Every year elite global thinkers and leaders gather in the Swiss alpine resort of Davos at the World Economic Forum. This year from January 22-25, while attendees gazed upward at the towering Alps surrounding the town, they also were “looking up” in other ways.
Before the meeting, Financial Times writer Gideon Rachman noted that past worries—the 2008-09 global financial collapse, fear of a major depression, and strains in the eurozone—were being cast aside in favor of a more optimistic outlook. (1/21/14)
A post-Davos assessment by The Wall Street Journal “Europe File” columnist Simon Nixon reflected a similar aura of positive thinking. In a world of risk and reward, you cannot have one without the other. Annually at Davos the Zurich Insurance Group publishes a global risk assessment. Writer Nixon noted an array of very real risks in the developed and the emerging worlds. However, risk assessments cut two ways. “Obsessively focusing on what could go wrong can obscure what can go right,” Nixon notes.
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Ponder that last statement. How does that philosophical nugget play into your life? Does an excessive and stress-inducing focus on something that has gone wrong in your personal, business, or financial life, or something looming that potentially could go awry, blind you to what could go right going forward?
Some of the best things that happen in life come out of a period of strain, loss, defeat, or setback. The climb up and out of the Valley of Tears can lead a person, family, business, or nation to new heights. Such was the feeling after Davos. Simon Nixon acknowledged progress in the eurozone despite what may be seen as lackluster near-term prospects: “But on a 10-year view, the direction seems clear—and a reason to be upbeat.”
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Despite the January turmoil in global stock markets, largely based on fears regarding emerging market currencies and a potential softening in American corporate earnings reports, global growth has transitioned to the positive side. U.S. GDP growth should move past the 2% annual crawl of recent vintage. Consumer balance sheets have improved, housing markets are healing, and energy prices, despite a cold-weather spike, should remain in a reasonable range to support growth. More people will find jobs, even as unemployment and under-employment constrains overall wage growth, so growth, but no boom. As the Federal Reserve Bank continues to taper, interest rates will rise but not soar. Inflation is running below long-term trends and that is likely to remain so in the near future.
After watching the State of the Union speech as prelude to the 2014 elections, one must wonder what will gets done in Washington. Mr. Market might even applaud lack of action in certain respects. Gridlock may be preferred to market-rattling government shutdown dysfunction. Because it is an election year, don’t expect anything radical.
The outlook favors a globally-diversified equity portfolio for the liquid growth-oriented portion of your portfolio. Expect periodic corrections. In life’s trek from valley to peak, ups and downs and uncertainty are part of the process.
A December 2013 “Market Outlook” report from the strategists at Blackrock, the world’s largest investment manager, suggested overweighting equities, emerging markets, U.S. mega-cap stocks, and fixed income credit sectors. Underweight bonds, developed markets, U.S. small caps, and U.S. Treasury paper, they advised. They suggested downside protection through high quality dividend producing stocks and non-traditional investments that exhibit low correlations to stocks, such as certain types of alternative investments. It should be noted that diversification does not ensure profits or protect against loss. All investments should be made in accord with your personal risk-reward profile, liquidity needs, tax-posture, and a clear understanding between you and your advisor as to what you want your money to do. What is the money for?
Davos. A greater focus on what could go right versus what could go wrong. I like it.
Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. ▪ 3930 East Jones Bridge Road ▪ Suite 150 ▪ Peachtree Corners, GA 30092 ▪ 770-441-2603 ▪ lewisw@theinvestmentcoach.com