Buckle up. This summer we have started to hit economic data eddies—about stalling manufacturing and job creation, the  housing slough, expiration of QE2 (the Federal Reserve’s money-pumping bond-buying program) and the uncertainty of what will come as the economy goes ‘off oxygen.’  And by the way, it is getting harder for companies to meet their profit targets, anyway.  You have, I am sure, already heard much about the threat of a double-dip recession, not to mention the consequences of instability in the Middle East, slowdowns in Asia and financial stresses in Europe. We’ll hear even more dire data as the 2012 Presidential race heats up.

All of this will create white water to paddle through. But a so-called double-dip recession, just to take one example, is not inevitable, though neither is the forecast foolhardy. The point to remember is that your money is not invested for a September landing, or even for a 2012 one. You’re travelling further downstream; so stay composed.

Hearing from the pros about what may be ahead contributes to composure. Indeed, hearing directly from the money managers who make decisions about your investments is, I believe, a critical component of a financial advisor’s work. We do this regularly at Allegheny.

In recent weeks, at Allegheny’s annual advisor conference and at a conference of Morningstar, the pre-eminent organization that rates and monitors mutual funds and other investment vehicles, I heard from highly regarded pros managing funds in many of our clients’ portfolios. They included Bill Gross of Pimco Funds, Bruce Berkowitz of Fairholme Funds,  Chuck de Lardemelle of  IVA Funds, David Nadel of Royce Funds, Cliff Remily of Thornburg Funds, Jim Cullen of Pioneer Cullen Value Fund, Charles Rinaldi of Wells Fargo Advisor Funds, and Larry Auriana  of Federated Kaufman Funds.

Here’s a composite summary of what they see for the near future.


There was cautious consensus that the U.S. stock market should continue to move upward, with an occasional pullback due to continued housing struggles, the slowdown in manufacturing, and other negative data that comes out. Stocks that pay steady dividends will outperform those that don’t. In bumpy conditions, steady dividends usually come from companies with strong balance sheets and the ability to ride over the rough patches.

Interest rates

Because the Federal Reserve does not want to rattle a fragile recovery, interest rates will remain unusually low for the foreseeable future, with increases not likely until next year at the earliest. With interest rates so low, yields on U.S. government bonds remain meager. In fact real rates (inflation adjusted) are currently negative. The impact of this is that you are losing purchasing power ever year on any monies in cash and Treasuries. There is opportunity to hold solid bonds, especially investment grade corporate and foreign bonds, but you need to know where to find them and that is not easy.

Foreign developed economies

These will mostly continue to grow, but at slower rates. The EU will continue to struggle with the debt problems related to Greece, Portugal, Spain, Italy. Japan, of course, will battle the after-effects of the terrible earthquake and tsunami, catastrophes that absorb energy that would have benefited the private economy.

Emerging-market economies

Their growth will slow some, but continue at faster rates than the rates of the U.S. and other developed countries. The long term growth proceeds from a rising middle class and the demands for natural resources, technology, and raw materials to improve standard of living.

Municipal bonds

There should be no significant municipal bond defaults by state or local governments in the U.S. in the near term.

High-yield bonds

Their best performance of the business cycle is probably behind them.


These, including oil, gold and other hard assets, will likely continue to rise in value over the long term, albeit with short-term pullbacks, partly because of rising demand in emerging markets.

These opinions are worth hearing, given their source. In relation to your portfolios, let me repeat a few points about maintaining investment composure that I made as we entered the 2008 recession.

Economic “cycles”

proceed in phases—growth, peak, decline, trough, growth, and so on. The current recovery has been as lackluster as any in decades and many would suggest the U.S. economy has not even started to recover. But in technical terms (GDP growth), it has.

Stock markets,

and investment values, rise and fall. Since 2008 we have experienced a rebound rally, a correction, and now are in a ‘trading range’ so to speak. During these periods opportunity for long-term gain is found . . . or lost . . . depending on one’s composure.

But the historical trend

of both economic cycles and capital markets is upwards (still!) and opportunity can be had somewhere at any given time.

To manage the ups and downs,

investments should be broadly diversified by asset class and aligned with personal timeframes and risk tolerance. This point is critical; to succeed, focus on your objectives and resources more than the broad market environment. Know yourself first. That’s why planning, both up-front and on-going, is job number one.

For the best long-term results,

choose—and listen to—money managers who have records of performance through several market cycles. These are the managers who know that poor economic conditions are conducive to finding stocks at good prices.

So stick with your plan. But remember to review your plan periodically. Changes in your situation, in your portfolio, or in the economic environment may require adjustments.

Author: David Jeter, CFP®, Allegheny Financial Group, June 2011

Securities offered through Allegheny Investments, LTD, a registered broker/dealer. Member FINRA/SIPC. The above comments are provided for discussion purposes only and are not meant to be an offer of any specific investment.