Quarterly Comments: November 2017

December 14, 2017

Well, here we are at a little past the middle of the quarter - and we are still waiting. Markets are stable and inching higher on the remaining expectation that we will get some sort of tax cuts, at least for corporations if not for the rest of us. Most pundits who appear on Bloomberg and similar news outlets seem to agree that there is no compelling economic reason for these cuts. We are at full employment, the economy is growing between 2.5% and 3%, and interest rates appear to be settled in to “lower for longer.” The driving reason we are rushing into tax revision is political. So what else is new?

 

            The looming debt ceiling authorization is upon us – that’s not new but it is pressing and could cause disruption of financial markets. The deadline is early December and that is next week. High level political discussions broke off earlier this morning and if I may be permitted an assumption – this “can” will be kicked down whatever road is available to extend the deadline and authorize a temporary raise of the debt ceiling.

 

            We all know that markets do not rise forever without some disruption along the way. To that end we have been accumulating strategic cash in all of our portfolios, along with other asset allocation moves toward the objective of “de-risking” those portfolios. While I have no idea of the catalyst for the next correction, nor when the inevitable correction will occur, we have tried to strike a balance between being invested during a very nice year and being prepared for a pullback when it comes.

 

            As always we strive to stay diversified and this year we have observed that including a greater allocation to European and Asian positons has benefited our portfolios. While we remain slightly overweight in US Domestic positions, our International allocations have increased. Within these broad allocation categories we also have increased our investment in ESG (Environmental, Social and Governance) style of management. We believe a portion of the portfolio devoted to a sustainable management model offers not only diversification, but also addresses the Values issues so important to many of our clients.

 

 

            I know that almost everyone who reads these Comments is wondering, “What’s in the new tax proposals for me?” Without greater clarity on what, if any, of the compromises required to bring the House version and the Senate version together it is almost impossible to say. As I said above, with the economy in pretty good shape the need for tax reduction (because it does not appear we will get true tax reform) is a political one, and partisan politics rarely makes room for compromise that is in everyone’s better interest. In its present forms and in broad brush we might be able to say that the very lowest income population will pay less in tax, and the very highest income population will get a large tax cut. If repeal of the estate tax makes it through the reconciliation process the ultra-wealthy will reap an even larger tax cut. The middle class – and that’s most of us – will see some change around the edges and possibly a tax increase due to the proposed elimination of State and Local Tax deductions and the mortgage interest deduction. At this point in the process, however, speculation is all we can report on. And the longer the process takes, with time for more scrutiny and more scoring of the ultimate cost and debt increase, the more dissatisfaction may emerge. At that point it will take very strong political pressure to have a signed bill by year end. I do believe, however, that something (even significantly pared down) will be signed in order to have the political win. Scoring the winners and the losers will have to wait a bit longer.

 

            As we wind up this year I must say that whatever the reason, whatever the catalyst, the strong market growth is most welcome.  We expect sustainable economic growth to continue into 2018 with perhaps the same 2.5% to 3% GDP growth. This does not assure a similar portfolio performance in 2018 but any correction that we might get in 2018 will likely not be in anticipation of an economic slowdown. For that reason we may look at a correction in 2018 as an opportunity to find an opportunity or two to exploit.

 

            To get a more detailed picture of our outlook for 2018 please join our Listen at Lunch conference call on January 5th. Lindsay will send out an email reminder and you can always see all of our upcoming events posted on our “new and upgraded” website, www.ericksonadvisors.net. Take a look and sign up for an event that interests you.

 

            Please allow me to wish all of you a very happy holiday season from all of us here at Erickson Advisors. If you are traveling please be safe, and, as always, call us with any questions or concerns.

 

           

Linda P. Erickson, CFP®

President

 

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The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

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