Yoshikami: A Strategy for Troubled Times
The Federal Reserve this week ratcheted downtheir outlook for economic growth and once again the headlines blared that this recovery is turning out to be rocky and uncertain.
Recent data underscores what should be obvious by now: that this recovery will be three steps forward and two steps back. Retail sales showed a surprising dropof 0.5% in June from May, a second month in a row, as consumers continued to pay off debts and rein back spending. Housing data also fell, with existing home sales for Maydipping 2.2% as banks keep huge number of foreclosed properties off the market waiting for more appealing prices in the future.
Farewell V shaped recovery it would seem.
Expectations are really the key in watching the pronouncements and assessments of so-called market experts. Anyone looking for a straight-line upward recovery trend from the latest economic numbers will indeed be surprised and somewhat disconcerted. If you are expecting an overwhelming avalanche of positive recovery news, then these latest data points are nothing short of troubling.
On the flip side, for economic commentators pronouncing a doomsday scenario, it is equally disconcerting to see positive data showing up on recent industrial production reports and stronger-than-expected corporate earnings.
The mixed data releases fly in the face of dogmatic views that the world is black and white; feast or famine.
To some fates are sealed by sky-high deficits and wrong thinking by politicians across the world.
Other ignore obvious problems and pound the drum that good times are soon here again. As is usually the case, neither is right; or wrong.
The road to economic recovery can sometimes be bumpy, not unlike jump-starting an automobile engine that hasn't been driven in months; it sputters and strains to run with any sense of consistency and stability. It may take quite some time for the economic engine of the world to begin to run again and it would not be a surprise to me if it takes years before the de-leverage runs its course and the incredible excesses of the last 20 years are digested. However, though this de-leverage process will be ugly, it doesn't mean one should be rooted in despair that all is lost and will never improve.
It may be a bit of a wait, to say the least, before there is economic certainty, but that doesn't mean investors should wait forever to take action. Though the economy may be at an inflection point, and the pace of recovery remains confusing, one can still take action. One must take action; the opposite is paralysis. And doing nothing tend to result in less than stellar results.
Fixed income, particularly corporate assets, are appealing and we believe will provide investors an attractive yield as well as the opportunity for capital appreciation. Emerging markets may be down but they are not out; we still think growth rates in Asia will be in the high single digits which can still provide opportunity for investors.
Back on U.S. soil, despite the many criticism of where the economy is heading, we still believe that selected equity assets will be seen as a safe haven in times of crisis. Global companies like McDonalds are poised to continue expanding. Technology and energy are sectors as well provide opportunity for investors. Companies like Qualcomm will ride the wireless wave.
Tread carefully in this uncertain world but tread towards a strategy that can capitalize on uncertainty while not exposing you to an undue amount of risk. Remember that growth of assets is important but capital preservation has its place as well. Keep that in mind as you construct your strategy and don't be paralyzed into inaction; leave that to others. Even in times of uncertainty, proactivity is the foundation for investment success. Make that your plan of attack as this recovery struggles forward.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at firstname.lastname@example.org.