Americans are currently saving about 50% of the extra money in their pockets resulting from lower energy prices. But don't expect that to last long, advises Fidelity's Claus te Wildt. "Americans are not good at saving half of anything in the long term," he opined at a workshop session at the 2015 NAPA 401(k) Summit March 23.
Dr. te Wildt, senior VP and head of the Capital Markets Strategy Group at Fidelity, was joined by co-presenter Robert C. Doll, CFA, senior portfolio manager and chief equity strategist at Nuveen Asset Management. The two widely read analysts covered a broad range of economic and investment topics, offering their takes on key trends, indicators and likely outcomes. Here are some of the highlights:
U.S. Economy
There was more weakness in the economy in the first quarter of 2015 than expected, Doll noted, but hiring is up. "Business investment comes and goes," he said, "but right now it's coming." Earnings are a question mark due to the rise in the dollar and the drop in energy prices. In addition to the rise in the dollar, Doll is concerned about U.S. net exports. And "we're still in an environment globally where the stimulus of central banks is driving things," he observed.
Addressing the issue of consumer spending and lower energy prices, Doll noted that, "It takes consumers about three months to realize that the savings from low energy prices is 'permanent income' and to start spending it." That point would be some time in Q2 2015, he noted.
Outlook for Europe
Economic conditions in Europe "have gone from bad to stable," said te Wildt, but he's not optimistic about that improvement continuing: "We should not expect them to go from stable to good any time soon." He expects a growth rate of about 0.5% over the next 12 to 18 months.
"In the U.S., quantitative easing bought time, the economy healed, and we're off," he said. "In Europe, not so much." Rather, the upside appears to be minimal, te Wildt said, likening Europe's situation to Japan in the 1990s.
Emerging Markets
Oil prices are driving his EM outlook, te Wildt said. After dropping from $110 to $50 a barrel, he said he expects oil prices to stay low longer than most people think because production will rise. The key factor, though, is that the drop triggered a $3 trillion shift from oil producing countries to oil consuming countries. Thus, he recommended investing in countries that are buying oil, not countries that are oil producers, offering India as an example. He suggested an active management investment approach via diversified funds. "Don't get cute," te Wildt admonished.
Active vs. Passive
Last year was "a consequential year," te Wildt said, characterizing 2014 as a year "in which many long term trends broke down. There were so many winners and losers." From an active management perspective, he noted, there are always winners and losers. The difference between the two approaches: active managers can cull the losers, "but passive will stick with both the winners and the losers of the past."
Addressing the active vs. passive issue, Doll offered a simple and succinct admonishment for active managers: "Shame on us if we can't do better," he said.
Interest Rates
Doll and te Wildt were in agreement about where interest rates are headed: "Up, but slowly," in Doll's words. Dr. de Wildt is looking for rates "to glide upwards, but now a rapid rise," he said. "[Fed Chair] Yellen will raise rates slower than people think," te Wildt observed. "She wants wages to move up. Until they do, she won't crash the recovery by raising interest rates."
Replacing the Dollar?
Among the questions from attendees was this one: What will happen when Russia and China each decide that their currency will replace the dollar?
"Nothing," responded te Wildt to general amusement. "Because nobody trusts Russia. And nobody trusts China." Added Doll, "We're not doing anything to earn [our global leadership role], but we'll continue to bump along because no other country is capable of replacing us."
