Investment outlook: Time to take a step back

Craig Hall, The Business Times: 

“Given all of the volatility in the financial markets in recent months and quarters, I believe we need to step back and remember that the market is dynamic,” says Todd Owen, Regional Investment Manager, Colorado, for Wells Fargo. Todd notes that markets have historically been a resource to raise capital for new startup companies and that through these capital markets and liquidity events, the ideas and visions of entrepreneurs have received the liquidity to fund the new ideas and innovation.

Todd Owen

“The number of new U.S. patents hit a record in 2010, and that a good sign considering that the majority of new jobs come from the small business sector,” adds Owen. But many small business owners have been given pause on creating new jobs or expanding, given the uncertainty over healthcare costs and political partisanship in Washington, DC. Adding to this uncertainty are Euro zone debt concerns, national budget issues, unemployment and housing market concerns.

On the positive side, corporate earnings are strong, interest rates are low and U.S. consumers have begun to pay down debt and increase savings. With the dollar remaining somewhat weak and world events affecting both the U.S. and international markets, it is unlikely our economy will see much certainty in the housing and labor markets, or in the price of oil and gas, so the willingness of small business to expand will continue.

“We are optimistic the issues in Europe can be resolved, just as our domestic issues can be solved,” says Owen, “And once we are past what we feel is a lack of leadership globally by putting aside the political and cultural differences that are causing this lack of confidence, investor and entrepreneur confidence can be restores and we can once again create and grow jobs.”

The investment business has been consolidating since the financial crisis,” says Doug May of May Investments, “So larger firms are taking over smaller ones and doing it at a minimal cost.” This trend has changed consumer choices in the market as well, as some investment firms were converted into banks in order to get bailed out during the crisis. The consolidation and changeover to banking status has created a trend where independent registered reps are leaving positions at those entities and are now joining independent broker/dealers firms. There also are the new rules and regulations as a result of the Dodd-Frank Bill–something that is often meaningless to investors—independent advisors will be hampered in their ability to communicate with and help clients, along with the associated compliance costs. All added together, brokers and the industry will continue to see dramatic change.

Doug May

As May sees the current economic situation, one area of concern is in investors having little excess capital to invest and that business owners need to remain as liquid as possible with worries of banks calling loans or forcing borrowers to use their capital to pay down debt. As for the market, it has risen little over the past decade and that trend should continue with the economy’s current weakness. Bond prices are too high, leading many to believe that they will indeed head downward and taxpayers need to be aware that some Index Certificates of Deposit products are now FDIC-backed and may leave taxpayers once again holding the risk. “I am afraid we are encouraging savers to become investors without the appropriate training or temperament, which may have things ending badly for some,” says May.

One good thing to come from all of the regulation is that retirement fund providers will be required to show all plan expenses on the quarterly participant statements. These fees should help business owners better understand the real costs involved in operating their plans, which in many cases is up to three percent of the plan’s assets. In a down market, the fees can really hinder a plan’s growth, and at times, actually lower a plan’s principal. “Business owners will need to answer a lot more questions going forward with all of the new regulations,” adds May, “And while many would prefer not to, it will indeed be on the to-do list for the coming year.”

The Grand Valley is indeed different “The fact is, the whole center of the country tends to be,” says Jim Roland, a financial advisor with Edward Jones, “The Front Range tends to run behind what happens along the coasts, and we tend to run behind the Front Range here on the Western Slope.” What this means is that while many areas may start seeing signs of recovery, investors and businesses on the western slope still have a way to go.

Jim Roland

According to Roland, when the economy struggles, businesses adjust first as they tend to always be identifying problems ahead of time. As businesses adjust, this then affects the individuals who work for or invest in them through layoffs or decreased profits. The final step in the process arrives as these individuals look to government to assist with the situation. “The good news is that this is a cycle that has parallels throughout our history,” add Roland.

As Roland looks at business one aspect sticks out in particular. And that is that a well-run business is rarely noticed during economic good times, but when bad times occur, these business come to the forefront. And that is where the Grand Valley is just beginning begin to show some signs of life as the well run businesses in the area have now recognized the situation and made the changes necessary to survived the crisis.

“The fact is that businesses and investors alike understand that adjustments need to be made to survive a bad economy, and in the Grand Valley, we have more than our share of fairly recent events to understand the process and learn from our experience,” says Roland, “And because of that, many investors and small business owners are in better liquidity and debt positions than their larger counterparts or obviously, the government.”

Because many on the Western Slope survived the oil bust of the 80’s, the ability to recognize and see parallels in the current economic situation became apparent. And this recognition has allowed them to adjust what Roland refers to as their “personal economy” accordingly in keeping their everyday, contingent and legacy needs in the proper perspective. “The fact is, we live in a cyclical world so many ways, and the world of business and investment is no different,” says Roland, “This too shall pass and we’ll come out stronger as a result.”