Cabot’s Wealth Management, Inc.
Salem Rotary
2016 Global Economy –
Improving with Upside
Outline
1.
2.
3.
Key Factors Today
•
Global Economic Recovery in
Question:
Global Slowdown – Led by China
• Central Bank Intervention:
New Exit Phase Beginning in USA
What Matters Today?
•Growth
•Debt
•Freedoms
•Innovation - Underestimated
•War’s and Conflicts
•Confidence - Lacking
Unexpected Changes Having Key Impact
Energy Innovation:
• U.S. is Expanding Energy Production Rapidly –
• 82% over 7 years. Impact – Lower Inflation and
interest rates
• Driving manufacturing in USA – cost advantage to
USA – amazing positive factor (not well
appreciated)
• Driving Profits Higher for many U.S. Companies
U.S. Innovation Pace is Expanding:
• Silent Innovation Revolution – Like Industrial
Revolution in 1900s
• U.S. Leading World Innovation: Google, Apple,
Facebook, Linked In, Salesforce.com, Illumina,
SolarCity, Tesla, Biogen
U. S. Economy on Good Foundation Today
•
Interest Rate Trends Favorable for Equities:
Competition is Weak
•
Low Energy Cost – Very Positive
•
Innovation Trends – Unappreciated
•
Deferred Capital Spending:
Indications Trend Finally Picking up
•
Equity Valuations Higher, Yet Attractive
Today:
P/E at Fair Value Today
Unimaginable Energy Revolution!
Peak at 9,600 in May …now about 9,200
BBD
Never Underestimate
American Ingenuity and
Innovation
Dramatic Rig
Adjustment
Will Soon
Stabilize Oil
Prices
Could inflation stay low
longer? Yes – time will
tell
Normal recovery at this stage
of employment usually at
quicker pace
Debt Obligations of
Households
Now Dramatically Lower
101
Reading
Well Below
Prior
Peaks
Consumers Coming Back!
Still Lower than Normal
Confidence
New Home Formations Very
Strong – Good Sign for Growth
Global Abundance
•Debt
•Commodities
•Capital / Liquidity
•Global Conflict – Middle East
•Political “Hot Air”
Financial Turbulence
August 2015
Financial
Markets
The Financial Markets
Environment We All Want
Core Belief: Innovation Leads
to Great Value Creation
More information has been produced in
the last 20 years than the previous
5,000.
Today the amount of information and
knowledge in the world is doubling
every 18 months.
Benefits of information
technology
can take us a long way!
I believe Internet and IT
will have much larger impact
on productivity than
electricity.
Speed of
productivity
increased
dramatically
U.S. Economy: Most Resilient, Adaptable, Creative and
Innovative Economy
• Why? Free Markets, Capital Markets, Legal System, Educational
System, Entrepreneurs Who Drive Ideas, Culture of Growth and
Progress
• Expect More Growth and a Better Economy in the coming years
• Disruption to established industries high – Value Erosion
• Opportunities for value creation very high in next decade
Core Belief:
Wealth Management Process is Critical
Wealth Management:
• Investment management
• Asset allocation (equities, fixed income, international securities,
alternative assets, etc.)
• Investment choices within each asset class
• Retirement planning
• Tax planning
• Estate planning
• Risk management (planning for catastrophic risks including
disability, death, long-term care, personal liability, personal
property)
Markets
Equity Markets Today
• Monetary Condition
Positive
• Earnings
Positive
• Valuation
Fair
14 Year Trading Range 1999 – 2013
Now Ended – BREAKOUT Positive
Markets Have Upward Bias –
2013 Breakout – Very
Positive
A Secular Bullish Phase
or a Cyclical Bullish
Phase?
“Normal” Market Volatility:
3 Corrections per year > 5%
1 Correction per year > 10%
1 Correction every 3+ years > 20%
NOTE: The S&P 500 Index is a widely recognized, unmanaged Index of common stock
prices.
Source: Bloomberg
The Public Is Not
Participating
in this Bull Market!
Surprising.
30 Year Treas.
Bond 3.0%
9/10/15
How High Can Stocks Go?
The Bullish Projections By Some Analysts
Earnings
Multiple***
Target
Upside
2016
14%
$123.00
19.0 X
2,340
As of 12/31/15 SP 500 is 2050
*** Between 1-3 % inflation Ave. P/E is 19X
Summary
• US Stocks
Overweight
• Foreign Stocks - Developed
Neutral
• Emerging Markets/Frontier
• Domestic and Foreign Bonds
• Precious Metals
Neutral
Shorter
Under
• REITS
Neutral
• Alternative Assets
Neutral
Strategy
Changing World
•Amazon Market Cap > Walmart
•Macy’s Closing 40 mainline stores
•Top Rated Auto is Electric Vehicle
•Advertising dollar moving on-line
•Sharing Economy: Uber, Airbnb, ESTY,
Zipcar, Kickstarter
•Consumer Intelligence is High
Cabot’s Top Growth Themes
Health Diagnostic Innovation:
• Biotechnology and Genomic Breakthroughs
• Sequencing, Testing, Gene Editing, Equipment, Analysis
Cyber Security:
• Network, Big Data, Privacy and Protecting Data,
• Advanced Analytics, Business Intelligence
Transportation Innovation:
• New platform (Electric Vehicles) of power generation,
• Batteries, Electric Vehicles and, Use of Solar for auto power
“Innovation is the specific instrument of entrepreneurship...the act
that endows resources with a new capacity to create wealth.”
- Peter F. Drucker
• Advanced Materials:
Carbon Fibers, Composite Materials, Advanced Glass (solar)
technologies, Composite Woods, Advanced Adhesives
• Internet Efficiency:
Cloud, Storage, Security, Smart Software
• Digital Efficiency:
Smart Stop Lights, A More Efficient World is Coming
• Alternative Energy:
Solar, Batteries, Power Management, Efficient Transfer of Power,
Residential Power Management
• Search and Artificial Intelligence: Coming Sooner Than Anyone
Expects: “The Singularity” – Ray Kurzweil
• Education: Digital Education, Mobil Education, New Delivery
Mechanisms
• Technology: Applications, Smart Processes, Banking, Utilities, Retail
Chain, Software
• Health Monitoring: Wearable devices, Disease Management, link to
medical system, Insurance driven
• Emerging Middle Class of Emerging Markets: Banking, Consumption,
Retail, Capital Goods
• Alternative Currency and Real Assets: Protecting purchasing power of
currency, Non Paper Currency, Gold, Silver and hard assets, Digital
Currency and Land and Real Estate
Genomics
Change is Coming
Science 100 years ago to today
Better Treatments and Cures
•Routine DNA sequencing to monitor overall
health
•Personalized medicine. Cures
•Longer, healthier lifespans
•Much lower healthcare costs
•Higher quality of life, esp. seniors
The Electric Vehicle Industry- Innovation
Tesla Battery Factory
Reno, Nevada – 2017 Production Date
1.2 Gigawatts of power equals : 1 nuclear Power Plant, 1,450
Large Wind Turbines, 60% of the Hoover Dam, Two Huge Gas
Turbines, 10 Jett Engines, 6 million bike riders, and 8 million
solar panels.
Is Six -Year Bull Market Over?
Cyclical Bull or Secular Bull
• Shorter Term: 1-2 years
Positive on U.S. Economy and Equities in General –
Volatility Expected as we adjust to normalized
interest rates
• Mid Term: 2-4 years
Yes …We See Troubles Brewing… New Bubbles in
Economy.
Eventually valuations will become
excessive.
• Long Term – Coming Decade:
U.S. is well positioned to benefit from innovation
Emerging Middle Class – 3 Billion Entering This
Phase
Resilient, Adaptable, Creative
and Innovative
•Expect More Growth and a Better Economy
in the coming years
•Disruption to established industries high
Value Erosion
•Opportunities for value creation very high in
next decade
QUESTIONS