CHARLOTTE, NC – Smart investors disassociate themselves from their emotions, according to Jerry Laurain, CFA, the Chief Investment Officer of FTB Advisors, a division of First Tennessee Bank. Laurain spoke to an audience of private and commercial clients on Oct. 23 in Charlotte. His lecture sought to connect the dots between the various factors that affect the global economy as 2018 approaches.
Global Economic Developments
Jerry Laurain, Chief Investment Officer of FTB Advisors, spoke in Charlotte on Monday, Oct. 23 about the latest developments in the global economy.
Jerry Laurain, CFA, is the Chief Investment Officer of FTB Advisors, a division of First Tennessee Bank.
Investors need to look beyond the United States to get the full economic picture. The European Central Bank has lowered interest rates to nearly zero, resulting in an economic tailwind for the European economy. Yet there are still several unknowns, including the impact of the “Brexit,” the attempted Catalonian secession from Spain, the continued downturn in Greece and the short supply of money faced by Italian banks.
In Asia, the Bank of Japan has been lowering interest rates as well. China is in a growth recession, but this simply means the country is experiencing only 4-5% growth rather than the double-digit growth earlier in the new century.
Elsewhere, Brazil is beginning to enter a growth mode again. Laurain also cautioned that when crude oil prices are low, the Russian economy suffers.
Overall, the global economy is experiencing “synchronized global growth,” which should mean a positive outcome for U.S. investors.
Fiscal Policy and Monetary Policy
Other factors investors should consider, according to Laurain, include fiscal policy, including taxing and spending, and monetary policy, which is governed by the Federal Reserve System. Some U.S. voters were hoping to see both significant tax cuts and increases in infrastructure spending from the Trump administration. The proposed tax cuts put forth by the Trump administration on Oct. 20 could mean over $1 trillion in tax cuts over the next 10 years. The administration has not addressed where the money would come from for any potential infrastructure spending increases.
Laurain is encouraged by the global trend of economic headwinds turning into tailwinds. The weaker U.S. dollar should have a positive effect on multinational corporation earnings, and other economic measures like the Purchasing Managers Index and the Consumer Price Index both look optimistic as well. In addition, the volatility index and economic stress are both low.
Outlook for the Future
According to Laurain, the future looks bright, with many opportunities for innovation and abundance. Gene therapy has the potential to cure diseases like cancer and heart disease, prolonging life spans. Advances in 3D printing may make manufacturing cheaper and more efficient. Additionally, bitcoin and blockchain technology may play an increased role in the economy.
Yet the future is not all a rosy picture of optimism. In the future, humans may find ourselves competing with robots for jobs.
There are other risks that investors should consider in the shorter term. Potential geopolitical conflicts with countries like North Korea, Syria and Venezuela will continue to be a source of economic tension. Debt and policy will also continue to influence the global economy. In addition, natural disasters can damage the economy along with human lives and property.
Despite the risks, Laurain points out that there are many positive signs that the economy will continue to improve. The S&P 500 Index is at an all-time high, and commodity prices are going up. The price of gold is also on the rise.
Smart Investment Tips
Laurain encouraged investors to follow the tenet put forth by economist Gene Fama, Jr., who said “Money is like soap – the more you handle it, the less you’ll have.”
Bearing this advice in mind, Laurain recommends that investors not take their emotions into account when deciding what to do with their money. Instead, smart investors should look at economic growth, market trends, monetary conditions, valuations, and investor psychology. When looking at market trends, investors need to look beyond day-to-day or week-to-week patterns. Laurain also cautioned that investor psychology should be taken with a grain of salt, and he shared a quote from Warren Buffett, who advised investors to “Be greedy when other people are fearful and fearful when other people are greedy.”
Ultimately, Laurain says, investors should compare all potential investment opportunities to the return on investment provided by a risk-free government bond. This idea is known as the equity risk premium.
