Augustine addresses investment issues
Written by Duane Ramsey | | news@toledofreepress.comJohn Augustine, chief investment strategist for Fifth Third Bank, addressed investment issues under the current economic conditions for a group of the bank’s investment clients Oct. 19 at the Toledo Club.
Augustine’s presentation titled “Looking Out the Front Window,” encourages people to look forward despite reports that 81 percent of Americans don’t believe the recession ended in June 2009 as many economists believe.
“We’re far enough away from the recession, people need to keep looking forward out the front window and not in the rearview mirror at the past,” Augustine said. “My best advice is to turn off the national media every evening because they’re too busy looking in that rearview mirror.”
Augustine advised investors to focus on markets and investment strategies that are moving forward with the U.S. economy and its expected 2-percent growth. Fifth Third looks at the markets with a CHEC3 formula for analyzing the factors affecting it.
C and H represent “Cars” and “Homes,” which drive the economy in the Midwest and are trying to gain ground after hitting bottom and stabilizing. They’re not going down anymore, but there is a lot of capacity to fill back up, Augustine said.
E represents “Exports,” which are rising with the highest numbers in two years as the U.S. and other countries are exporting goods that are not selling in the U.S., also called excess capacity.
C stands for Construction which is still under stress especially in the private sector with housing starts and commercial building down.
C also represents “Corporate Profits,” which have recovered sharply. Productivity went up during the recession but came at the great cost of 10 percent unemployment. Corporations need to release some of that money back into the economy, Augustine said.
The final C represents “Consumer Spending,” which is recovering but spending is shifting more to services rather than manufactured goods.
“One game changer is where do we go to get income? We go back to the stock market since stocks are now yielding more than bonds, which hasn’t happened in 52 years. The markets are reacting positively, a very unusual situation, so we need to diversify our investments,” Augustine said.
Standard & Poors is expected to close the year around 1200 but remain very volatile. Interest rates must remain lower longer to produce a yield range of 2 to 4 percent.
Augustine said time is needed for U.S. issues to settle and for demand to grow into the capacity to build more cars, houses and products.
The message to policymakers should be to keep costs low and opportunities high. Going into the November elections, there is a perceived anti-business sentiment in Washington, Augustine said.
The outcome of the election could provide some relief and will likely be pivotal for stock performance later in the year, he added.
The economy needs consumers to manage their debt, and the government needs its debt, too.
Looking at the investment portfolio, principal preservation should cover the inflation rate of 1.2 percent. Be income-focused with an expected yield of 3 percent for lower risk to 6 percent for higher risk investments.
“Know where you are against your investment goal. Investors need to be patient for the next two to three years as the economy sorts it all out,” said Augustine, who expects energy and transportation to be two growth areas in Ohio.
“One piece of advice for investors is to take a look at the investment policy statement. The investment environment has changed and proper investigation into your investment profile is necessary,” said Steve Sherline, director of the Investment Advisors Division at Fifth Third.
Fifth Third Bank has $25.5 billion in assets under management for investment clients with
$2 billion of that in Northwest Ohio, according to its results released Sept. 30.
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