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FOURTH QUARTER ECONOMIC OUTLOOK – November 23, 2022

While some markers of inflation are starting to cool, the labor market is still very tight, and there is a large amount of cash liquidity on household balance sheets as seen in record high levels of bank deposits. It seems likely that elevated inflation and interest rates will persist for a period of time, at least through 2023. Our forecast has been that financial market returns over the next five years to be modestly below long-term historical averages, so we have focused on income generation over growth investing.

THIRD QUARTER ECONOMIC OUTLOOK – August 9, 2022

Since the sharp COVID recession, while we all enjoyed great market returns and saw our residential property values soar, however growth was too heated and this current transition in valuations is toward more sustainable growth. The Fed is likely not done hiking but they might be able to slow the pace and magnitude of hikes soon.
Since early 2021 we have been shifting our portfolio models toward stable income generation through cash flow generating real estate and preferred equity exposures, mostly tied to real estate, to keep your income levels high when traditional fixed income has been punished by rising rates. Early in 2022, we reduced equity exposures to further push into low correlation income generating investments. During times of high volatility, we don’t have to focus on underlying asset valuations as much as the health and sustainability of cash flows to support your income needs.
Going forward we believe traditional correlations between equities and fixed income will eventually resume and active management will mean reallocating to high quality credit and eventually even high yield. Diversification still rules as our real estate exposure still generates higher returns than bonds. Real estate retains its value in portfolios by creating stability, higher yields and in many cases, tax-sheltered income.

SECOND QUARTER ECONOMIC OUTLOOK – May 12, 2022

This is not about a recession, at least not yet. Corporate profits continue to grow robustly along while pent-up demand for travel, consumption, investment, borrowing, and the housing market remains solid. Unemployment is at 3.6% while jobs available versus those seeking work is at a multi-decade low. This is about valuation and the reassessment of risk, with the forward price/earnings ratio for US stocks falling from more than 21 times in January to less than 18 today. As markets contemplate a Fed Funds rate discounted to increase to more than 2.5% by year-end, volatility and the positive correlation between stocks and bonds is a particularly challenging combination. Bonds will not, for some time, provide a hedge to stock volatility so real estate that adjusts/raises rents in inflationary times and alternatives that have low or negative correlation are a high priority to all investors. Diversification is more important than ever and real assets and alternatives are places to move and earn cash flows.

FIRST QUARTER ECONOMIC OUTLOOK – January 31, 2022

In 2021, we made tactical moves in our investment portfolios to underweight US bond exposure, be overweight in real estate and build cash reserves for deployment in 2022 when we see volatility increasing due to headwinds. The US Barclays Agg (a moderate-duration bond index) is -4.31% from its high last year and only faces more losses in face of rising rates. The multi-decade bond rally is indeed over and in reality, it was only briefly interrupted by the pandemic.  Our real estate exposure continues to out-perform other asset classes as the interest on leverage is still historically low (and often was refinanced to low fixed-rate over past years) and the asset values appreciate with inflation bringing total returns to the highest levels seen in years. Pensions and institutions continue to invest heavily into real estate in the new bond bear market. In this environment, keen asset selection can make value add purchase and development deals very profitable.

Markets seem primed to equate higher rates as being negative for equities. We’ve seen this before and don’t agree. What really matters is that the Fed is signaling slow and cautious rate hikes, supportive of minimal market impact. This historically muted response to inflation should keep real rates low, in our view, supporting equities and real estate. Stay invested and stay diversified for positive returns occur more frequently over longer periods than negative returns and policy is supportive of high-quality investing. Fundamentals matter.

FOURTH QUARTER ECONOMIC OUTLOOK – November 30, 2021

With COVID cases rapidly falling and inflation heating up, many investors are focused on Federal Reserve policy. Monetary policy will need to walk a fine line between tackling inflation and financial risks and supporting the economic recovery. The Fed, Central Banks, and governments will need to act with clarity and consistency to avoid making policy errors that will roil financial markets and set back the global recovery. Congressional brinkmanship around the debt ceiling, government funding, the bipartisan infrastructure agreement and President Biden’s social infrastructure plan all risk increasing market volatility to even roiling the financial markets. China’s problems revolve around disorderly debt restructurings in their property sector to escalating cross-border trade and technology tension which their recent common prosperity initiative makes more critical to be resolved.

THIRD QUARTER ECONOMIC OUTLOOK – August 2, 2021

Cloudy With a Chance of Sun by LESLIE CALHOUN President and CEO Halfway through the year and the US economy continues to rally despite a surge in the Delta variant of Covid-19. Business confidence is strong, financial  …
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SECOND QUARTER ECONOMIC OUTLOOK – May 5, 2021

Reopening Surge and Supply Chain Disruption Driven Inflation by LESLIE CALHOUN President and CEO The pandemic year of 2020 quickly attracted bargain hunters to Wall Street but left Main Street struggling with lockdowns, lost jobs, and the  …
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FIRST QUARTER ECONOMIC OUTLOOK – February 10, 2021

2021. Navigating from Pandemic Headwinds to Vaccine Tailwinds by LESLIE CALHOUN President and CEO In normal times, the dawn of a new year often brings an optimistic feeling because we naturally want to delineate the eras and  …
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FOURTH QUARTER ECONOMIC OUTLOOK – October 27, 2020

US & World Economy by LESLIE CALHOUN President and CEO As we come upon the 2020 Presidential election, I have a feeling it will be as memorable as the rest of the year has turned out to  …
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THIRD QUARTER ECONOMIC OUTLOOK – July 15, 2020

US & World Economy by LESLIE CALHOUN President and CEO It’s no doubt that the first months of 2020 has been the most surreal months we have experienced. I’m sure many of you have similar feelings of  …
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