expenses. At
the same time, they are having difficulty growing
the revenues.
One popular way is to outsource some jobs to
lower cost centres. Both China and India are the
benefactors of such job shifts. They have become
economic powerhouses in just 4 to 5 years.
We read headlines such as Verizon Communications
Inc., the large US regional telephone company,
expecting to make 4,000 to 5,000 more job reductions
in 2003 to cut costs. Further, 1 out of every
10 tech jobs is projected to shift overseas.
While this reduces costs, the troubling sign
is that jobs exported from North America are not
coming back anytime soon. It may well be a permanent
loss.
In the last 30 months, US businesses have slashed
over 2.5 million jobs. Nearly 486,000 jobs have
been lost since the start of 2003 alone.
Figures for July 2003 show that another 44,000
jobs were shed by US companies. Thankfully, the
numbers are slowing.
Last month, another 500,000 Americans stopped
looking for work. Approximately 9.1 million Americans
are now unemployed.
Uncertain economic climates foster continued
volatility for portfolios. In view of this, what
can be done for investment portfolios?
This approach assists:
- Revisit the asset mix and the amount of risk
being incurred.
- Examine the quality and suitability of the
current investment selections.
- Calculate the portfolio losses and consider
what to do about them.
- Review the tax friendliness and the costs
associated with the investments.
- Rebalance portfolios top heavy with bonds
or equities closer to normal investor profiles.
Opportunities always present themselves. The
question is whether they are appropriate for the
portfolio in light of the goals being pursued.
Back to the economy. Many have called it a jobless
recovery. I prefer to call it the “job loss”
recovery. It raises the question of how long the
consumer can hang in there if a job upturn is
not forthcoming.
Signs of encouragement in the economy are always
welcome. However, some North American businesses
are still going to experience some pain.
Oil prices are still above US$30 per barrel.
Natural gas prices are near their highs. Even
home heating oil has risen before the winter season
is upon us.
On one hand, North America desperately wants
jobs. On the other hand, consumers are reluctant
to pay the price for the homegrown products and
services.
Some important choices and decisions have to
make soon. Low prices can persist, but some much
needed jobs will migrate offshore.
Alternatively, some prices can be raised and
more jobs kept at home. Right now, some inflation
would be positive for the economy.
Either way, there is a cost to bear. This also
has ramifications on pension issues. Namely, the
unfunded liability estimates still making headlines.
One area that is still sluggish is business spending.
Before that improves, businesses will have to
be comfortable with demand and raising prices.
That pre-condition is vital for businesses to
hire more employees.
In short, North America needs some job growth.
However, the current economic climate is different
from our past experiences.
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