Making some sense out of the economic turbulence in our world, Chief Investment Officer Michelle Mathieu presented Seattle # 4’s annual economic update, the first woman to do so at our podium. Michelle is a principal with Seattle’s Fulcrum Capital which manages $1 billion in assets, is woman-owned, and is ranked as the #1 woman-owned investment firm in the country. It is the 7th ranked emerging wealth firm in the US. She began by focusing on where we are today, especially in dealing with risk. She sees Germany and Italy sliding into recession, the US with a $1 trillion deficit (which has never occurred before outside of a recession or war), and the 4th worst asset class return on record. She strongly cautioned members to be aware of their own comfort zone and how dangerous a place it is to be. With too much overconfidence, we can incur too much risk, but with too little risk, we are overreacting and can lose out.
She reminded us that if we choose to stay in cash to protect against market losses, inflation of just 2%, wipes out half of our purchasing power. If we choose to exit the market, we are likely to miss out on the market return. As an example, she said that in the last 7500 trading days, if you missed out on 10, you lost half of your invested wealth. And there is a real cost to market timing because if you pull out of the market and miss the market bounce back after a correction, you will lose out. After a market correction, she said, it takes an average of 3.8 months for the market to return to its prior peak.
Her message? Do not focus on the short term in order to thrive in the long term.
What are her predictions for the economy in 2019? She said that two-thirds of economists and 80% of CFOs predict a recession by the end of 2020. However, Fulcrum Capital sees a slowdown, but no recession coming. Why? Consumer spending is strong and represents 70% of the US economy. Unemployment is low, and net worth has grown by 54% since 2012. Debt service is less than 10% of income. On the other hand, she thought that policy mistakes could be made and corporate earnings could decline this year but predicted that interest rates would stay low as the 2020 election approaches, postponing a recession. A real threat is an external shock to our economy and global debt rates are rising. The cost of debt in the next five years will exceed the total expense of Medicaid and in a few more years, exceed the military expense.
But, she said, the US ability to repay debt is high, our economy is big and diversified. The risk is that we overreact and don’t take prudent risks.
Finally, she noted productivity growth history. In the 70s and 80s as women entered the workforce productivity was 3.2%; in the 90s with the internet, productivity growth was 3%. From 2008 to 2017, productivity growth was 1.5% and the sharing economy (Lyft, Airbnb, etc.) was a major factor. It remains to be seen if productivity growth will climb back to higher rates.
She quoted Janet Yellen who said that with slow productivity growth and an aging population that is increasing savings, it is still important to take risks and focus on the long term.
President Cindy closed with an anonymous quote, “Never allow waiting to become a habit. Live your dreams and take risks. Life is happening now.” She asked us to consider what could happen if we take challenges head-on and take risks. With that, we adjourned into the new year and the dreams, challenges, and risks we can embrace today.
