Investment Strategy Committee Calls

 


8/11/2017

Summary

  • GDP growth remains on track in the 2%-2.5% range on an annualized basis with earnings in the 11%- 12% range for the second quarter.

  • Even without a significant increase in inflation, we could see a significant spike-up in interest rates if legislation is passed on the tax or spending side that leads to fears of larger deficits.

  • The recent trend of 2.5% annualized increases in wages is likely to continue, rather than shift up towards the longer term historical trend of 3.5% growth given the inability of companies to increase prices and how late we are in the current economic cycle.

  • U.S. export orders have become quite strong, benefitting from both increased economic growth abroad as well as increased trade competitiveness due to the slightly weaker dollar.

  • Growth in housing construction is likely to be in the 7%-8% range over the intermediate term as any increase in mortgage rates will likely be offset by the tailwinds of stronger household formation by millennials and a strong labor market.

  • MIM is currently 40%-42% international in terms of total equities and 23% emerging markets – roughly six percentage points overweight versus our target allocation.

  • Concerns of a possible pullback in global valuations impacting the more beta sensitive international and emerging have led MIM to avoid making an even larger overweighting to the space; however, MIM would use any pullback in the markets as an opportunity to increase its allocation there.

  • Domestically, MIM continues to maintain overweights to housing and banks. The tailwinds for housing remain intact (as described above) and the banks should benefit from higher long-term interest rates as the Fed begins its program to stop re-funding Treasuries and MBA’s that mature.

  • Based on current pricing, REITs seem to be anticipating rising rates and a softer economy. Some of the larger REITs are now at 15%-30% discounts to NAV with cap rates that are not particularly low, so it is probably worth looking at them if interest rates are likely to remain in the 3%-4% range.

  • The worst hit real estate investments in New York are the ones that were financed based on retail rents. The retail vacancy on 5th Avenue between Bryant Park and Central Park is now almost 30%. Retail rents doubled over the past 2-3 years, but now the whole retail market is finding itself under pressure and rents have slowed.

  • The automaker stocks have been badly hit recently due to concerns related to an inventory overhang in the used car market, as well as rapid technological advancement in areas such as electric and self- driving vehicles. While newcomers like Tesla are disrupting the market, the large manufacturers seem perfectly able to compete on a number of these new technological fronts.


8/11/2017

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Summary

  • GDP growth remains on track in the 2%-2.5% range on an annualized basis with earnings in the 11%- 12% range for the second quarter.

  • Even without a significant increase in inflation, we could see a significant spike-up in interest rates if legislation is passed on the tax or spending side that leads to fears of larger deficits.

  • The recent trend of 2.5% annualized increases in wages is likely to continue, rather than shift up towards the longer term historical trend of 3.5% growth given the inability of companies to increase prices and how late we are in the current economic cycle.

  • U.S. export orders have become quite strong, benefitting from both increased economic growth abroad as well as increased trade competitiveness due to the slightly weaker dollar.

  • Growth in housing construction is likely to be in the 7%-8% range over the intermediate term as any increase in mortgage rates will likely be offset by the tailwinds of stronger household formation by millennials and a strong labor market.

  • MIM is currently 40%-42% international in terms of total equities and 23% emerging markets – roughly six percentage points overweight versus our target allocation.

  • Concerns of a possible pullback in global valuations impacting the more beta sensitive international and emerging have led MIM to avoid making an even larger overweighting to the space; however, MIM would use any pullback in the markets as an opportunity to increase its allocation there.

  • Domestically, MIM continues to maintain overweights to housing and banks. The tailwinds for housing remain intact (as described above) and the banks should benefit from higher long-term interest rates as the Fed begins its program to stop re-funding Treasuries and MBA’s that mature.

  • Based on current pricing, REITs seem to be anticipating rising rates and a softer economy. Some of the larger REITs are now at 15%-30% discounts to NAV with cap rates that are not particularly low, so it is probably worth looking at them if interest rates are likely to remain in the 3%-4% range.

  • The worst hit real estate investments in New York are the ones that were financed based on retail rents. The retail vacancy on 5th Avenue between Bryant Park and Central Park is now almost 30%. Retail rents doubled over the past 2-3 years, but now the whole retail market is finding itself under pressure and rents have slowed.

  • The automaker stocks have been badly hit recently due to concerns related to an inventory overhang in the used car market, as well as rapid technological advancement in areas such as electric and self- driving vehicles. While newcomers like Tesla are disrupting the market, the large manufacturers seem perfectly able to compete on a number of these new technological fronts.