 |
| Adrian Mastracci, investment counsel at KCM Wealth Management, says “The wall of worry influences investors to make all kinds of changes to their portfolios. Changes that they may regret later. What would investing be like without a little worry?" |
For Immediate Release
Vancouver, BC (September 13, 2004): Investors love to worry a lot. Especially, about the US economy’s health. After all, the US represents the biggest slice of the global economy.
Adrian Mastracci, investment counsel at Vancouver’s “fee-only” KCM Wealth Management, comments, “The wall of worry influences investors to make all kinds of changes to their portfolios. Changes that they may regret later. What would investing be like without a little worry?”
We’re supposed to be in the recovery mode, but many would argue that it doesn’t always feel like one. Getting a handle on economic factors is like keeping track of a constantly changing mixed bag.
The cocktail of major economic forces affecting the markets is a pesky one. It includes the price of oil, the threat of terrorism, the US presidential election, fears of earnings slowdowns, the impact of China and government deficits.
The economy turns on confidence. Although, confidence is the missing ingredient for a sustained bounce to the upside. Perhaps, investor expectations are too high after last year.
It is difficult to get a true read of the pulse rate. Both the bulls and the bears seem to be exhausted.
However, every market takes a pause. Thus far, 2004 has delivered relatively flat results.
Uncertainty is still the talk of the day and is reflected in the markets. It’s easy to worry about something, even on good news. However, sentiment can turn quickly, sometimes very quickly.
Summarizing the big picture
Investors have no shortage of daily economic data to digest. Here is some that pertains to the US:
- The value of goods and services produced remain healthy and manufacturing activity is expanding.
- New orders for manufactured goods are in positive territory and inflation lingers under 2%.
- Job creation has been disappointing and the unemployment rate has been declining slowly.
- New housing starts continue at high levels and new home sales are helped by low mortgage rates.
- Consumer confidence has risen in the past year and retail sales have held up well.
Albeit, those consumers are taking on more debt that will one day cause some discomfort.
Interpreting the tea leaves
It’s still an economic muddle. The US is doing well under the circumstances, but a robust upturn does not seem in the cards. A slower pace is probably more realistic, with some “soft spots” along the way.
Labour is still not participating in the recovery process. The next six months of job creation and job layoff figures will shed more light on the economy’s health.
Oil prices over US$40 will dampen the recovery by dipping into every wallet. This is the big story of the day and its impact is likely to continue for some time.
The brave consumers, who have been propping up the economy, are probably overdue in feeling a credit pinch. The word is overextended.
Borrowers will face a challenge in adjusting to a rising interest rate scenario. I would expect mortgage arrears and personal bankruptcies to increase.
The economic uncertainties translate into continued market volatility. Investors continue to react to the flavour of the day, confusing as it may be.
However, more investors are taking flights to safety. More businesses prefer to accumulate cash for now instead of reinvesting in the business.
Crystal ball gazing
Clearly, investors have to look beyond what is happening today. One piece of good news is that US corporate insiders are buying more of their companies' stocks.
Here are some considerations for investors:
- Think portfolio and avoid making hasty decisions.
- Figure out if any of the current investments can inflict severe damage on the nestegg.
- Refresh the investment policies about asset mix, risk tolerance, time horizon and diversification.
- Concentrate on investment quality, tax implications and costs.
- Stick to a disciplined approach to help stay the course during the ups and downs.
These investment strategies have proven themselves over and over. They worked for our parents; they worked before September 11, 2001; and they still work in today’s environment.
Glamorous they are not, but smart investors know that they do deliver value.
|
