IMCA panelists bash ‘amazing stupidity’ in Washington

Washington politicians emerged as a popular punching bag during an investment strategy discussion Tuesday at IMCA’s annual conference.
Erik Ristuben, chief investment strategist at Russell Investments, felt compelled to “apologize to the rest of the world” for the “histrionics in Washington and the cartoon-like nature of our political process.”
Mr. Ristuben was joined on the panel discussion, held in Seattle, by Pimco market strategist Anthony Crescenzi, and Mark Yusko, president and chief investment officer at Morgan Creek Capital Management LLC.
The general theme of the conversation — which was guided by attendees at the Investment Management Consultants Association guided — was the health and direction of the U.S. economy and the financial markets. But politics was never far away.
“We have this amazing stupidity in Washington,” said Mr. Yusko. “The U.S. is the only country in the world that forces companies to keep their assets offshore and then taxes them when they bring them back.”
In underscoring Washington’s apparent obliviousness, he pointed to Congress’ exempting its members from insider trading rules that apply to everyone else in the country. “Is there anything at all coming out of Washington right now?” he said. “We need to clear the decks, because this is the worst polarization ever.”
The criticism did not spare the central bankers and the extended low-interest rate policy. “The central bankers are bullying people out of cash because they want risk-taking,” Mr. Yusko said. “They’re also bullying CEOs because they don’t want companies like Apple sitting there with a third of its market cap in cash. They want those CEOs to give the money back to people with dividends that they will spend.”
But, like it or not, the central bank policies in the United States are getting it done, according to Mr. Ristuben. He cited the strength of defensive-sector stocks are evidence that “these are very reluctant buyers of equities because it’s people saying they’ve got nowhere else to go so they will buy safe equities.”
“I have yet to hear anybody say anything over the last six months except that they are bracing for a pullback,” he added. “When everybody is expecting something like a pullback it rarely happens.”
The panelist’s general outlook for the pace of economic growth was for more of the same muted level of progress, with a lot of focus on the housing market. “It looks like a 2% economy,” said Mr. Crescenzi. “At Pimco we’re expecting acceleration in housing.”
Nobody on the panel was willing to acknowledge that the fixed income market was in any kind of bubble, despite popular opinions to the contrary. Mr. Crescenzi was particularly bullish on municipal bonds, which he described as well-suited for the “period of higher taxes that will last until at least 2016 election. “
“We have been recommending revenue bonds over general obligation bonds because you stay first in line in case of a (muni) bankruptcy,” he said. “We also like Build America Bonds where investors are getting 1.5% to 2% over Treasuries because they are paying your for the illiquidity.”
Ultimately, according to Mr. Ristuben, it comes down to convincing investors to get a solid grip on risk tolerance.
“You are going to have to take risks you’re not comfortable with,” he said. “You should think about how much risk you want to take, how much risk you have to take, and how much risk you can survive. It’s more of a grim conversation than a lot of our clients want to have, but it’s a conversation that has to be had.”