The Strategists Panel is one of the most popular annual sessions held at IMCA's national conference, and this year it didn't disappoint.
Jeffrey Kleintop of LPL, Jeffrey Knight of Columbia Management and Benjamin Pace of Deutsche Bank regaled the packed session in Boston with insights and plenty of quotable takeaways. For example, when Kleintop was discussing the opportunities in fixed income, he was blunt and humorous at the same time.
"There are no opportunities" in the bond market, he said, and "there's no 'high' in high yield." Instead, he recommended that advisors put some "James Bond" in clients' portfolios, by which he meant not "cool gadgets" as seen in the Bond movies, but alternatives like REITs, business development companies (BDCs) and MLPs.
Knight said that "you could argue that bond yields are way too low," but "when inflation does get growing it's likely to be disruptive" to fixed-income investors. He counseled that investors should carefully watch the wage inflation numbers as a precursor to generally higher inflation.
Speaking of the Federal Reserve's quantitative easing program, Pace said that "[Ben] Bernanke thought he could glibly taper," but that the 'Taper Tantrum' was a good experience for investors and the market. When will QE end? Echoing a prediction made earlier in the conference by Princeton economist (and former Fed Vice Chairman) Alan Blinder, Pace believes the Fed will wind down tapering by October or December of this year. That will be good for the market and economy, he said, because there was a "danger of becoming addicted to QE," but the end of the Fed's heavy buying of Treasuries and mortgage-backed securities will mean that "the dislocation will go away."
Kleintop argued that "inflation bottomed in February" of this year, and that from his listening to many corporate earnings calls, he "heard a lot about pricing power," so he suspects there will be some price increases in the economy.
If bonds don't offer opportunity, what about stocks? What about emerging markets? What's the danger from Russia's meddling in Ukraine? Kleintop was optimistic, noting that as has been the case with other geopolitical disruptions of the past few years in Egypt, Syria, Iran and North Korea, the Ukraine situation was "troubling, but did not derail the markets." Vladimir Putin, he said, is "trying to re-establish a buffer zone" between itself and Western Europe that it had lost since the Iron Curtain fell and the Eastern bloc countries began to embrace capitalism. Pace agreed somewhat, saying "Ukraine is masking Putin's economic underperformance," while "Koreas is now viewed as China's problem."
As for the bull market, Kleintop asked rhetorically, "What ends a bull market?" before answering, "an inverted yield curve," which "will take a while to achieve." To get to that inversion, "we'd need a 4% fed funds rate," which he suspects won't occur, if it ever does, before 2016 or 2017.
