On Balance

At this time of year, I like to look back to a year ago and see if we are better off now than we were then. On balance, it appears that, both economically and financially, we are better off this December than we were a year ago. Many jobs have been created, unemployment is lower, consumer confidence is greater, factory production is higher, and all of this is happening as the Federal Reserve withdrew its economic stimulus. Not bad! If I were looking at Europe, China, Japan, Russia, or most of the rest of the world, I could not say the same. Because of the weakness of foreign currencies and lack of economic growth, the only investment area that seems to have had negative results in 2014 is developed international equities.

Now is also a time when I look forward. To judge 2015, a number of things must be taken into account. The price of oil is dropping, making it less expensive to heat homes; gasoline prices for cars are lower and energy costs are lower for factories and businesses. As a result, there will likely be greater ability to spend more on consumer goods, supplies, growth of businesses, and increases in pay for workers. The economy can be hurt, to some extent, if the dollar remains strong against most foreign currencies. In my opinion, any damage will be mitigated in 2015 by U.S. businesses and consumers being able to absorb a great deal of the increased production in our country and not having to rely on significant sales growth from foreign exports. As the year unfolds, we will likely see the impact of less austerity in foreign countries and the loosening of monetary policy, for stimulation purposes. This should help international growth in the second half of the year.  By early summer, the Federal Reserve will likely begin to raise short-term interest rates. I believe that they will do this slowly, and that the increase in interest rates will be offset by increasing bond yields.

As U.S. oil production ramps up in 2015, we will likely see exports of oil helping our balance of payments. Technology should do well this coming year, as companies increasingly rely on new technology to increase business growth. While 2014 was not a great growth year for technology stocks, we will likely see that changing in 2015. Consumer durables and cyclical industries should also do better as consumers and businesses have more money to spend. The need for greater natural gas pipelines should result in positive growth for both pipelines and natural gas. Overall, I think, on balance, that we need not make big changes to portfolios for the coming year. The economy should continue to grow and with that stocks.

Ed Mallon

Posted December 10, 2014 11:25 AM