History Has Steered Folks to Environmental, Social and Governance Investing.
In this Milwaukee Journal Sentinel article from July 15th, Tom Saler explores socially responsible investing (SRI) and breaks down some recent high-profile examples.
Read July article.

 

New Firm Targets Socially Responsible Investors.
In this article from January 9th, Milwaukee Journal Sentinel reporter Kathleen Gallagher explores Greg Wait's launch of a new company that combines socially responsible investing and online investment advice.
Read January article.

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's October 17th article, Kathleen Gallagher and Greg Wait discuss the recent rise of environmental, social and governance, or ESG investing. Greg provides insight into how reduced risk and improved returns are causing money managers to include ESG investing in their portfolios. Read October article.

 

Responsible Investing: Creating Financial and Non-Financial Value by Greg Wait. Do investors sacrifice returns in pursuit of their goal of advocating for a better world in which to live?
Learn more.

 

Ten-Year History of Investment Manager Performance by Greg Wait. As part of our process, we have conducted investment manager research and due diligence resulting in manager or fund recommendations to our clients. Here are our findings.

 

The month of September, 2013 marked the 10-year anniversary of Falcons Rock serving our clients and building relationships. We are grateful for all the years of friendship, loyalty, and support, and look forward to our next decade!

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's July 20th article, Kathleen Gallagher and Greg Wait discuss the rising U.S. Treasury rates and using duration as a measure of risk. Greg's comments relate to whether we'll be "looking back on this short-term increase in yields as the warning shot for the much-anticipated longer-term rise in interest rates." Read July article.

 

Dec 9, 2012, Journal Sentinel's Kathleen Gallagher interviewed Greg Wait on current Investment Trends. Read the full article: "Low-quality stocks continue to provide strong returns."

 

We've Grown! Meet our new investment consultant: Tony Sebranek.

 

Investment Trends column of Milwaukee Journal-Sentinel shows Top-Down investment strategies are achieving positive results.
Read article on Top-Down Investing

 

Additional articles in the Milwaukee Journal Sentinel featuring Falcons Rock:
One is a fascinating story about a Mequon drug development company, which has a few of our clients as private investors.
Read article about our angel investors

 

Another features us in the Market Trends column: Strategy targets uncertain economy - and how Falcons Rock confronts specter of slow growth.
Read how we help clients get ready

 

There is a great deal of debate in the investment industry regarding active vs. passive (indexing) investment management.  We researched this topic and the results might be surprising to you.  Please see our research paper on this subject...more

 

We have experienced interesting situations with our clients. To update you on our firm’s activities, check out examples of recent work we have done for our clients...more

Get quarterly market reviews direct from Falcons Rock President, Greg Wait.

Get current quarterly market review newsletter
Sign-up for our Quarterly Market Reviews

Subscribe to future Quarterly Market Reviews

US SIF Member 2017

A Slippery Slope of Oil

 

2014 Quarter 4 Market Review

It is certainly a happy new year for US drivers, as gas prices have fallen dramatically over the past year. With a quick search, I found at least a dozen gas stations in the Milwaukee area selling regular unleaded gas at below $2/gallon, with many as low as $1.93/gallon. My college-age son is thrilled to have a few extra bucks in his pocket when he is filling up his car!

Gas Pump

These extra dollars available for consumers to spend are driving the US economy upward. Consumer spending is the largest component of the US Gross Domestic Product, which grew by about 5% in the fourth quarter of 2014. This was one of the best quarters for GDP growth in quite some time, and brought the estimated growth for the year to 2.7%. Most economists are expecting US economic growth of over 3% in 2015.

The reduced gasoline prices are due, in large part, to the dramatic collapse of global oil prices. Oil benchmarks have fallen by more than $50 per barrel since peaking in June, and are priced at near $49/bbl as of this writing. About half of the decline in oil prices is attributable to rising global production, led by huge production growth in the US. Since 2013, US oil production has climbed over 20% and is almost solely responsible for all forecasted global supply growth. According to the International Energy Agency (IEA), the US has surpassed Saudi Arabia and Russia in oil production when condensate and natural gas liquids are included. Increased drilling and new “fracking” technologies are largely responsible for recent discoveries of oil and natural gas.

During 2014, weaker than expected global demand for energy contributed to nearly a third of the decline in the price of oil. Falling demand is a result of slower growth in China and a double-dip recession in Europe. Many emerging markets countries are dependent on exports of energy and other commodities, and with the plunge in prices some of these countries have also experienced slower economic growth, further depleting demand.

Because the US is still a net importer of oil, its overall economy will benefit from lower prices. On average, every $10 decline in oil prices corresponds with an approximate 0.2% gain in real GDP growth. If the price of oil stays at current levels for a year, about $120 billion in spending will be rechanneled from energy to other goods and services. Lower prices may help the economies of most European countries, as well as Japan, as they are also net importers of oil. Reduced gas prices are of the greatest benefit to lower-income consumers (like my college-age son), as they spend the highest percentage of their income on gas and motor oil. Lower-income consumers will spend these extra dollars on other goods and services, as opposed to increased savings by higher income workers.

So, will oil continue on its slippery slope downward in 2015? Many would argue that global economic woes will keep demand down, while improving technologies will allow producers to increase the supply of oil at lower costs. Some are also concerned about the impact of falling oil prices on employment in the large US oil and gas industry. History would suggest, however, that the oil industry has a way of self-correcting. Producers become unwilling to explore and drill new oil wells as prices fall below the break-even costs of extraction…typically with a lag of about three quarters. Low prices ultimately increase demand, and we have already seen a trend toward less fuel-efficient SUVs and trucks in 2014 as new car buyers are disregarding gas mileage at current prices. So, while the IEA is forecasting a continued oil glut in 2015, inevitably the supply and demand equation will change and prices will adjust toward producer break-even levels.

Until that happens, enjoy the (cheap) ride!

Fourth Quarter 2014 Review

The S&P 500 Index generated another positive return in Q4 2014, and finished the year with a gain of 13.7%. Equity mutual funds posted their ninth positive quarter in the last ten. The best performing sectors in the S&P 500 Index during Q4 included Utilities (+13.2%), Consumer Discretionary (+8.7%) and Consumer Staples (+8.2%)…do you think consumer-related businesses are enjoying the reduced gas prices? The worst performing sectors during the fourth quarter were Energy (predictably, -10.7%), Telecom (-4.2%) and Materials (-1.8%).

The US Dollar continued on its torrid increase, as our economy looks to be in great shape compared to most others around the globe. The rising Dollar again caused losses in stocks of most foreign countries held by US investors during the quarter, even though stocks were higher in many countries’ local currencies. In US Dollars, the “best” performing countries included China (+7.2%), Germany (-0.4%) and India (-0.7%). Countries with the worst returns during the quarter included Russia (-32.8%), Brazil (-14.8%), and France (-5.8%). The economies of Russia and Brazil are heavily dependent on commodity exports.

Bond markets were mixed during the quarter, with positive returns in municipal and US government bonds but generally negative returns in foreign bonds, due in large part to the rising US$ currency. US high yield bonds saw losses, especially in the energy sector, which represents nearly 17% of this market…oil producers have taken on heavy debt to ramp up production. Overall, most balanced portfolios and alternative strategies posted small gains during the quarter. Commodities markets continue to be hit hard by oversupply and reduced global demand.

Here are the returns for select market indices for Q4 and calendar year 2014 (as stated in U.S. dollars):


This and That

  • The Moody’s Survey of Business Confidence ended 2014 at a record high. On a 4-week moving average basis, confidence has never been stronger in the twelve years of the business confidence survey. Sales, hiring, and investment spending are all strong and credit availability has improved. Expectations regarding the economy’s prospects into next year are especially strong.
  • The University of Michigan Consumer Sentiment Index is also very high at 93.6, well above the historical average of 84.8 and the highest reading since January 2007.
  • While the overall US economy is heating up, a few metro areas are still struggling. The Moody’s Analytics business cycle status estimates show four metro areas still in recession (Santa Fe, NM, Farmington, MI, Atlantic City, NJ, and Anniston, AL), and another nine in moderating recession. The two biggest drivers of current metro area recessions are the federal government (defense cuts have driven nearly half of the metro area recessions) and manufacturing (lack of manufacturing diversity).
  • While many market-watchers have been predicting higher inflation for a while, the “Headline” Consumer Price Index may fall into negative territory in the upcoming months as energy prices continue to fall. The more stable “Core CPI” is currently at +1.7%, well below its 50-year average of +4.1%.
  • As a follow up to my recent article entitled “Responsible Investing: Creating Financial and Non-Financial Value,” it is interesting to note that a mutual fund manager who seeks companies that score well on environmental, social, and governance screens is a finalist for Morningstar’s 2014 Domestic-Stock Fund Manager of the Year.
  • The Green Bay Packers are in the NFL playoffs for the sixth straight year, and 18 of the last 21 years…Go, Pack!

Given the wide range of potential risks and rewards facing the global markets as we head into 2015, it remains prudent to diversify investment portfolios. Going into 2014, very few “experts” predicted that interest rates would fall further, commodity prices would tank, and the US Dollar would explode. Well-diversified portfolios provide investors with the best chance of reaching their goals with a reasonable level of risk.

Happy New Year…and thank you for being a client of Falcons Rock.

Greg Wait, President of Falcons Rock

Gregory D. Wait, President
Falcons Rock Investment Counsel, LLC

Download PDF

[ Back to current review and archive list ]