Phil Castle, The Business Times
Ross McDonald summarizes his outlook for investment markets and the economy with three terms: helicopters, cycles and Winston Churchill.
Efforts to keep interest rates low and borrowing money inexpensive continue in the United States and throughout the world. The latest business cycle in the U.S. has reached the middle to later stages, portending moderate, but not great, returns. While the presidential election draws attention, the outcome isn’t predictive of what will follow.
McDonald, a sales development manager for the American Funds investment management group, shared his outlook during a presentation in Grand Junction organized by the Oakley, Wanebo, Love, Mendenhall and Keller Wealth Management Group of Wells Fargo Advisors.
McDonald said former Federal Reserve Chairman Ben Bernanke earned the nickname “Helicopter Ben” for promoting an accommodative monetary policy to maintain liquidity and fight deflation — almost like dumping money out of a helicopter.
That policy continues in the United States and across the world, McDonald said. “We don’t see that helicopter coming in for a landing anytime soon.”
Although still historically low, the U.S. actually imposes some of the highest interest rates in the world compared to countries with negative rates where depositors pay to keep their money in banks, he said.
The efforts of central banks around the globe make the prospect for a serious economic downturn less likely, McDonald said.
Meanwhile, the latest business cycle in the United States has progressed to its middle to later stages, McDonald said. There are perhaps one or two years left in the cycle that began in 2009 with the slow recovery that’s followed the Great Recession, he said.
That typically means investors can expect “fairly decent” returns, he said, but not necessarily “wonderful” returns, he said.
In discussing the effects of a presidential election on investment markets and the economy, McDonald quoted British Prime Minister Winston Churchill. “It has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”
McDonald said a presidential election has been less predictive of what will follow in investment markets than whether the National Football Conference or American Football Conference team wins the Super Bowl.
“It’s so much more dynamic than that,” he said of the markets. “There is zero relationship.”
McDonald said he expects one of the next big issues to follow the election to be increased federal spending on such infrastructure as roads and bridges.
In answering questions following his presentation, McDonald said proposed higher minimum wages in Colorado and elsewhere could hurt small businesses and agricultural producers by raising costs. But those operations also could benefit in the long-run from increased sales. “It’s a short-term pain, usually, and a long-term gain.”
Wages generally have been increasing as unemployment has decreased, he said. And some large corporations, among them Wal-Mart and Starbucks, are voluntarily increasing pay.
Wages also have been increasing around the world, McDonald said. And for the first time in history, there are more people out of poverty than in it.
As for the effects of the exit of the United Kingdom from the European Union, McDonald said one result has been a drop in the value of the British pound compared to other currencies to its lowest level since 1985. That makes British goods less expensive and therefore more competitive in export markets.
McDonald said the “final bottom line” to his presentation was his advice for investors to continue communicating with their advisors and to focus on quality investments over the long term. “Quality works over time,” he said.