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Is The Hummer On Its Way Back?

Is the Hummer on Its Way Back?

Drivers who embraced the “bigger is always better” mindset weren’t happy when General Motors discontinued its massive, military-inspired vehicle five years ago. But the Hummer’s end was probably inevitable: Gas prices were rising sharply, and Arnold Schwarzenegger’s vehicle of choice was getting a measly 10+ miles per gallon.

Fasten your seatbelt and fast-forward to this January: The American Automobile Association (AAA) says this month’s gas prices are the lowest they’ve averaged since May of 2009—back when Hummers were still on showroom floors. And surprise: According to an article in The Washington Post *, a few used Hummers are actually selling again—along with other models of large, gas-guzzling SUVs.  As gas and oil prices go down, larger vehicle sales are starting to creep back up.  We’ve seen this movie before; “I’ll be back!”

Oil Prices Plunge

Car shoppers make many decisions around prices, considering things like the up-front price of the car and how much it’s going to cost to keep it fueled up.  We saw a huge shift in shoppers’ preferences since the Hummer’s hey-day.  Americans shifted to more fuel efficient cars, especially if they didn’t need a seven seat gas guzzler for their solo daily commute.

Businesses make decisions around price too – seeing record high prices for oil, with it trading around $100 a barrel for several years, many businesses began to drill new wells at higher costs to get oil out of the ground in places like North Dakota and Canada.

Over the past year, the combined effect of consumer preferences for fuel efficiency and businesses’ record high oil output came to bear on the price of oil in a plunge of nearly 50%.  This is incredibly good news!  This is good news for shoppers around the globe who can potentially spend less on gas and more on everything else.  And, if they happen to have their eye on that Hummer, they don’t have to be as worried about the price of keeping it fueled up.

Cheaper oil could mean consumers can spend their money on other things, stimulating the economy.  Some of the largest investible markets in the world are oil importers – the U.S., Western Europe, Japan and China. They’re importing cheaper oil, which makes their consumers that much stronger.

Currency Prices

Investors saw a big move in currency values last year, with some of our major trading partners seeing a big cut in the price of their currencies.  The Euro and the Yen both cheapened by more than 10%.  This again is great news for shoppers and businesses alike.

The U.S. came roaring back in 2014, with the economy growing at an annualized rate of 5% from June to September – the highest rate in over 10 years.  Other developed economies have been more tepid.  The currency movements are good news for international businesses and American shoppers because they are effectively a price cut on everything they produce.  We as shoppers benefit from the potential for lower prices and international businesses can get on equal footing with companies in the U.S.  This may even have a big impact on our prospective car shoppers – if they have their eyes on a German import instead of the made-in-America Hummer, they could be in for a bargain!

Asset Class Cycles

Asset prices, like oil and currencies, tend to fluctuate above and below their fair value.  This creates opportunities for patient long-term investors.  We believe opportunities currently exist in foreign stocks. They are undervalued relative to US stocks, have the benefit of cheaper currencies going forward and many of their central banks are in the beginning of monetary easing programs to improve growth.  The long-term patient investor could be rewarded with an allocation to foreign stocks.

The US stock market represents about half of the world’s stock markets’ capitalization.  More than half of our growth allocation is in US stocks.  While we believe foreign stocks represent a good opportunity, we also believe US stocks will continue to do well in the long-run.

Balance is Key

Our client portfolios are diversified among US stocks, foreign stocks, and alternatives.  We believe diversification helps to reduce risk and compound returns in an effort to create more wealth over time.  It is good to see US stocks (and a strong dollar) driving portfolio returns recently.  We should remember that different parts of the portfolio will cycle in and out of favor.  For example, US stocks lagged behind in the “lost decade” of January 2000 to December 2009.   The S&P 500 lost 9.1% while the world’s stock markets as measured by the MSCI All World Index earned 10.9%. That was a tough period, and a reminder why we believe that global diversification is still key.

As always, contact your Wealth Advisor if you have any questions about your investments. Enjoy the rest of your winter!

*The Washington Post, November 10, 2014, “The Hummer is back.  Thanks to falling oil prices.”

 

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested.  Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This presentation is not a substitute for personalized advice from RegentAtlantic.  This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

The index returns shown show the total return for various investment indices and include the impact of the reinvestment of dividends. A comparison to indices may not be a meaningful comparison. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the performance of a client’s portfolio. The investments in a client’s portfolio may differ substantially from the securities that comprise each index and are not intended to track the returns of any index. One cannot invest directly in an index, nor is any index representative of any client’s portfolio.  Actual client accounts will hold different securities than the ones included in each index. The index returns are gross of applicable account transaction, custodial, and investment management fees. The actual investment results would be reduced by such fees and any other expenses incurred as an investor.  Please see below for definitions of the indexes used.

S&P 500 Index – The S&P 500 is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. Each constituent in an index is weighted by its market-capitalization, as determined by multiplying its price by the number of shares outstanding after float adjustment. The price return of an index is a measure of the cap-weighted price movement of each constituent within the index.

MSCI All World Index -The MSCI All Country World Index (ACWI) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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