Schwab Impact Conference Notes 2017:
This is my third year attending the “mother of all financial conferences”. The event was held in frigid Chicago and attended by roughly 5,000 participants. It consisted of four days of presentations, and well known guest speakers. This event gives me a chance to take my head out of muni land and see what is going on in the world. Needless to say I usually leave with new knowledge of the financial world, and a greater appreciation for the accomplishment being made in modern finance. Below is a short summary of the top themes I found of interest at the event.
Robotics and Artificial Intelligence (AI):
- 25 million jobs will be replaced by robots in the next 10 years. We will become a robotic economy.
- Robo investing is the fade, but many feel is not personal enough, and will ultimately fail.
- AI is so far advanced and is getting stronger. Right now it thinks at a rate that is 4 to 5 times faster than a human and is getting creative in its thoughts.
- There is good AI, and bad AI. Do we need to regulate it?
- Cyber security will be and is a big concern.
Outlook for fixed Income:
- The trend is towards a “baby bear” market – predict a 2% to 3% market value loss over the next 12 months.
- Central Bank tightening, US, ECB in the next year or two, and BOJ.
- Fiscal Policy expanding and a manageable Fed buyback program.
- Protectionism and populism.
- Fed is forecasting a 2.75% Fed Funds rates by 2019, market forecasts a 2.0%.
- Low overseas rates keep a ceiling on how high US rates can go. One year ago $15 trillion in world fixed income markets had negative interest rates, now it is at $11 trillion, this will continue to decrease and cause US rates to also move up.
- Demographics keeps rates from going to high as savings will increase, and economic growth decrease.
- Rates do not have to go up, just because they have historically, there are factors in place now that make it different and limit any up move.
- Strong high yield is over. Spreads have gotten too tight along with a lot of other sectors looking expensive.
- Outlook for Munis:
- Short-end is overvalued, long-end cheap.
- Munis remain a favorite of most advisors.
- Top asset class in fixed income.
- Best value is to stretch out to 7 to 12 years. Stay away from 2 to 7 years.
Behavioral Finance:
- The study of why people make the investment decisions that they do has gotten a lot of attention from Schwab.
- Schwab has created a process/program called Biagnostics to help it advisors in this process.
- It is the science of understanding human and social nature to help the advisor make better decisions for their clients. Simply put: emotions/instincts versus thinking/reasoning.
- It also helps the advisor soften the emotional aspects of an investment decision.
Politics:
- The new political party theme internationally is becoming “in” or “out”, not Democratic or Republican.
- “In” refers to being involved in open trade, open borders, free flow of data.
- ‘Out” refers to restricting trade, closing borders, and protecting data.
- Connections – The ability of social media to bring groups together no matter where they are located.
- It allows people to link up with those who feel the same way they do.
- It provides support and assurance that their view is the right one.
- This creates a more polarized environment.
- Regulation remains a focus as some policies make sense, others do not.
- The new power centers are the aggregators of data and connectors. For example, Google, Yahoo, and Facebook will be provide the biggest influence in the future.
- There is positive opinion that they will be honest, and do a good job of filtering “fake news:” We will see, their history does not show this.
The Economy:
- Growth looks good for the next couple of years. In the USA it should slowly decrease.
- Inflation looks tame due to demographics, and technology.
- Commodities will be in demand to meet world growth.
- Next recession will not be until 2020, and most likely will be induced by the Fed going too far in raising rates – as they normally do.
Crypto Currency:
- It is now approaching a $150 billion industry.
- It provides a better means of transferring wealth internationally than the expense and flawed Western Union and other vehicles.
- It is too volatile to become an everyday means of tender like USD and other major currencies. Too hard for a vendor to price at the moment of sale and assume the currency risk.
David Cameron (ex-UK Premier) for US President!
- Is a “light democrat” who has opinions that fall on both sides of the party lines.
- Resigned when the UK Euro referendum was defeated. Instead of changing his political view, he thought it best that someone who supported it, should lead it.
- His biggest concerns going forward are the following:
- The advancement of technology leaving too many people behind
- The increase in isolationism
- The apprehensiveness that the UN has had in enacting sanctions on Russia for their meddling in elections around the world.