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This Month’s Newsletter

A Look Back and a Look Ahead                                                                        Join our Monthly Newsletter              January 2019                                                                                              

Carl W. Hafele, CFA, CPA

Co-CIO, Principal

 

2018 – Ugh!

After a rather rosy 2017 that included very little volatility and strong equity markets, investors’ memories were gently awakened in 2018 of the risks associated here and abroad.  The 4th quarter was as brutal as it gets, and brought all risk-on asset classes to negative returns for 2018.  We are glad to usher in the new year with big smiles despite a rather rocky start!

Volatility, tariffs and Fed tightening were the most influential items in the markets in 2018.  The first three rules of investing – diversify, diversify and diversify – simply did not work, as virtually all asset classes experienced negative returns that were highly correlated.  This has happened only a few times over our lifetimes – in 1974 and 2008 – which means odds are extremely high it won’t happen again in 2019.

                                                                                   


2019 – So What’s In Store?

Two very influential items for the markets are interest rates and S&P 500 earnings.

                                                                                  

As you can see, Fed chairman Powell has ratcheted up short term rates materially in the “normalization” process, cautiously undoing the central bank moves associated with the Great Recession.  The Fed controls the short end of the yield curve, but investors’ inflation expectations strongly influence the long end.  Longer rates have changed but by far less, suggesting low rates may be with us longer than most believe!

S&P earnings growth rate of ~20% in 2018 was indeed remarkable with most of the advance being attributable to the tax law changes.  This brought valuation levels back in line relative to historic norms, as markets decreased and earnings increased.  Over longer term periods, valuation means everything while in shorter periods, it means little. 

                                                                                       

At Lanier, we believe interest rates will not increase much if at all, as slower global growth and effects of the tariffs will cause the Fed to hit the pause button.  We are also a tad skeptical of the S&P 500 achieving the 5-10% earnings growth rate most predict.  Volatility is back for a while!


Long Range Rates of Return

We believe that investing should include looking at projected returns from the asset classes, not historic rearview mirror returns.  Our 7-10 year projected annual rates of return are a conglomeration of our country’s largest financial institutions, endowment funds and consulting firms.

                                                                                  


As always, we have a strong conviction that investors utilize both the traditional asset classes of bonds and stocks as well as alternative assets including hedge funds and real assets. The result is a similar or better return while taking significantly lower levels of risk with a lower correlation to the market over a market cycle.


 

Carl W. Hafele, CFA, CPA, is Co-Chief Investment Officer and Principal at Lanier Asset Management. He is also an instructor in Finance and Economics for the MBA program at Bellarmine University.



December 2018: The Inverted Yield Curve - In Layman's Terms

November 2018: A False Sense of Security

October 2018: Reflections From Over Four Decades

September 2018: A Decade of Assisted Recovery

August 2018: The Entitlements Train Wreck - Possible Solutions?

July 2018: Is Wage Growth In This Country Improving Over Time?

June 2018: The Impact of Corporate Tax Reform

May 2018: Kentucky Derby Talks - Bulls vs. Bears

April 2018: How Much Longer Can Interest Rates Stay So Low?

March 2018: Policies For Economic Growth

February 2018: Volatility

January 2018: So What's In Store For 2018?

December 2017: Tax Cuts and Jobs Act: Good or Bad for Me? It Depends.

November 2017: Whack-A-Mole - D.C. Style

October 2017: Should You Consider a Robo-Advisor?

September 2017: Alternative Investments - What and Why?

August 2017: The QT Quandary

July 2017: Quality of Life Influencers (Cont'd)

June 2017: Quality of Life Influencers

May 2017: Repatriation Myths and Realities

April 2017: Time to Invest in International Equities?  Let's Take a Look...

March 2017: Valuation - A History Lesson

February 2017: The Prince of Darkness

January 2017: Mountains of Debt - Does it Matter Anymore?

December 2016: Trumponomics: Reagonomics' Twin?

November 2016: Found Money

October 2016: Marrying Theory and Practice

September 2016: Do You Have a Sharpe Portfolio?

August 2016: Be Careful of High Dividend Stock Strategies

July 2016: "Die Younger" is Not a Strategy

June 2016: Blame Tina

May 2016: Would You Rather:  Tax Cut or Tax Increase?

April 2016: Father Time Demands Your Attention

March 2016: What Has the Last Year Taught Us?

February 2016: Winners and Losers of the Oil Battle

January 2016: Diversification Improves Returns and Lowers Risk

December 2015: Synergy and the Art of Building High Performance Portfolios

November 2015: Take Control...or the Government Will For You

October 2015: A Note from Our Dean of Business

September 2015: Double Espresso at Midnight

August 2015: An Allocation to Hedge Funds - Essential!

July 2015: Another Greek Tragedy?

June 2015: What Does Financial Planning Mean To You?

May 2015: The Active vs. Passive Battle

April 2015: Out on an Island – Preparing for the Fed Rate Hikes

March 2015: To Fee or Not to Fee?

February 2015: European Central Bank Tries QE – Will it Work?

January 2015: 2014 Recap