QUARTERLY INVESTMENT INSIGHT FROM HIGHTOWER LAS VEGAS

Transcription

1 AN Unobstructed FALL 2016 View QUARTERLY INVESTMENT INSIGHT FROM HIGHTOWER LAS VEGAS Here Come the Holidays The holiday shopping season is quickly approaching. In fact, most of America is already engaged in the process. According the National Retail Federation s (NRF) 2016 holiday report, 82% of people begin the shopping process before December. Are you in this camp, or are you part of the 3% of the population that waits until the last two weeks of December? This year s holiday sales, excluding autos, gas, and restaurants, are expected to increase 3.6% to nearly $670 billion. The average person plans to spend approximately $936 this season, which includes a little self-indulgence. According to the NRF, six out of ten people plan to spend on themselves this season, with an average budget of $140. Gifts for family members have an average budget of about $460, while the budget for co-workers is around $25. The most desired item this year is a gift card. Just over 60% of people prefer to receive a gift card or gift certificate. Clothing and accessories is the next most popular category on the list, with 54% in favor of receiving these items. Books, DVDs, and video games round out the top three with about 40% support. If you re planning on buying your significant other a vacuum cleaner this year, don t, as home appliances rank near the bottom of the list. Most sales traffic will occur at department stores and online. Over 56% of shoppers plan to use the internet in their holiday shopping adventure, which is an all-time record. Price is critically important in the shopping decision, as 73% of shoppers choose a retailer based on the sales or discounts being offered. Quality and selection remain focal points for retailer selection, as does free shipping, which at 48% is the highest this factor has ever been. Seasonal employment is expected to be roughly in-line with last year s figure of 675,000 jobs. Seasonal employment has rebounded strongly from the lows of 2008, when just 263,000 workers were added. However, we are still well below the peak in 2013 of 765,000 seasonal workers. The past few years have been disappointing from a holiday sales perspective, with actual results coming in below forecasts. However, missing growth estimates does not mean holiday sales didn t grow. In fact, holiday sales have only declined year-over-year once in the past decade, which occurred at the depths of the financial crisis. LAS VEGAS

2 The center of the earth is shifting east. China s rise in both economic growth and military prowess has been remarkable. But the rise of Asia is not simply a Chinese story. By 2030, the Asian middle class is expected to be in excess of 3 billion people. With such dramatic purchasing power on the rise in Asia, it s no wonder that the United States wants to secure its place among the economic powers of the Pacific. Enter the Trans Pacific Partnership, or TPP. The TPP is a 12-country trade deal between the United States, Japan, Canada, Mexico, Australia, Singapore, Malaysia, Chile, Peru, Vietnam, New Zealand, and Brunei. Together, the TPP represents approximately 40% of world GDP. The TPP aims to slash tariffs and increase economic ties between the member nations. An estimated 18,000 taxes and trade barriers would be eliminated or substantially reduced through the trade deal. Needless to say, the TPP is material and could have profound effects on the economy. As a result, everyone should have a basic understanding of the trade agreement. There has been strong support and opposition to the TPP since the details emerged earlier this year. We do not intend on taking a firm position in this piece, but rather will provide a balanced view of the pros and cons that we have read and heard through various research reports, articles, the media, and social interactions. The Pro Stance The TPP will solidify the U.S. as a leader in the Pacific and increase American exports. The TPP should provide support to the middle class, as many new quality jobs will be created to satisfy the rising demand for our exports. Export-related jobs pay, on average, 18% more than non-export related jobs. In addition, the TPP will improve human rights throughout Asia, enable enforcement of environmental and labor laws, and help better protect intellectual property. The Con Stance The TPP has been a closed-door negotiating process that has lacked transparency and input from some of the economic players most heavily impacted by the trade agreement. While the TPP will promote additional trade, Asia will benefit asymmetrically. Increased competition from the TPP will severely damage some industries and result in greater risk to our economy. Additionally, the TPP privileges major banks at the expense of local banks. The TPP is still a long way from being implemented. President-elect Trump has made it clear he believes prior trade deals have not benefited the U.S and may kill the TPP. In addition, the other member nations must individually ratify the agreement. Needless to say, there will be plenty of additional debate on the agreement. As the process unfolds, we expect the TPP to garner more and more media attention and become yet another acronym in the daily lexicon of informed Americans.

3 The Traffic Light H ow do we manage the funds entrusted to us by our clients? We utilize a topdown approach that starts with our view of where the world is headed. Each quarter, we complete an exhaustive study of many different economic indicators and trends. The Traffic Light is a quarterly summary of these macro-economic issues, and our opinion of them, that form the basis of our research and portfolio management process. While not everything in life can be easily categorized, in this piece we attempt to look for the hopeful (green light) signs in the world economy as well as the more worrisome (red light) issues and everything in between (yellow light). GREEN Employment Growth Healthy Housing Market Stimulative Federal Budget Stable Energy Prices YELLOW RED Rising Inflation China s Economic Conundrum Dollar Strength Weak Corporate Profits Slowing Capital Expenditures Declining CEO Confidence European Uncertainty Global Geopolitical Risks HighTower Las Vegas is registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC. no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. This is not an offer to buy or sell securities. No investment process is free of risk, and there is All data and information reference herein are from sources believed to be reliable.

4 After several years of more positive signs than negative, the current state of affairs appears to be more balanced. We still have powerful tailwinds helping push the economy and markets forward. However, a few important factors have turned negative, such as CEO confidence. In addition, uncertainty remains elevated across the globe due to elections, geopolitics, and central bank messaging. As a result, the probability of recession is on the rise. Our friends at Cornerstone Macro and GaveKal, two highly respected economic research firms, estimate the probability of a recession at 40% and 50%, respectively. While we are not predicting a recession at this time, we believe the time has come to take some risk off the table. We have made several changes in the past few months to help mitigate market volatility, such as raising cash and buying assets that have low correlation to the equity markets. We have also purchased a short exchange traded fund, which generally moves in the opposite direction of the stock market, to help reduce risk. While you should never be completely out of the market, we believe the changes we ve made are prudent risk management steps. Here at home, we believe there are still opportunities in high quality companies with sound business models. The tech sector is made up of many financially strong organizations that have the strength to weather any economic storm. We also believe the financial sector will benefit from rising interest rates and have moved to an overweight position. We continue to believe that utilities are expensive and that investors should be extremely careful when putting money to work in this sector. What are they talking about? PCE As we look ahead to 2017, we believe inflation will be one of the hot topics. The Fed appears to be headed in the direction of increasing interest rates and inflation will have a lot to do with the pace of tightening. There are many measures of inflation, but the Fed s favorite is the personal consumption expenditures (PCE) index. As consumption is the primary driver of economic activity, the PCE index provides an important reading on the price activity of the goods and services that have the most impact on our economy. The Fed has been quite aggressive in its attempt to push core inflation above its 2% target, but has struggled to achieve its objective. While inflation may seem like a negative, economic theory suggests that if inflation is too low consumers will have no incentive to make purchases in a timely manner, which slows economic activity. Worse yet, if inflation is negative, there is actually a disincentive to spend, as prices will be cheaper in the future. This is every central banker s worst nightmare and the threat of deflation is the reason we have seen such aggressive monetary policy across the globe.

5 In the Media Adam On the MoneyLife Show Featured by Blue Ocean Global Wealth Check out our other publications for insight into our thoughts and process: ruminations: hightower-advisors/las-vegas/blog/ Thinking & Thriving: hightower-advisors/las-vegas/thinking-and-thriving/ The Stat Pack: What s New? The fall was a busy time for learning and thinking at HighTower Las Vegas. Mike, Ned, and Hugh attended the Schwab Impact Conference in San Diego. The conference featured an array of respected industry leaders who shared their thoughts on finance, economics, geopolitics, and risk management. Rayna took a trip across the country to attend HighTower s Fall Global Investment Solutions meeting, where she engaged with our research partners in discussions about the global macroeconomic environment and the risks and opportunities in Adam went on his annual Think Weekend to Zion. Modeled after Bill Gates Think Week, Adam isolates himself to a room and spends time reading and thinking about the current market environment and developing objectives for the year ahead.