Charles Schwab’s annual conference in Washington D.C.

As part of our ongoing investment due diligence and research, we are attending Charles Schwab’s annual conference in Washington D.C.  Of the many great speakers we have heard from, we wanted to share the thoughts of two very prominent speakers.

 

Gregory Valliere, who is the Chief Political Strategist at the Potomac Research Group (www.potomacresearch.com) made the following observations which were mostly positive in nature.

• No major tax and budget deal  is expected to come out of Washington but after the events of this fall there is very little likelihood of a government shutdown or debt ceiling crisis to be occurring with the new federal budget deadlines approaching in December and January.
• Although there are long-term structural issues with our federal revenue and spending, over the next several years the annual federal budget deficit should continue to decline and we could even potentially be in a breakeven situation by 2017.
• With inflation at just over 1 percent, the Federal Reserve will continue to be very accommodative for the next 3 years.  With that said, they may start tapering their bond purchases as early as December or January.

Liz Ann Sonders is the Chief Investment Strategist at Charles Schwab and her statements were also cautiously optimistic.  The highlights of her discussion are listed below.

• Over the past 3 years, government spending has been declining and has been a drag on Gross Domestic Product (GDP) growth.  In 2014 government spending should see growth.
• The public sector needs to continue to deleverage but the private sector has deleveraged considerably over the past 5 years and is now at its historical average level.
• Inflation will continue to be very low as long as bank loan levels continue to be below their historical average and labor markets continue to be weak.  It will probably take 2-3 years for these two factors to change and for inflation to begin to increase.
• The manufacturing sector continues to be a bright spot in the US economy.  For the first time in over 40 years we have had 3 quarters of growth in this sector.
• Commodity prices will continue to be weak over the next 2-3 years with lower demand from emerging market economies.
• We are still in the middle part of the business recovery.

One common point that both Liz Ann and Greg made was that we are unfortunately in an environment where both on the political and economic front, the news media has become hyper-competitive and they are always inclined to position us as going into a crisis situation since that sells much better than reporting that the general environment is improving.