Economic uncertainty is the key obstacle keeping advisers from expanding their businesses
Economic uncertainty is the key obstacle keeping advisers from expanding their businesses. Some 48.5% of the respondents to the 2011 InvestmentNews Industry Attitudes survey said the economy is their biggest hurdle.
That's not surprising, given the unfolding European crisis, a slowdown in emerging markets and continued sluggish growth in the United States.
Economic worries have made investment markets skittish, which, of course, makes it tough to attract and retain clients.
Still, as difficult as things are, most advisers — 59.7%— don't foresee a double-dip recession.
Most economists seem to agree.
“The transmission of the European weakness will be significant, but will not put us in a recession,” said Alan Levenson, chief economist at T. Rowe Price Group Inc.
Falling demand from Europe could cause U.S. growth to slow to 1.5% in the fourth quarter, said Mr. Levenson, who predicts 2.5% gross domestic product growth for next year.
If the economy were to slow to a “stall speed,” that would likely occur later in the recovery as profit margins narrowed, he added.
DOUBLE-DIP FEARS
But talk of a double dip remains.
Early this month, The Goldman Sachs Group Inc. said the U.S. has a 50-50 chance of heading into another recession.
Last month, the Economic Cycle Research Institute told clients: “The most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions.”
ECRI's model is based on a proprietary mix of leading economic indexes.
That kind of talk bugs the relatively bullish Brian Wesbury, chief economist at First Trust Portfolios LP.
“What data proves a double dip?” he asked. “Consumer spending is at an all-time record high [and] jobs have not gone negative. Retail sales are up. Railroad car loadings are up. Hotel occupancies are up ... There's no recession right now.”
Mr. Wesbury is forecasting 3% growth in the third quarter.
“I do worry about a panic,” he added, which could “come out of the blue” and hurt the recovery.
But the consensus seems to be that the U.S. is stuck in a slow-growth period.
“We see a future of slow growth for at least two to five years, and that's optimistic,” said Kenneth Hobbs III, managing partner at Clearview Investment Partners LLC, which manages $85 million.
“The problem is that people and institutions are highly leveraged,” he said. “The delevering here and around the world could hold us back.”
'DEBT HANGOVER'
Mr. Levenson agrees, calling the slow recovery “a consequence of the debt hangover.” A rebound in housing, government spending and pent-up consumer demand usually drive growth after a recession, he said, but that's not happening now.
Advisers overwhelmingly believe that President Barack Obama and Congress have not handled the economy well.
But “the president and Congress don't run the economy,” Mr. Hobbs said. “It takes a number of administrations' and Congresses' making mistakes” to create the high debt levels that are holding back a recovery, he said.
The deficit is important, but according to the InvestmentNews poll, more advisers — 35.9% — see persistent unemployment as the most important issue facing the nation, compared with 24.2% who see the deficit as the nation's most pressing problem. A healthy percentage, 21%, identified Washington gridlock as the country's biggest issue.
“The labor market is one of the major problems facing us,” said Abdur Chowdhury, chairman of the economics department at Marquette University and chief economist at Capital Market Consultants Inc.
“We had 6 million people lose jobs in the recession, [and] 4 million have been unemployed for a year or more,” he said, noting that the high number of longtime unemployed “is a major problem” because those individuals lose job skills.
“Corporations are not going to hire and are not investing in production, because of [consumers'] uncertainty and lack of aggregate demand,” Mr. Chowdhury added.
Advisers appear to be uncertain about whether inflation or deflation is the bigger risk. Many worry about both scenarios.
A combined 62.2% are either “somewhat” or “very” concerned about inflation, according to the survey, while 55.4% said the same about deflation.
“Overall, I think the problem is deflation as the deleveraging continues,” Mr. Hobbs said.
Richard Shields, senior financial consultant with Synergy Financial Group of Arizona LLC, disagrees.
“With as much money as we've printed, we're destined for inflation,” said Mr. Shields, whose firm manages about $85 million.
Meanwhile, the festering European situation could hurt U.S. growth if it causes the dollar to remain strong, Mr. Chowdhury said.
“The dollar has moved higher — it's been seen as a safe haven over the last couple of weeks,” compared with other currencies, he said. “If that continues, that might [negatively] affect our net exports.”
That the U.S. dollar could become a safe haven doesn't give Mr. Hobbs much cheer.
For now, the European problem simply outweighs issues in the U.S., he said. “We're just the cleanest pair of jeans in the dirty clothes hamper.”
Email Dan Jamieson at djamieson@investmentnews.com
