Slow recovery seen by market expert
From our weekly issue dated June 23, 2010
A snapshot of current and future economic trends was provided by market strategist Fred Dickson on the Wednesday, June 16 Radio KAJO talk show, based in Grants Pass.
Dickson“s 44-year career included 38 years working on Wall Street for such firms as Goldman Sachs. He is a frequent guest commentator on the CNBC and Bloomberg television networks, and has been a faculty member at the New York Institute of Finance and an adjunct professor of finance at the University of Richmond.
Currently, Dickson is the senior vice president and director-chief marketing strategist for D.A. Davidson Companies in Lake Oswego.
Dickson graduated from Penn State University and earned an MBA from the University at Buffalo.
The stock market just had its worst decade since 1830, Dickson said. It has showed a negative return for only two decades since then, with the other being the Great Depression era of the 1930s.
Despite that, Dickson observed, the market was up six of the last 10 years, and bond portfolios posted their best returns in 30 years.
“It will stand in history as one of the decades where we had a lot of turmoil and a lot of problems,“ he said.
The Sept. 11, 2001 terrorist attacks in New York City and Washington, D.C.; Hurricane Katrina; and the collapse of the housing market in 2007 helped shape the market during the past decade, Dickson said.
In 2000, the Fed lowered bond ratings, Dickson said. Bond values rose as interest rates went down, which enabled people to finance or refinance their houses at lower rates, but also contributed to the housing bubble, he added.
New technologies drove most of the economic growth from 2000 to 2009, he said, with social networking, internet cell phones and the use of global positioning satellites leading the way.
“Technology has had an important driving role in the U.S. economy over the last 50 years, maybe longer,“ he said.
There also has been an “enormous improvement“ and “tremendous expansion“ in health care and alternative energy technology, Dickson said. He added the prediction that those areas soon will become “trillion-dollar economic drivers.“
He feels that opportunities also will present themselves in the growing need for meeting water, food and security needs.
“These are things that are going to create jobs eventually, once we get out of this hole,“ Dickson said. “It“s going to be a worldwide phenomenon.“
“But it is a very slow path to recovery,“ he said.
Debt repayment issues for the U.S. and foreign governments, as well as companies, remain a big concern, Dickson said, and could delay recovery efforts.
The strategist said that home foreclosures still are rising, but that the economy has created 1.5 million new jobs; corporate earnings are up; and the investment climate has improved.
“We“re seeing some upward job mobility, and that“s a sign of growing confidence,“ Dickson said.
A highly educated workforce will be a crucial component of those emerging industries, he added.
“I think the education investment will pan out over time,“ he said, noting that recent graduates with technical degrees already are in demand by major tech firms.
Dickson has developed a psychological profile of economic cycles. He said that the U.S. economy reached a point of “euphoria“ in October 2007, then “capitulation“ in March 2009 as the reality of the recession became apparent. Last January, Dickson said, the economy hit the “encouragement“ stage.
For the first four months of 2010, he observed, publicly traded companies beat market expectations, another encouraging sign.
“The bar was set low and companies came through, beating expectations fairly handily,“ he said.
He continued that overall, the market is “positive but subdued,“ and that investors can expect to see some continued volatility during the next few months.
“Normally, in the first full year of an economic recovery, the stock market usually bounces up about 20 to 30 percent,“ Dickson said.
“We“re expecting that rate of growth to be only about 8 to 10 percent.“
A “bull market“ began in March 2009, Dickson said, and he anticipates that the nation“s Gross Domestic Product (GDP) will increase by 3 percent this year. That is up from his initial prediction of a 2.5 percent growth rate, bolstered by an uptick in consumer spending and businesses restocking inventories.
The dollar has rallied against the Euro in recent weeks due to the Greek debt crisis, but Dickson said that there still are long-term concerns for U.S. currency.
Short-term, he said, Americans will pay more for imports, but the export market will be strengthened by those trends.
By the end of this decade, he feels, the Dow Jones Industrial Average could be nearly double what it is now, due to emerging technologies. “We look at the 10,000 level as more of a baseline than a mountain peak,“ he continued.
Although the market is in a period of correction right now, Dickson said that durable good orders are up, along with temporary hiring. He said that typically leads to job growth, but cautioned that businesses tend to expand and restore their hiring levels about two years after the beginning of a recovery.
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