ARBOR WEALTH: The coast is clear for locals and investors

Published: Thursday, August 29, 2013 at 16:28 PM.

“They’re closin’ down the hangout; the air is turnin’ cool; they’re shuttin’ down the Super-Slide; the kids are back in school.” —“When The Coast is Clear” by Jimmy Buffett

That collective sigh you hear from 30A to Sandestin and along Scenic 98 in Miramar Beach is emanating from locals who are reclaiming our community. We are all grateful for the economic impact provided by our annual visitors. Tourism is Florida’s largest industry, providing some $67 billion annually. But this time of year reminds us that we are permanent Panhandle residents, and that South Walton is much more than a destination where folks vacation annually. As the Bible says and as The Byrds sang on “Turn, Turn, Turn,” “To everything, there is a season.”

So what is the time of the season for investors? Current market conditions are dominated by five words: a rising interest rate environment. Investors would be well served to look for securities that weather well in this type of investment season. 

On the fixed income side, short duration bonds, senior bank loans, convertible bonds and floating rate bonds have historically held their ground in periods of rising interest rates. In equities, utilities and companies that depend on borrowing cheap money for expansion traditionally show short-term declines when interest rates rise.

These type of companies need capital, and if they can’t borrow cheaply, and don’t raise their prices, their earnings can sometimes fall. It’s usually not a permanent dip, though, which is the good news. If one invests in a utility that pays a dividend, the investor enjoys the dividend payout while the stock is experiencing a temporary downturn. And utilities are traditionally stable investments: who is likely to stop paying their power bill in August?

Conventional wisdom, though, trends toward shifting more toward industrials and financials during this type of investment environment. The fact that interest rates have risen is indicative of an improving economy, even though the growth is slower than we would all prefer. That assumption is based on increased manufacturing orders, upticks in commercial and residential buying and building, and the need for heavy machinery and office equipment to supply job sites and new businesses, respectively. Financials, like banks, enjoy a better spread for loaning money as rates rise, and the banking business generally is more profitable. 

Choppy, volatile markets could potentially return later in autumn, when the debt ceiling debate resumes. The last time Congress fought this battle the equity markets experienced a temporary downturn. So when the political rhetoric regarding the debt ceiling heats back up later this year, possibly around mid-October, markets may feel the heat. 



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