"Kee" Points with Jim Kee, Ph.D.

I am frequently asked by the business media to provide my quick thoughts regarding the current global investment landscape. Here are my current media talking points, which I am sure will sound familiar to Kee Points readers!

 

US Equity Markets

 

◦ The market is not obviously cheap or expensive at this point: Valuation levels have moved to the higher end of “normal range”.

Know what’s knowable: Expect a pullback (~-5%), correction (~10%), or bear market (~20%).

Know what’s not knowable: When or which of the above will occur.

◦ On balance I expect US equities to end higher; positive but below average gains for the year.

 

General sense of economy

 

Back to normal: 2002-07 era of all world’s economies doing well was anomaly in human history. Back to some doing well, others poorly.

Focus on the “The Big 4” (US, Europe, China, Japan). US and China doing ok, Europe and Japan struggling.

 

US could average 3% growth in final 3 quarters. Capital spending is improving, Energy is cheap, job growth supports demand.

 

China will probably hit 7%+ growth; that’s slower for sure and hard on commodity producing companies and countries.

 

Japan and Europe struggling for positive growth: Europe is at a decision point on the fiscal side: growthist or redistributionist policies?

 

Investment Strategy:

 

Think globally, but at the company level, not the country (asset allocation) level! Don’t agonize so much about having this or that percent in developed versus emerging, etc. And don’t rely on mastering all of the vagaries of (1) where in the world growth will increase or slow, (2) what the market has already priced in, (3) geopolitical events, and (4) policy responses. Own value stocks and growth stocks, and own stocks in all sectors. Fill that mandate by looking at all companies in the world, regardless of where they are domiciled.

UCLA’s Arnold Harberger, one of the pre-eminent international economists of the past century (he’s 90), is the foremost expert on global growth. In his speeches and addresses on the causes of economic growth and innovation, he is always quick to say that, “It all happens at the company level!” That’s the way investors should think as well.

 

An important price! The ideal dollar/euro relationship is between $1.25 and $1.35 per euro. The euro spent half of the year above $1.35 (bad) but has recently moved down to $1.26.

 

The global policy mix: The policy mix refers to monetary (central bank) and fiscal (tax, spending, regulation) policy. It is the fiscal side that the entire world is struggling with right now. Emphasis on the Fed’s exit strategy, while important, is totally unbalanced. Fiscal issues should be getting more attention at this point. Really, the impact of the Fed’s exit strategy depends upon the direction of fiscal policy with respect to clarity, simplicity, and permanence.

 

Spending: Consumer spending is normally a function of income and wealth. Wealth in the form of housing prices and equity values has rebounded strongly since 2009, but spending has tracked the more muted income growth numbers.