IMCA 2013 Advanced Wealth Management Conference

Government involvement in the economy creates market uncertainty

  • Published: October 08, 2013
  • Runtime: 3:26
Douglas Cote of ING Investment Management discusses how the numerous government's interactions with the economy, such as the debt ceiling and Affordable Care Act debates, are causing much market uncertainty.

Knowledge and insight into the future of wealth management live from the IMCA 2013 Advanced Wealth Management Conference, October 7-8 in Chicago, Illinois.

Biggest factors facing the economy is really looking at corporate earnings grow. Will US Corporations the S and P 500 continue to grow going in the third quarter earnings season. Additionally what's going on in Washington is a side show unless politicians capitulate and actually allow a default of the debt. That is not going to happen and that's almost a zero probability so always wanna focus on the fundamentals and that's primarily corporate earnings. Often, you look at evaluation between equity markets and bond markets. Right now, there's a concern with rising rates and I actually called that the getting-back-to-normal trade, that is equity prices are going up, commensurate with bond yields going up. That's a rising [unk] that's how grow story. That's actually a good news. In that trade, we think that's-- there's a big gap right now that's going to go back to normal; rising rates and rising equity prices, where the earnings yield converge to the treasury yield. That means investor should get out of defensive posture into a fully allocated posture, for instance, 60-40 investments, 60 percent equity, 40 percent bond. The disruption in Washington with this shut down, with the debt ceiling, with the affordable care act, the EPA regulation. I think the government is getting too involved in the economy. What I prefer is a much more free market approach. But let's look at the affordable care act. The intention is to lower healthcare cost. Already we've seen that healthcare costs are lowering by themselves. What this does is creating uncertainty for business. There's a concern that if you're 50-person small business that if you're 51, you have a penalty if you don't pay for the healthcare. So what it does is it creates a burden for businesses instead of focusing on their needing and doing business. They have to focus on all these regulations. That, and itself is very disruptive and will slow growth. So my concern is-- great. Let's take care of the individuals that need healthcare but let's not do in a way that destroys jobs. In the next three to five years, when investors should be looking at is a broad, global diversification. I advocate casting your net far and wide. Right now emerging markets seems like an incredible opportunity. Why? They've underperform for three consecutive years to the S and P 500. I call that a mean reversion opportunity or a bi-low opportunity and to add it to your portfolio or to add to it. What investors need to understand is that global growth is still strong is being driven by the Brit countries; Brazil, Russia, India, China in the emerging market countries that I call [unk], Peru, Indonesia, Vietnam, Oman and Turkey because US Corporations, more than the big corporations, more than half their revenue now is overseas. So the global story will continue even become more important in three to five years.

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