As chief investment officer for Harris Private Bank, Jack Ablin has a guiding hand in the portfolios of thousands of high-net-worth individuals during these uncertain economic times.
Don't worry, he tells them. "Put it in perspective. The world hasn't ended yet, so that's a good thing."
Stock markets may still shift sideways for a while longer. But Ablin forecasts the next bull market will be under way by 2015, if not sooner. In fact, his "conservative" forecast calls for markets to rise 9 percent this year.
Some other predictions:
• Florida's economy will rebound slower, but its solid credit rating and higher-than-average percentage of college graduates will play to its advantage in the long run.
• Look for the next bull market run starting this decade to last 10 to 15 years.
• Odds are in favor of President Barack Obama being re-elected.
Chicago-based Harris, part of Canadian financial powerhouse Bank of Montreal, recently became a much bigger player in the fiscal fistfight for wealthy Florida investors through its acquisition of Marshall & Ilsley.
Ablin, a onetime Floridian, visited Tampa last week to give a presentation to investors. Here are excerpts from a prespeech interview with the Tampa Bay Times:
You've called Chicago home for a while now. How often do you make it to Florida?
A fair amount. My daughter is a freshman at Rollins (College) in Winter Park, so we try to get down there. In terms of traveling for business, I try to get down there two or three times a year.
What's your message to investors here?
I'm relatively optimistic for the markets. Most gloomy news we're reading is well taken into account. I think there are opportunities in certain areas … most notably (some) large-cap equities where the value is pretty cheap.
So what's your 2012 forecast?
My best-case scenario is the markets up 14 percent, getting back to fair valuations. … We had a good market going last year, but it gave up as the headlines came across the Atlantic. Earnings don't really have to grow very much at all to justify a 12 percent movement in stocks, but being conservative, I'll say 9 percent.
You're not concerned about another round of downgrades in Europe?
Interestingly, it's human nature to become incrementally immune to bad news. My sense is if the news doesn't get worse or if we keep getting peppered with the same level of negativity, investors will shut it off as we did in November and December.
Is Europe the biggest danger zone? Inflation? Deflation?
I think it's the inflation/deflation tug of war that still remains. I think, ultimately, inflation will win out. But not short term. The title of my (Tampa) talk is "Austerity vs. Expansion." The only expansion economies right now are the U.S. and possibly Japan, where the governments are running massive annual budget deficits. Everywhere else, for the most part, the governments are reining it in. Certainly Europe remains a concern. China could surprise us on the downside. Fifty percent of China's economy now is investment spending, split between investment and real estate. They need to slowly ratchet back their reliance on investment spending and try to rein in housing.
What's your top piece of advice?
Investors, particularly those in Florida who are retirees, have to strike a balance between income and safety, and it's very, very difficult. We call it our diversification income strategy. … Bonds, master limited partnerships, real estate investment trusts, preferred stock, floating rate loans, high-yield bonds, some dividend equity … and some low-volatility strategies. Any retiree who buys a 10-year Treasury in our view is locking in a lower standard of living. The yield is 1.9 and inflation is around 3.6 percent.
Your book is titled Reading Minds and Markets. Every investor wishes they had that power, but do you think it's possible to predict the vagaries of the market?
It's hard, but I would say from a secular point of view that we entered a sideways market in 2000 that is essentially a roller-coaster likely to stay with us until 2015. That means investors have to be more agile in when they take risk and when they remove risk, unfortunately.
What happens in 2015?
At some point the dust settles and we end up starting a nice bull market again. The market tends to move sideways 10 to 15 years and then up for 10 to 15 years. Right now public policy is really not encouraging profit growth. The government is obviously a big borrower. We're financing wars. We're adding regulations. Energy prices are elevated. That suggests we still have these headwinds.
In the book you cite five factors to consider in investing, such as the economy, liquidity and security. What's most important?
The book ends talking about valuation and momentum. If you've got a cheap market moving in the right direction, that pretty much trumps everything. What we found in 2008 was the market clearly looked cheap. The problem was it had no momentum. We started to turn in March (2009) and had enough momentum in June that we were able to jump in and go overweight. We pulled the plug on the market the first of August 2011.
Where is Florida's economy headed?
A lot of it depends on what goes on in the country. The housing market in Florida can't recover until the rest of the country's housing market recovers. We're seeing more incremental strength, which is good. There also is the element of the U.S. dollar. Right now the Florida market is trading at 12 to 13 times its annual rent, which is pretty cheap. That's housing prices to annual rent. At the peak of the Florida market (housing boom) we got up to 36 times. Paris is at 40 times right now; China is in the mid 40s. Florida's unemployment rate is still higher than the national average and incomes haven't rebounded to the same degree. But the good news is Florida still enjoys a very solid credit rating … and the Florida equity index (measuring Florida stocks) is pretty much keeping pace with the S&P (index).
Will incomes here bounce back?
It's a peculiar state because of so many retirees, but one of the keys to (rising income) is education. I grabbed some Gallup data and found the biggest difference (between the superwealthy and other wage earners), not a surprise, is education. The good news is Florida is a relatively educated state, probably slightly above medium.
Looking back, you used to trade mortgage-backed securities. How much did you witness some of the excesses and abuses in the industry? Are abuses still going on?
I've been a Wall Street skeptic for nearly 30 years. I was a mortgage-backed securities trader from '82 to '89. What I saw was really the introduction of the collaterized mortgage obligations where they would take pieces of mortgages and cut them up to sell to a real estate investor or unsuspecting institutional investor (and) the sum of the parts was worth much more than the whole. What they were selling, some of it, was pretty much toxic but they weren't telling you that. Or no one asked.
Did the industry clean up its act?
There is a sense at least in some parts of the business of "What can we get away with within the guidelines?" But I think that it's cleaned up a fair amount.
Jeff Harrington can be reached at (727) 893-8242 or firstname.lastname@example.org.