Washington is dysfunctional, the overall economy is sluggish, middle American families are hurting and many of the new jobs being created are part-time and offer only low wages, according to Bruce Bittles, chief investment strategist for the Robert W. Baird Co.
However, Bittles added, the value of stocks should continue to climb in coming years – barring any major calamities.
In an interview before he spoke to a luncheon gathering at the Madison Club on Wednesday, Bittles said his forcecast for investors is positive because the six major factors that figure into his prediction are positive.
“The economy is only a small part of the reason for why the markets behave the way they do,” he said. “We have a number of indicators, including the economy, that show why the markets are doing so well in spite of the fact that the economy isn’t.”
But he said the long-term outlook is brighter, in large part because huge natural gas resources in the U.S. mean this country could be energy independent by 2020.
Though Congress had not yet reached an agreement over a bipartisan compromise to raise the debt limit and reopen the federal government when he spoke at noon Wednesday, he correctly predicted it would occur by evening — the compromise passed the U.S. Senate and the U.S. House Wednesday night.
He also said the markets had “reacted well to the so-called budget and debt-ceiling crisis.”
“It’s surprising there’s not that much fear out there,” he said. “Today, the Russell 2000 and the S&P 500 Midcap Index are at all-time record highs and the S&P 500 itself is just a few points away from a new all-time high. The market has taken all this pretty much in stride. They’ve seen this before.”
Bittles said the reason the market has done so well is because the Federal Reserve Board has kept interest rates at zero and is pumping billions of dollars into the economy.
“That money has to go somewhere and it looks like the market is going to continue to do well right until year end perhaps. But it’s still up in the air whether they are kicking this (debt-ceiling increase) down the road until December or mid-January. But we’re still not getting any structural reform, they are just adding to the debt because it’s ‘business as usual’ in Washington, D.C.”
Bittles said the Federal Reserve policy has been “very beneficial to a very few people” and that hiring continues to lag with the labor markets “behaving poorly.”
“When the Fed generates all this liquidity, it doesn’t have any control over where it goes,” he said. “It hasn’t gone into the economy liked they had hoped. It goes into the stock market, commodities, housing market … areas that benefit people who already own a lot of assets.
“But what about the middle income who don’t have many stocks? And low-income people who don’t have any exposure to common stocks. They are left out.
“They’ve been punished by this,” he said. “This policy has benefitted a small part of the community and the rest are still struggling. So I don’t see the benefit of it all.”
He said low-wage earners are “suffering terribly. The average household is having a very difficult time making ends meet. Some something is very wrong with policy.”
— By Brian E. Clark
For WisBusiness.com
