News

Expensive Lessons Threaten Teacher Retirements

© Can Stock Photo / nameinfame

An amazing tale of mistakes and worse in the Omaha Public School (OPS) pension fund has been uncovered by the Omaha World-Herald. According to the paper, the fund went from being one of the best-performing funds in the nation to one of the worst.

The most surprising thing? The same issues you and we face in managing our own investments caused a lot of the grief.

• The fund sold stocks heavily at the bottom of the financial crisis, in 2008 and 2009, dramatically reducing its holdings at the wrong time.

• Decision makers sought ways to achieve above average returns without market volatility—almost always a tale too good to be true.

• The risks of alternative investments were poorly understood, not surprisingly. Mumbai real estate, international shipping, Kazakhstan oil companies and distressed housing in Florida? (At least they didn’t buy swampland, as far as we know.)

• When stocks rebounded, the fund missed out—while suffering with poor results from its new strategies.

We endlessly encourage staying the course, hanging in there, living with volatility, avoiding the stampedes, seeking the bargains… in fact, aiming to do the exact opposite of what the OPS fund managers did. It is not easy to do the right thing, but you, the best clients in the world, have shown perseverance and patience when needed.

It is unfortunate that the people responsible for management of the fund lacked the basic good sense that you possess. Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

 

The Next Recession is Coming… Again

chart from research.stlouisfed.org

Regular readers will recognize this headline. The next recession is always coming. Human nature being what it is, the economy will always have cycles just as the world will always have seasons. The excesses that build up in good times lead to imbalances that get corrected by economic downturns.

The most notable feature of the current economic expansion is its slow, plodding pace. Most people with jobs or in business are familiar with one of the reasons for this: unprecedented expansion of the regulatory state. Our shop and many others in many lines are coping with new kinds of nonsense that hampers production or service. (We are not arguing for a Darwinian, regulation-free society, of course.)

The silver lining in our plodding economy is the lack of a boom in any major sector that could create a big downturn. New home construction has not really exceeded the sixty-year average. According to the National Auto Dealers Association, vehicle sales–while near a record–only replaced 1/15th of our vehicle fleet last year. It seems to us that the peak in auto sales lies ahead of us. Capital spending and business investment, which has at times gotten too inflated in the past, has remained extremely subdued.

Energy, of course, did boom—and then busted. But our diverse and dynamic economy has largely absorbed the job losses, and consumers and businesses are enjoying unforeseen low gasoline and energy prices. Corporate earnings have not been great, but should strengthen in the quarters ahead.

The Index of Leading Economic Indicators points to near-term trends in economic growth, and it has flashed a steady positive reading for years. The bond market speaks to us about economic conditions through the yield curve, which remains encouraging and positive. LPL Research publishes a Current Conditions Index which measures economic vitality right now—and it has remained in positive territory. LPL Chief Economist John Canally draws mostly comforting conclusions from the latest labor market statistics (ht.ly/v7Co3003MvP )

So yes, the next recession IS coming. We just do not think it will arrive soon. Our plodding plow-horse recovery continues, no boom—but no bust either. This is good news for investors.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.