ARBOR WEALTH: A False Dawn on 30A: 2013 Market Outlook

Published: Thursday, January 3, 2013 at 05:28 PM.

As Harvard Economics Professor Ken Rogoff says, “The footprints of crisis are evident in indicators ranging from unemployment to housing prices to debt accumulation ... With cash-strapped governments deferring urgently needed public infrastructure projects, medium-long term growth also will suffer … other secular trends, such as aging populations in most advanced countries, are taking a toll on growth prospects as well. Even absent the crisis, countries would have had to make politically painful adjustments to pension and health care programs. Taken together, these factors make it easy to imagine trend GDP growth being one percentage point below normal for another decade, possibly even longer.”

We see a continued secular bear market, with cyclical bull markets, and an extended low-returns environment. This will make tactical asset management even more vital, since buying an index will be even less of a guarantee of a decent return. Inflation is not currently rampant, but eventually, it may be, according to Martin Pring, author of “Investing In The Second Lost Decade.” Pring writes, “Some items like college education and medical expenses never seem to go down, regardless of how weak the economy is.”

It is possible that the Fed may lower interest rates even further to spur housing purchases and stimulate growth. But eventually interest rates will rise, and inflation with them.

Levels of governmental as well as personal debt also represent a headwind to growth. Pring writes, “At some point, when debt buildup becomes excessive, it is a drag on growth.  In their book "This Time is Different,"
 authors Rogoff and Carmen Reinhart estimate that this moment arrives for any country when public debt reaches 90 percent of GDP”… causing “median growth rates (to) fall by one percent and average growth falls considerably more.”

Margaret R. McDowell, a chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, a “fee-only” registered investment advisory firm located near Sandestin. Arbor Wealth ( specializes in portfolio management for clients with $250,000 or more of investable assets.

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