by Kenny Brown, Heritage Trust Investments
During the Thanksgiving holiday I typically make the drive down I-35 to visit family in Texas. This year my wife was having to work on Thanksgiving, and I really didn’t want to drive down by myself so I looked into purchasing an airline ticket. Now, if there is one thing I’m fearful of is flying. My perception is that driving is safer than flying. But is it? A team of researchers at Cornell and analyses by the University of Michigan Transportation Institute discovered that driving increased months after the terrorist attacks of September 11, 2001 meanwhile about 1,000 more people were killed in car crashes than expected during those months. According to David Ropeik, risk communication instructor at Harvard School of Public Health, “in general flying is safer than driving but their perception of risk was informed by factors well beyond just the statistics, and for many, their perceptions proved deadly.”
Investing in the capital markets can work the same way. For example, the U.S. equity markets recent climb to all-time highs can lead an investor to chase recent performance in fear of missing out on even stronger performance. For some, the markets climb to all-time highs causes concern so pulling out of the market altogether makes sense in fear of losing more than was initially invested. Rather than letting the recent performance of any period determine our investment decision, the Heritage Trust investment team works hard to research and analyze the facts (including interest rates, inflation, valuations and corporate earnings) of a particular investment and allow those facts to drive our investment decision. Below is Heritage’s assessment of where we forecast long-term U.S. interest rates.
Recently, I came across the following chart below when reading “The Economist” which shows the rolling 10-year growth rate for the top developed economies in both real rates or after inflation and nominal (before adjusting for inflation) terms. The most obvious from the chart is that GDP growth is slowing across most developed economies. The question is why? The data from the Organization for Economic Cooperation and Development suggests that this is being caused by an aging population combined with a declining birth rate which is the perfect recipe for a possible prolonged period of slow economic growth also known as the popular view held by former Treasury secretary Larry Summers called “secular stagnation.” In order for an economy to grow you must have people working and having less people working will put a burden on those working to produce more efficiently in order to grow at the same rate as in the past. The implications for this type of scenario is less economic growth.