11 annual - ccedcpa.com · • defensive duration posture portfolio positioning : disciplined...

Growing Business, Growing Smart

Investing in the Economic Health of Chester County

Its People

Places

& Prosperity

11th Annual Economic Outlook

January 23rd 2015

Growing Business, Growing Smart

Investing in the Economic Health of Chester County

Its People

Places

& Prosperity

Welcome Mike Grigalonis

COO, CCEDC

www.vista2025.com

Chester County’s

Economic Development Strategy

Visionary Partners

www.vista2025.com

Executive Alliance Advantage Building & Facility Services, LLC

Aqua America Arcelor Mittal Ar-Joy Farms

Bentley Systems Brandywine Health Foundation

CCATO CC Community Foundation

CC Intermediate Unit CC Conference and Visitors Bureau

CCCB&I CCEDC Chairman Chester County

Chester County Historical Society Chester County Hospital Communidad Hispana

Country Fresh Mushroom CTDI

Delaware County Community College Devault Foods

DNB First

E. Kahn Development EvolveIP

Fox Rothschild Herr Foods

IDA Liberty Property Trust The Lincoln University

Longwood Gardens Meridian Bank

Natural Lands Trust NuPathe

PAC Strapping Products, Inc. PECO

Penn State Great Valley Surrey Services for Seniors

The Hankin Group United Way of Chester County

Vanguard Group West Chester University

Y Prime

www.vista2025.com

VISTA 2025 • Released in October 2014

• Community Outreach Efforts

– Chambers of Commerce

– Conservancies

– CCATO

• Implementation Planning Sessions

• Org Structure that will assure:

– Public/Private balance

– Volunteer engagement

www.vista2025.com

GET INVOLVED!!!!

www.vista2025.com

Chester County’s

Economic Development Strategy

ECONOMIC OVERVIEW

JANUARY 23, 2015

David B. Hanson, CPA, CFA

Chief Executive Officer

WORLD POPULATION COMPARISON

Rest of the World

Source: CIA World Factbook

11

GLOBAL GDP COMPARISON (PURCHASING POWER PARITY)

Rest of the World

Source: CIA World Factbook 10.14

12

13

Source: CIA World Factbook 10.14

World Average

GLOBAL GDP PER CAPITA COMPARISON

GLOBAL GDP PER CAPITA COMPARISON 1870 – 2014 14

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

United States

Japan

Western Europe

Eastern Europe Latin America

Middle East

China

India, Asia, Africa

19

90

Inte

rnat

ion

al G

eary

-Kh

amis

do

llars

Source: Angus Maddison

GLOBAL MOMENTUM 15

(10.0)

(8.0)

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Third quarter GDP growth came in at 5.0%. This was well above expected growth of 3.0%.

Positive contributions for third quarter real GDP came from personal consumption expenditures (3.2%), exports (4.5%), nonresidential fixed investment (8.9%), and spending from federal, state, and local governments.

Many economists have revised their 2015 GDP growth forecasts to 3%.

QUARTERLY GDP

2008 2009 2010 2011 2012

16

2013 2014

CONSUMERS ARE LESS DEPRESSED – AND LESS FRAGILE 17

Impact of Fiscal Cliff

Impact of Debt Ceiling

Impact of Gov’t Shutdown

AND IN GOOD FINANCIAL SHAPE 18

Source: Bloomberg, FFA Investment Management

8.8mm jobs lost

8.8mm jobs gained thru 8/31/14

10MM thru 12/31/14


EMPLOYMENT 19

.

.

The U.S. economy fills ~ 50 million employees

jobs each year

7.7mm jobs

gained

EMPLOYMENT 20

.


Since respective peaks: - 4.2% drop in unemployment rate - 3.5% drop in labor participation rate

EMPLOYMENT – VALUE OF EDUCATION 21

.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

$30,627

$56,665

$84,852

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

High School Graduate Bachelor's Degree Advanced Degree

Average Annual Earnings by Highest Degree Earned Full - time workers aged 18 and older, 2012, USD

+26K

+28K

Unemployment Rate by Education Level

Source: BLS , Census Bureau, FactSet , J.P. Morgan Asset Management .

Unemployment rates shown are for civilians aged 25 and older.

Guide to the Markets – U.S.

Data are as of 9/30/14.

Sep. 2014: 2.9%

Sep. 2014: 5.4%

Sep. 2014: 5.3%

Sep. 2014: 8.4%

Less than High School Degree

High School No College

Some College

College or Greater

HOUSING STARTS 22

Housing starts have hovered around 1 million units since last Fall. Average since 1958 is 1.45 million.

About 2/3 of homebuilders from 2007 remain out of business

The recent increase in average 30 year fixed mortgage rates may slow purchases – and regulatory changes make mortgages hard to get

In 1980, 30 year mortgage rates were 18.6% and we built 873k houses

Worst month since 1958

S&P 500 INDEX INFLECTION POINTS 23

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200 Index level 1,527 1,565 2,059 P/E ratio ( fwd.) 25.6x 15.2x 16.2x Dividend yield 1.1 % 1.8% 1.9%

10 - yr. Treasury 6.2% 4.7 % 2.2%

Source: Standard & Poor’s, First Call, Compustat , FactSet, J.P. Morgan Asset Management.

- 49%

Oct. 9, 2002

P/E ( fwd.) = 14.1x

777

Mar. 24, 2000

P/E ( fwd.) = 25.6x

1,527

Dec. 31, 1996

P/E ( fwd.) = 16.0x

741

P/E ( fwd.) = 16.2x

2,059

+101%

Oct. 9, 2007

P/E ( fwd.) = 15.2x

1,565

- 57%

Mar. 9, 2009

P/E ( fwd.) = 10.3x

677

+204%

Characteristic Mar - 2000 Oct - 2007 Dec - 2014

+106%

VALUATIONS ARE MODERATE, NOT CHEAP 24


S&P 500 Index: Forward P/E Ratio

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

Average: 15.6x

Current: 16.2x

S&P 500 EARNINGS AND REVENUES PER SHARE 25

The estimated earnings growth rate for Q4 2014 is 1.1%.

The Telecom Services sector is expected to report the highest growth in earnings for the quarter, while the Energy sector is expected to report the largest decline in earnings for the quarter.


2,086 2,234 2,415

2,577 2,684 2,777 2,977

3,147 3,326

3,556 3,704 3,861

1,147 1,174 1,150 1,195 1,227 1,246 1,270 1,292 1,321 1,350 1,381 1,414

221 223 251 318 393 480 563 635 697 761 827 886

- 2 (4) (65) (84) (91) (95) (97) (97) (44) (28) -

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Mandatory Discretionary Net Interest Other (Sequestration)

Federal Budget (billions)

2013 2014 2015 Revenue $2,755 $3,022 $3,337 Expense $3,455 $3,651 $3,901 Deficit $ 680 $ 649 $ 564 % of GDP 4.1% 3.7% 3.1% Debt % of GDP 65.7% 66.8% 66.6%

THE DEFICIT IS STILL A HUGE CHALLENGE… 26

Source: www.whitehouse.gov – Budget of the United States Government, Fiscal Year 2015, Summary Tables S-1 and S-4

2013 U.S. Federal Revenue (billions): Personal Income $1,316 Corporate Income $ 274 SS, Medicare, FUT $ 947 Excise, Duties, T&E, etc. $ 238

Total $2,775

5.6% CAGR

1.9% CAGR

22%

37%

48%

69%

89%

11%

38%

59%

70%

86%

97%

3%

22.8% 21.0% 19.2% 16.4%

14.3%

3.3% $434,682 $175,817 $125,195 $73,354 $36,055

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

0%

20%

40%

60%

80%

100%

Top 1% Top 5% Top 10% Top 25% Top 50% Bottom 50%

% of Income (Total $7.4T) % of Taxes (Total $949B) Average Tax Rate Income Splits

DOES THE ANSWER LIE IN “FAIRER” INCOME TAXES? 27

Source: Tax Foundation, Data reflects 2012 U.S. Federal Tax returns

A WEE BIT OF GOOD NEWS: U.S. PATENT GRANTS 28

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

U.S.

U.S. % of World Total

MACROECONOMIC AND INVESTMENT STRATEGY OVERVIEW 29

• US economy accelerating

• World economies remain fragile

• Best 6 months job growth since early 2006

• Labor participation remains at historically low levels

• Wage growth has been lackluster

• Oil price decline due to oversupply

• Decline in oil could support consumer spending

• Monetary policy in US in transit

• Global monetary policy uncertain but remains accommodative

• Consensus estimates for increase in Fed funds rate in 2nd half of 2015

• Increased volatility in global equity markets

• Expectation for normalized rate of return in US equities based on earnings growth

• Bond Valuations at elevated levels

• Risks: U.S. political risk, Inflation, Europe, Oil, China growth, Geopolitical risk, cyber risk

Scenario: In Transition Recovery

• Focus on strong risk adjusted returns

• Emphasis on active management (attractive excess return potential)

• Overweight Large cap domestic

• Focus on multinational equities

• Focus on Dividend growth

• Underweight on developed international and emerging market equities

• Willing to take more credit risk than duration risk

• Overweight core alternatives

• Neutral on commodities

• Defensive duration posture

Portfolio Positioning : Disciplined Diversification

Over/underweights relative to MSCI ACWI

Patricia C. Brennan CFP®, CFS January, 2015

Key Financial, Inc. 1045 Andrew Drive, Suite A

West Chester, PA 19380

Ph. 610-429-9050

Fax. 610-429-9279

E-Mail: [email protected]

Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Insurance services

offered through Patricia Brennan are independent of Royal Alliance Associates, Inc. Advisory services

offered through Key Financial, Inc., a registered investment advisor not affiliated with Royal Alliance

Associates, Inc.

YTD Returns as of 12/31/14

Dow Jones 7.52%

S&P500 11.39%

NASDAQ 14.75%

Russell 2000 4.89%

MSCI EAFE -7.35%

NYSE Composite 4.22%

Barclays U.S. Corp Bond 2.36% Source: Wall St Journal 1-1-2015

[1] An Index is a hypothetical portfolio of specific securities (common examples are the Dow Jones Industrial and the S&P 500).

The performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged

portfolios and should only be compared with securities with similar investment characteristics and criteria. Investors cannot invest directly in

an Index. MSCI EAFE: This Europe, Australia, and Far East index is a market capitalization-weighted index of 21 non-U.S. industrialized

country indexes. Past performance does not guarantee future results.

http://awealthofcommonsense.com/wp-content/uploads/2014/11/5-yr-sub-rtns.png

Head Fake

Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific investment.

They do not include consideration of the time value of money, inflation, fluctuation in principal or in many instances, taxes.

Google (-5.4%)

Halliburton (-22.5) Phillip Morris (-6.5%)

IBM (-14.5%)

Citigroup 3.8%

Dow Chemical 2.7% MasterCard 3.1%

Chevron (-10.2)

Ford .5% McDonalds (-3.4%)

Met Life .3%

Verizon (-4.3%)

Pfizer 1.7% Coca Cola 2.2%

EBay 2.3%

Not everything went up:



Source: A Wealth of Wisdom July 31st, 2014



How Framing Affects Decisions

Source Wells Capital Management-Economic and Market Perspective October 10, 2014



Framing……Continued

http://awealthofcommonsense.com/wp-content/uploads/2014/05/arguments.png




Europe – Try to Avoid Recency Bias

Conference Board US Consumer Confidence Index




Sentix Eurozone Economic Sentiment Index- Survey Based on 4500

private and institutional investors




Global diversification: Accepting good enough to avoid terrible




Stock Returns After a Period of Above Average Performance:




http://awealthofcommonsense.com/wp-content/uploads/2014/11/10-yr-rtns.png

The ten year numbers are still spread out, but are more clustered than the

5 year results as the extreme gains and losses are reduced:




http://awealthofcommonsense.com/wp-content/uploads/2014/11/5-yr-sub-rtns.png

The 10 year returns show more consistency in the range of outcomes:




http://awealthofcommonsense.com/wp-content/uploads/2014/11/10-yr-sub-rtns1.png

US Treasury 10 Year Bond Yield

Natural log scale

Source Wells capital Management, December 9, 2014



What does the bursting of a Bond “Bubble” look like?

Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific

investment. They do not include consideration of the time value of money, inflation, fluctuation in principal or in many

instances, taxes.

1981 – 2014

10 yr Treasury Yield 15.8% → 2.01%

Return Lost through active management 14%

Is Active Management Dead?

Source: Barron’s – Return of the stock pickers 1/12/2015

Is Active Management Dead?

Active Management Excess Return on the S&P 500

1962 – 1981

10 yr Treasury Yield 3.85% → 15.8%

Median excess return 62%

3.2% per year

Excess Return on $10,000 = $13,000

Source: Barron’s – Return of the stock pickers 1/12/2015

Shiller Cape Ratio



instances, taxes.

http://awealthofcommonsense.com/wp-content/uploads/2014/04/CAPE-now.png



instances, taxes.

http://awealthofcommonsense.com/wp-content/uploads/2014/04/CAPE.png

Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific investment. They do not

include consideration of the time value of money, inflation, fluctuation in principal or in many instances, taxes.

Lessons from the Financial Crisis

The Great Financial Crisis might be this

generation’s Great Depression.

Panicking is not a strategy.

One of the few things you can count on

with near certainty — markets are

cyclical.

Envy might be an investor’s worst enemy.

The herd usually piles in at the wrong time.

Understand your sources of financial advice.

Main street is different from Wall Street.

Pessimism is easier to buy into than optimism.

It’s OK to be wrong, just don’t stay wrong.

Investing is hard

Planning can make all the difference

The views expressed are not necessarily the opinion Royal Alliance Associates Inc, and should not be construed directly or

indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to

risks including loss of principal invested. No strategy can assure a profit against loss. Foreign investments involve special

risks including greater economic, political, and currency fluctuation risks, which may be even greater in emerging markets.

Indices cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses. Due to volatility

within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be

reliable; however, their accuracy or completeness cannot be guaranteed.

You can’t predict, you can only prepare.

Let’s Do a Pre-Mortem

• What will I do and how will I feel if stocks reverse from

these levels and fall 10%, 20% or 30%?

• What will I do and how will I feel if stocks continue to rise

another 10%, 20% or 30%?

• How much money am I willing to lose in my portfolio

before I become uncomfortable and act irrationally?

The Pre-Mortem

• How will I react if my future portfolio performance is

lower than expected?

• How will I react if my future portfolio performance is

higher than expected?

• Does my investment plan take into account the fact that I

will be wrong from time to time?

The Pre-Mortem (continued)

Thank You for Your

Time and Attention

Key Financial, Inc.

Patricia C. Brennan CFP®, CFS

1045 Andrew Drive, Suite A

West Chester, PA 19380

Ph. 610-429-9050

Fax. 610-429-9279

E-Mail: [email protected]

Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Insurance services offered

through Patricia Brennan are independent of Royal Alliance Associates, Inc. Advisory services offered

through Key Financial, Inc., a registered investment advisor not affiliated with Royal Alliance Associates, Inc.

11 annual - ccedcpa.com · • defensive duration posture portfolio positioning : disciplined...

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