Springtime in South Walton

For the Braves home opener, 30A Songwriter Festival performers Larkin Poe and Kristian Bush sang our National Anthem. The Mets’ Roberto Colon, drawing inspiration from the trio, opened the game with more than 20 consecutive strikes. Following up last week’s high frequency trading column, one company topped Colon’s performance.

Per their prospectus, Virtu, an electronic trading firm, reported a solitary losing day from Jan. 1, 2009 through Dec. 31, 2012.   Virtu’s CEO, Vincent Viola, by coincidence, used to run the New York Mercantile Exchange … hmm. Colon plies his trade on a level playing field not so with high frequency trading.   

In addition to rebalancing regularly, I buy mutual funds every month no matter what the market does. For people in the accumulation phase this simple strategy works. Most people chase returns, a tactic as fruitless as dogs chasing cars. Far from this being an alarm to exit equities, realize there are new macro-economic forces in play. If you are a return-chaser, get familiar with the changing landscape. 

California is in the throes of a three-year drought. The Golden State provides 50 percent of our domestic fruit and vegetable production.  Only Kansas, Nebraska and Texas produce more beef cattle than California. Some producers will not have enough irrigation water and parched pastures could lead to increased cattle sales. California’s drought, unless abated, will cause higher food costs and could trigger inflation. 

4th quarter 2013 US gross domestic product was reduced meaningfully from 3.2 percent to 2.4 percent. While the consumer drives GDP, net exports contribute to growth also. Higher inflation could tamper consumer demand and exports may not be sustainable. The US private sector has recaptured most of jobs lost during The Great Recession but high-paying jobs in manufacturing and construction remain scarce.

Emerging markets appear stagnant. In Brazil, ambitious infrastructure projects languish with some falling victim to metal scavengers. After 7.5 percent GDP growth in 2010, economists forecast Brazilian GDP to languish for the fourth consecutive year (1.63 percent projected 2014 GDP). In March Standard and Poor’s downgraded Brazilian debt reflecting worry about costly government fiascos.

China could be facing a sharp downturn, too. Their official 7.5 percent GDP growth could be sheer fantasy. According to a recent Morningstar report, the Chinese financial sector holds tons of sketchy assets. Non-performing loans and other bad debt are routinely handled by extending maturities.  Chinese bankers also repackage bad debt and sell it to individual investors who savor higher yields. This will not end well.

Chinese land prices increased more than 12 percent, after inflation, last year. Chinese consumers are ignoring a lesson Americans know very well. From 2008 to 2013 Chinese mortgage debt, as a percent of disposable income, shot from 18 percent to more than 30 percent. If prices head south, small savers will be wiped out. Twice last year, the Chinese central bank staved off a liquidity crisis by pumping more money into the economy. If you rebalance your portfolio regularly, let the market timers worry. Check out the beaches, fish, kayak, bike and enjoy South Walton’s beauty. 

Buz Livingston, CFP has a Blue Mountain Beach based fee-only, hourly financial planning and investment management firm.  For more information, visit www.livingstonfinancial.net or come by our new office at 2050 Scenic 30A, M1-Unit 230, Redfish Village.