January 2016 Letter

January 2016 Letter

The current economic data can be challenging to decipher as we look forward to 2016.  We are cautiously optimistic toward the U.S. economy as the job market improves and lower energy prices provide some cushion for household budgets.  However, all is not well overseas as Europe struggles and China shifts their economy to be more consumer driven.  This has a significant impact on inflation as commodity and overall price levels soften.

In this quarter’s investment letter titled ‘Price Check’, we discuss how inflation measures have changed over the years and the potential impact for investors.  For example, in 1963, bowling fees were a category of the Consumer Price Index (CPI).  The letter also examines new ‘surge or demand based pricing’ models where prices are adjusted based on the demand for the service.  Uber charges more for its services during peak periods such as New Year’s Eve.  Each household’s basket of goods and services are different and the impact on prices has varying degrees of positives and negatives. Our task is to determine the beneficiaries of this dynamic pricing environment.

The second part of this letter is our annual Investment Outlook which summarizes our thoughts on the major trends impacting the financial markets.  Despite the near-term volatility, we believe that equity markets continue to provide long-term value and would emphasize companies with strong balance sheets, growing dividends, and earnings and revenue visibility.  We continue to remain defensive with respect to our fixed income positions, anticipating a gradual rise in interest rates.

Lastly, we would like to welcome Javier Ordaz to our team.  Javier joins us from Wilmington Trust and will provide additional support in our Operations Group.  He is also well known to many of us who worked with him at U.S. Trust.

We wish you and your family a healthy, happy, and prosperous 2016!