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1Q 2017 Quarterly Investment Letter

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The period just after the beginning of a New Year is traditionally a good time to reflect on and be grateful for the past year. Financially speaking, 2016 was a good year for stocks and a decent year for bonds. Those factors brought good results to most portfolios. The U.S. economy completed its seventh year of a slow growth recovery. Employment, wages and home prices continued to increase. Those indicators, in turn, pushed consumer confidence to a record high. All in all, 2016 was a good year.

When I talk with people about 2017, I hear both excitement and fear about changes we are likely to see going forward with the Trump administration. Change often equals anxiety for many people. They worry about how they are going to deal with the shift — what they may lose, what they need to do differently and what the outcome might be.
Words of Inspiration
The U.S. Marines have a great way of dealing with big change or the unexpected. Their motto: “Innovate, Adapt and Overcome.” To fully understand this statement, you need some background. The Marines weren’t always treated as the elite team they are today. Early in the Marines’ history, they routinely got old, cast-off equipment from the U.S. Army. The Marines never knew what items they would get, so they learned early on to deal with the unexpected in very positive ways. In short, they innovated, adapted and overcame any equipment-related or other obstacles that arose. In the movie “Heartbreak Ridge,” actor Clint Eastwood does a great job of demonstrating how the Marines put this motto into play. 

However, the Marines aren’t the only ones who know how to effectively innovate, adapt and overcome. Corporations do it every day. National economies must do it. Individuals do these things creatively and well, too. Let’s look at some examples

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Corporate and Economic Innovators
Apple is a great example of a company that innovated, adapted and overcame. In 2000, it seemed that Microsoft and Intel had locked up the computer market. Apple was marginalized and had lost significant market share. Instead of just launching a new computer, Steve Jobs and Apple decided to innovate. The answer: Apple developed the iPod. The company also adopted a new line of business: online music. Apple then overcame its competition by using the iPod to introduce new consumers to their computers. To strengthen its brand, Apple built its computers using many of the same, very effective design elements as the iPod.

The U.S. economy is another winner in this arena. The markets overcame the Great Recession created during the financial crisis by innovating, adapting and overcoming. In 2008, the U.S. Treasury, led by Hank Paulson, needed an innovative way to get troubled loans off financial institutions’ balance sheets. The result was the Trouble Asset Relief Program (TARP). The Treasury kept the U.S. banking system solvent by buying these bad assets from financial institutions’ books. In addition, the Federal Reserve, led by Ben Bernanke, adapted monetary policies aimed at purchasing bonds in the open market and keeping interest rates extremely low to stimulate economic growth. As a result, the U.S. financial system remained liquid and solvent. Slowly, the economy began to grow and the United States became one of the first countries to emerge from the Great Recession. We overcame!

Never Underestimate the Human Race
Way back in 3500 B.C., we had to carry everything on our backs. (My kids seem to think I was alive back then and that I may remember this.) Then some smart person innovated and invented the wheel. Wow, was that ever a game changer! Once we had the wheel, we kept adapting and developed the axle (without which the wheel isn’t worth much). Once humans had the wheel and the axle, we were able to overcome other animal species. We moved on to develop glass, steel, gears, compasses, rockets, printing presses, engines, refrigeration, radios, television, the internet and more. Humans overcame! I bring up this reminder of our history for good reason. My motto is to never count out the human race. We are wired to innovate, adapt and overcome the odds, no matter how daunting they are. This is also why financial markets are so powerful. The markets are composed of people who, by their very nature, are driven to constantly innovate and adapt. No one can predict precisely what our next innovation will be. However, that’s what makes the future so exciting. Great things we could never have imagined are waiting for us just around the corner, monetary and otherwise. Our job is to make sure we’re prepared to adopt the ones that make sense, but that we’re also prudent enough not to react impulsively.

Our RegentAtlantic team of innovators, adapters and overcomers want to wish you and your family health, wealth and happiness in 2017. Please contact your Wealth Advisor or me if you have any questions or concerns about your portfolio’s role in these New Year’s wishes.
Chris Cordaro
Managing Partner, Chief Investment Officer and Wealth Advisor

 

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