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Transcript
Wealth Management
8521 E 21st North
Wichita, KS 67206
tel 316 383 8300
fax 316 383 8320
July 16, 2014
The first half of 2014 is complete and it has been a remarkably calm march higher for
almost every asset class. There were very few asset classes or countries which didn’t
appreciate during the first six months.1
Table 1 below shows the returns for the major asset classes for both the 2nd quarter and
year-to-date. Except for commodities, Q2 returns were very strong across the board.
Table 1: Asset Class Returns
S&P 500
Developed Int'l Stocks
Emerging Mkt Stocks
2014
2nd Qtr YTD
5.2%
7.1%
4.3%
5.1%
6.7%
6.3%
Investment Grade Bonds
Municipal Bonds
High Yield Bonds
2.0%
2.5%
3.0%
3.9%
5.7%
6.1%
Commodities
0.1%
7.1%
Source: JP Morgan Guide to the Markets - 6/30/2014
“The only function of economic forecasting is to make astrology look respectable.”
Ezra Solomon
At the end of 2013, most strategists and economists agreed on two points, (1) the
economy would experience accelerating growth in 2014 and (2) with the improved
economy we would see interest rates rise.
As the table below shows, the economy during Q1 2014 had its largest contraction ever
outside of a recession since 1947.2 As you may recall, the weather last winter was very
challenging and it does appear that Q2 has bounced back nicely. Still, it is unusual for a
healthy, vibrant economy to suffer such a significant contraction because it was cold and
1
Russia was down 5.2% in USD terms and China was down 0.5%. Also, there were some sophisticated
hedge funds which were down 1% - 10% depending on the strategy.
2
We hope it is outside of a recession!
it snowed. Perhaps after the government gnomes recalculate the data, the contraction will
be revised.
Largest U.S. GDP Contractions in History
Rank
GDP (ann)
Date
Recession
1
-10.4%
1Q 1958
Yes
2
-8.6%
4Q 2008
Yes
3
-8.1%
2Q 1980
Yes
4
-6.7%
1Q 1982
Yes
5
-6.1%
4Q 1953
Yes
6
-5.6%
1Q 2009
Yes
7
-5.5%
1Q 1949
Yes
8
-4.8%
4Q 1960
Yes
9
-4.8%
1Q 1975
Yes
10
-4.7%
4Q 1981
Yes
11
-4.1%
4Q 1970
Yes
12
-4.1%
4Q 1957
Yes
13
-3.9%
3Q 1974
Yes
14
-3.6%
4Q 1949
Yes
15
-3.4%
4Q 1990
Yes
16
-3.3%
1Q 1974
Yes
17
-3.0%
1Q 2014
No
18
-2.9%
2Q 1981
Yes
It appears that the Q1 decline was almost entirely
due to demand factors (it’s hard to buy a new car
when you can’t get out of your house) while the
supply side of the economy, primarily employment,
has been performing fairly well. The most recent
unemployment rate for June was 6.1%. As recently
as September of last year the Fed was forecasting an
unemployment rate of between 6.4% - 6.8% for
20143.
It appears the economy is functioning well and the
end of extraordinary monetary policy is nearing.
The Fed Funds rate has been set at 0.25% since
December 2008 which is the longest period of time
that the rate has been held steady over the past 50
years.
As for long-term interest rates, the biggest surprise
for many investors this year has been the strong rally
19
-2.7%
1Q 2008
Yes
in the bond market driving yields down. This is not
20
-2.3%
3Q 1953
Yes
just confined to the United States. The chart below
Source: J. Lyons Fund Management, Inc.
shows the current 10 year yields for several countries
some of which are borrowing at rates below Uncle Sam.
3
Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents,
September 2013
It seems odd that Spain can borrow 10-year money for nearly the same cost as the US.
As recently as July 2012, Spain was paying 5.0% above the US due to its economic
problems. Investors were probably too pessimistic in July 2012 and are likely too
optimistic in July 2014.
We continue to believe that conservative positioning in investment portfolios is the most
prudent course given the strong returns we have experienced over the past five years and
the near certainty that the Fed will begin raising interest rates at some point in the next 18
months.
Thanks for your continued confidence and support. Please call us with any questions.
The Kirk, Bahm Group at Morgan Stanley
www.morganstanleyfa.com/thekirkbahmgroup
8521 E 21st St North
Wichita, KS 67206
316-383-8300
Steve Bahm
Senior Vice President – Wealth Advisor
Tom Kirk
Senior Vice President – Wealth Advisor
Margaret Dechant, CFP®
Senior Vice President – Wealth Advisor
Andrew Mies, CFA®
Portfolio Management Director
Senior Vice President – Wealth Advisor
Bryan Green
Senior Vice President – Wealth Advisor
Pam Smith, CRPC®
Vice President – Wealth Advisor
Sarah Hampton
Associate Vice President- Wealth Advisor
This material is intended only for clients and prospective clients of the Portfolio Management program. It has been prepared solely for informational
purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in
any trading strategy.
The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio
Management program. The Portfolio Management program is an investment advisory program in which the client’s Financial Advisor invests the client’s
assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2,
available at www.morgan stanley.com/ADV or from your Financial Advisor. Past performance of any security is not a guarantee of future performance.
There is no guarantee that this investment strategy will work under all market conditions. Holdings are subject to change daily, so any securities
discussed in this profile may or may not be included in your account if you invest in this investment strategy. Do not assume that any holdings mentioned
were, or will be, profitable. The performance, holdings, sector weightings, portfolio traits and other data for an actual account may differ from that in this
material due to various factors including the size of an account, cash flows within an account, and restrictions on an account. Top holdings, sector
allocation, portfolio statics and credit quality are based on the recommended portfolio for new investors as of the date specified. Holdings lists indicate
the largest security holdings by allocation weight as of the specified date. Other data in this material is believed to be accurate as of the date this material
was prepared unless stated otherwise. Data in this material may be calculated by Morgan Stanley or by third party providers licensed by the Financial
Advisors or Morgan Stanley.
Material in this presentation has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy, completeness or
timeliness. Third party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide
and are not liable for any damages relating to this data.
Morgan Stanley Wealth Management has no obligation to notify you when information in this presentation changes.
The S&P 500 Index is an unmanaged market value-weighted index of 500 stocks generally representative of the broad stock market. An investment
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The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All
opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or
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