Thought Leadership Series: “The Presidential Election” & “How to Invest in a Zero Interest Rate Environment” with Robert DeLucia

November 13th, 2012

One week after the Presidential election clients and friends of First Long Island Investors met to analyze what President Obama’s re-election means to the economy and investors. FLI Chairman and CEO, Robert D. Rosenthal, and Economist, Robert DeLucia shared their thoughts on this subject. With interest rates remaining near historic lows, Robert DeLucia also discussed how investors should invest their assets in a zero rate environment.

Bob Rosenthal and Bob DeLucia analyze and critique the Presidential election.

Bob Rosenthal and Bob DeLucia analyze and critique the Presidential election.

Bob Rosenthal asks Bob DeLucia why companies that grow their dividends are in the sweet spot for investors

Bob Rosenthal asks Bob DeLucia why companies that grow their dividends are in the sweet spot for investors

Below are some of the highlights from the discussion:

Bob Rosenthal’s Election Observations:

  1. Government composition largely unchanged
  2. Exit polls suggest that a majority of Americans want a smaller government
  3. Country will need to raise revenues in addition to reducing spending
  4. Challenges of entitlements must be addressed and politicians understand this
  5. The deficit must be addressed
  6. Window of opportunity to address the deficit may only exist through 2013 due to 2014 Congressional elections

Bob DeLucia’s Thoughts on the Election and its Ramifications:

  1. Election results were a negative, but not a huge negative
  2. Politicians will do something to address the fiscal cliff by the end of December and this will lead to a stock market rally
  3. Members of Congress don’t want a recession, but the President is less focused on the economy and more interested in helping low-wage earners and a financial redistribution of assets
  4. If the fiscal cliff is not addressed it would be a $750 billion hit to GDP

Bob DeLucia’s Thoughts on the Economy:

  1. The economy is better off than most people think
  2. We’ve survived a difficult post-bubble deleveraging cycle over the last 4 to 5 years
  3. Government will be the key to whether or not the full potential of the economy is realized
  4. Economic catalysts include:  manufacturing, exports, where we will be a leader, and energy via fracking and horizontal drilling
  5. We will overtake Saudi Arabia in oil exports by 2020, according to the International Energy Agency
  6. Housing is beginning to come back and will be a tailwind for the next 5 to 10 years
  7. Headline unemployment, which has averaged 6% in the past and is now 8%, will remain high
  8. Growth is the most important tool for reducing our deficit

Bob DeLucia’s Thoughts on Bonds:

  1. Bonds are a “disaster”
  2. Fixed income returns will be among the worst in history over the next decade
  3. Investors should avoid bonds
  4. Investors can’t get acceptable yields on bonds without taking duration risk

Bob DeLucia’s Thoughts on Equities:

  1. The “stars are aligned for better equity markets”
  2. Equity valuations are historically inexpensive
  3. Companies that grow their dividends are in the best segment of the equity market
  4. Do not confuse high yield stocks with dividend growers
  5. Sweet spot for dividend growers are stocks yielding between 2.5% and 3.0%, growing their dividends by 10% to 12% per year
  6. Many stocks today have higher dividend yields than their corresponding bond yields

Bob DeLuciaBob DeLucia Biography
Robert F. DeLucia, CFA, is an independent consulting economist and the founder of Veritas Economic Analysis, LLC, specializing in global capital markets. He was formerly Senior Economist and Portfolio Manager for Prudential Retirement. Prior to that he spent 25 years at CIGNA Investment Management, most recently serving as Chief Economist and Senior Portfolio Manager. He currently serves as the Consulting Economist for Prudential Retirement. Bob has 38 years of investment experience.