Good Times Coming
By Ray Bowyer
Good economic times are coming, according to an optimistic presentation by Kevin McGrath, a senior vice president of UBS Financial Services, Inc., to Squires and Stags at their March meeting. The speaker said, though, that the markets would be volatile this year.
McGrath joined UBS after retiring from the United States Marine Corps in 1994. He now leads a team that provides planning advice and portfolio consulting, with about 60 clients and $1 billion under management.
McGrath told the group that UBS publishes quarterly white papers presenting information of interest to investors and financial planners. Some recent findings he reported were the following:
- The number of investors optimistic about the economy grew from 39 percent before the election to 48 percent after the election.
- One third of Trump supporters plan to buy in the near future.
- Trump voters seem. energized; Clinton voters seemed resigned.
- The market abhors uncertainty, of which there was a lot prior to the election, and likes certainty, which investors believe they have since the election.
- Business owners (both large and small) report that they are planning to increase capital spending and hiring. They believe the Trump administration can address their biggest issues, particularly healthcare costs and the regulatory environment.
McGrath said many investors, frustrated by low interest rates, have invested in utilities and pharmaceuticals as an alternative to interest-bearing securities.
McGrath reported analysis by UBS of what might happen during the Trump administration in four areas: tax reform, regulatory relief, spending, and global engagement.
It appears highly likely that President Trump will follow through on his promises for tax reform. There will probably be a reduction in the corporate tax rate, as well as some kind of tax break on repatriated funds (funds currently being held in offshore accounts because of the tax consequence of bringing the funds back to the United States). They expect the changes to occur later this year or next year. UBS believes this is positive for U.S. equities.
It appears that there will be regulatory relief in the areas of energy, environment, and financial (Dodd-Frank). They expect modest benefit to the economy from these changes, concentrated in energy, healthcare, and financial services.
Spending and global engagement?
UBS thinks President Trump has a low probability of success in his desire for increased spending on infrastructure and defense.
UBS believes the changes in global engagement will hurt growth and will be inflationary.
McGrath pointed out that the long-term growth in the S&P 500 average is 9.9 percent per year, but it has been between 8 percent and 12 percent only five times in 88 years. It’s much more likely to be less (or negative) or more, so one should not expect growth to be at its average rate in any given year.
McGrath recommends that his clients think of their assets in three categories: liquidity, longevity, and legacy. The liquidity portion should be invested very conservatively, mostly in short-term industrial and government bonds. The longevity portion should be invested a little more aggressively, with a mixture of stocks and bonds. The legacy portion should be invested very heavily in stocks, but some bonds. Within each category, he is a fan of global diversification, including investing in developing economies.
Questions from the audience
An audience member asked McGrath about fees. He said clients should expect to pay between 1.5 and 2.5 percent annually for investment management, and $4,000 to $10,000 for a financial plan. The broad range for a financial plan is because some clients have very simple situations, but some have blended families, businesses, and other complications.
Another audience member asked about debt. McGrath said he believes the government debt to GDP ratio will gradually decrease.
Squires & Stags meets in the Grille Room at The Clubhouse at Lake Sconti on the first Friday of each month. Coffee is ready at 7:45 a.m. and a buffet breakfast is served at 8:00 a.m. Reservations are required.
The speaker at the April meeting will be Billy Thurmond, chair of the Dawson County Board of Commissioners.