Goldilocks Economy and the Future of Advice
In last week’s “Behind the Markets” podcast, Liqian Ren and I were joined by two guests to discuss all things Federal Reserve (Fed) and the implications (or lack thereof) for the markets, and investment strategy and financial advice.
Timothy Duy, economics professor at the University of Oregon, discussed his views on the impact that current Fed policy is having on the economy.
In the second half, Josh Brown, CEO of Ritholtz Wealth Management, talked about investment strategy and financial advice.
Tim Duy sees no signs of our record economic expansion easing; you may have had fears of recession at the end of last year, but he sees no signs of it. He described the batch of economic data released this past Friday as a “goldilocks” report, marked by solid job growth, wage growth and steady unemployment.
Duy is not overly concerned about the inverted yield curve, saying it only becomes particularly worrisome when the inversion occurs alongside a policy of continual Fed rate hikes. Given that the Fed has telegraphed a pause in the rate-hiking cycle, Duy doesn’t think the recent inversion is the beginning of the end.
Although he believes the Fed shouldn’t have carried out the December rate hike, Duy thinks that 25 basis points is not a substantial factor and one that can be recovered from.
Changing focus to Trump’s recent nominees for the Federal Reserve’s board of governors, Duy sees the potential for a disturbing shift toward partisan appointments. He noted that traditionally, these positions have been filled by neutral and qualified candidates regardless of the White House administration. Duy fears that Herman Cain could simply be a Trump spokesman and might not bring any objectivity to the Fed during a pivotal point for the U.S. economy. Duy added that he believed anyone arguing for a return to the gold standard should not be appointed to the Fed.
Turning to Financial Advice
Josh Brown recently started a new video series with CNBC as well as partnership with Acorns that aims at helping younger people understand the core principles and mindsets behind investing.
Brown also reflected on fintech startups, such as Acorns and Robinhood, that allow young investors to trade small amounts of money at relatively high frequencies. While they may have non-traditional ways of charging fees (e.g., Robinhood) or charge high amounts for low balance savings in terms of pure AUM, Brown believes these businesses are providing a great service for their clients and that their fees are appropriate. He asked what the alternative might be—would it be better that people not save than use an app like Acorns?
Brown made a great point that, in financial services there are no winner-take-all monopolies. If you do not like the services of these new businesses, you’re free to go somewhere else.
Discussing Ritholtz, Brown emphasized the firm’s focus on building globally diversified portfolios that exclude any sector focus or speculation on individual stocks.
Brown believes a critical testament to Ritholtz’s process is that the firm “eats its own cooking” and the models available to employees in their 401(k) plans are the same asset allocation strategies that the firm offers to clients.
Ritholtz continues to build out its advisory team across the country, and I asked what cities are next in expansion plans. While they are mostly looking for the right people, rather than the best city, Brown admitted that Houston, Dallas and Washington, D.C., are on his wish list for those advisors who see the world like the Ritholtz team does.
These were two great conversations; please to listen to the full podcast below.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.