The Long View of Investing

At the Intersection of Economics and Politics: Taking the Long View

June 14, 2019
Mike Moreland By Mike Moreland
Vice President Investments

One of the pieces of an extended leave with family is the opportunity (?) to hear ongoing discussions of the political and market environment from various individuals on a variety of cable networks. Two aspects of these commentaries stand out.

First, they are polarized; there are no shades of grey sought between sides. Second, particularly for market news, the focus is on the short term. Earnings beats/misses, Fed rumors, and this week’s tariff expectations dominate the news cycle.

The second point is fine for day traders; not for long term investors. The long view requires a different perspective, one that puts near term events in their proper place and allows a concentration on issues that will shape our environment over years and decades, not weeks. We’re not denying the importance of issues such as tariffs, just expressing disappointment in the immediate reaction to daily events.

This is why I enjoy and value consistency and calmness in the research we rely upon. While we make our own decisions, our inputs are from a variety of sources. Those we find most reliable in this universe are those that focus on the long view — paying attention to immediate issues, but not allowing them to control the narrative.

One of the best at this is Dr. David Kelly of J.P. Morgan. His quarterly Guide to the Markets is required reading for our staff, not just for its insights but for the manner in which it presents information, consistently and over a longer period. This allows us to develop expectations for economic and societal trends going forward.

Dr. Kelly is particularly attuned to the impact of demographics on economic growth. As shown in the charts below, working population trends and productivity gains are the bellwethers of economic growth over the long term:

Source: J.P. Morgan Asset Management - Guide to the Markets as of April 30, 2019
Source: J.P. Morgan Asset Management - Guide to the Markets as of April 30, 2019

Simply put, America’s aging post-war baby boom generation, the largest in modern history, will need to be replaced in the workforce. Current domestic birth rates are insufficient to do so. Productivity gains will continue, but at what pace? A likely apocryphal line attributed to Charles Duell, Commissioner of the U.S. Patent Office in 1899, was “everything that can be invented has been invented.”

We’re not that pessimistic — just the opposite. We expect the ‘animal spirits’ of American capitalism to continue to advance our technologies and standards of living across the globe. Just give it the chance.

Will productivity gains be sufficient to overcome demographic trends? Time will tell, but why take the risk?  That’s why the current polarization regarding immigration policy is so disheartening. America needs workers — from all sources. Our leaders in Congress and the Administration must look beyond the election cycle to what is best for our nation.  Comprehensive immigration reform is needed to ensure that we attract skilled workers ready to contribute to the strongest and most free economy in the world. If that can happen, the day-to-day gyrations will be less frenetic.

Our charge from you is to focus on the long term. We want to build portfolios that achieve your goals. What happens today has an impact, but the important consideration is ensuring you are positioned to succeed over time. Please talk to your advisor for a review.

About the Author

Michael Moreland

Mike Moreland is Vice President of Investment Services at Security National Bank. With more than 40 years of Wealth Management experience at SNB, and his Sioux City roots, Mike has a rich background in finance and Siouxland.