Our Chief Investment Officer, Eric Cramer, examines the past, present and future in this year’s Annual Market Report.
Thanks for listening today. Please join us for one of several upcoming BIP Wealth 2020 Annual Market Report presentations.
ANNUAL MARKET REPORT PRESENTATIONS
WEBINAR AND WEBINAR AUDIO
That’s the benefit of going through a crisis, we live and we learn, by looking back and understanding what happened. And then trying not to repeat our mistakes. Everyone who invested over the last few decades got to see just about everything. We’ve had boom times, a recession, and everything in between. We’ve had an employment crisis, losing close to a million jobs per month, and now an unemployment rate at historic lows. We’ve had rising interest rates, falling interest rates, a normal yield curve, and a flat yield curve.
And we survived, for the most part. We survived if didn’t put our portfolio into one bad stock, or if we didn’t sell out of our portfolio near the bottom of the market slide, and miss out on the recovery. So, you might think that the lessons of such a dynamic couple of decades would give us just about all the guidance we might need for the future.
No matter what the market is up against in the future, we should probably know how to handle it now. Because we’ve seen it all before. We may not have had a great road map in 2006 for how to get through the Great Recession, but we can now look at the worst credit crisis in an investing lifetime and see which policies worked, and which didn’t, right? Well there’s a problem, and it’s a big one. And that problem is that investors and economists still can’t agree on what actually happened.
And even if we can agree to some extent on what happened, we can’t agree on what governmental policies helped or hurt the recovery. And if time can’t grant us the piercing view we need to penetrate through the fog of an economic war, then we may waste our opportunity to prevent a recurrence in the future.
Make no mistake, we’re going to face at least some new challenges in the future. The biggest new challenge may not be a trade war; we’ve battled other countries over trade before. The biggest challenge might be the size of our national debt, which has risen to unprecedented level because of how we addressed the Great Recession, and how that debt is exacerbated by our aging work force that will soon be demanding benefits.
The list of traditional solutions to a fiscal crisis is a fairly short one. And they are all painful to some degree, and they might make the stock market more volatile. And so now we’re seeing new economic theory being put forth that essentially says this, “don’t do anything, keep spending, and don’t worry, it will all be fine!” We seem to be inventing a major new school of economic thought that lets us have our cake and eat it too. This is happening because we don’t understand our past.
The result of this new way of thinking could be catastrophic. Solving the fiscal crisis with the old fashioned tools is painful, since it requires less governmental spending and raising taxes. If we continue choosing not to go through that pain, then perhaps one day the economy and the markets will react with such a devastating downturn that generations of economic growth and wealth creation will be lost. In our upcoming Annual Market Report we’re going to explore the past, the future, the difficult choices we need to make, and how new economic theory may lull us into a complacency that could lead to the next recession, or even depression.
Thanks for listening today. This is Eric Cramer, Chief Investment Officer for BIP Wealth, saying goodbye for now. I look forward to seeing you at one of our upcoming Annual Market Report presentations, or on the webcast.
Disclosure: This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors. The Global Equity index is the MSCI ACWI IMI Index, which is a free float-adjusted market capitalization weighted global index selected as the best available proxy for a diversified stock portfolio consistent with modern portfolio theory. Approximately 55% of the index is comprised of the U.S. stock market and 45% is comprised of international stock markets, including both developed and emerging countries. The “Net Total Return” version of the index is reported here, which means the index reinvests dividends after the deduction of withholding taxes, using a tax rate applicable to non‐resident institutional investors who do not benefit from double taxation treaties. The Emerging Market index is the MSCI Emerging Markets Gross Index. The U.S. Fixed Income index is the Bloomberg Barclays Capital U.S. Aggregate Bond Index, which is a broad-based benchmark selected as the best available proxy for a high quality, diversified fixed income portfolio suitable for a U.S. investor. It is comprised of the Barclays Capital U.S. Government/Credit Bond Index, the Mortgage-Backed Securities Indices, and the Asset-Backed Securities Index. It is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, with maturities of at least one year, and an outstanding par value of at least $100 million. The “Total Return” version of the index is reported here, which means that dividends are included and reinvested.