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VOL. 7 | NO. 20 | Saturday, May 10, 2014

The Market Whisperer

Art Hogan says 2014 may be breakout year for economy

By Andy Meek

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Confused by the financial landscape? On May 15, The Daily News hosts Money & Markets: The State of the Economy.

(AP Photo/Richard Drew)

When economic analysis gets reduced to a binary choice between opposites like bullish or bearish, up or down, strong or weak, the complexity that helps explain the way things are gets lost in a thicket of sound byte-ready oversimplification.

Between the talking heads and politicization of important fact sets like the jobs reports, company earnings and stock market performance, it’s no wonder that making sense of the economy sometimes seems like it requires help from a modern-day version of the Oracle at Delphi.

Consider, for example, a roundup of recent headlines related to the U.S. economy’s first-quarter performance. TIME lamented that the “U.S. economy slows to a crawl in first quarter of 2014.” Reuters tried to find a silver lining in the first quarter cloud, with “U.S. economy stalls in first-quarter, but fundamentals still sound.” CBS went full-on positive, with, “U.S. economy expected to rebound from slow first quarter.”

Meanwhile, this is why people like Art Hogan get paid to do what they do.

Hogan is the chief market strategist for Wunderlich Securities Inc., the Memphis-based full-service brokerage firm he joined a few weeks ago after a career that’s included stints with companies also in the investment space, like Lazard Capital Markets and Morgan Stanley.


At Wunderlich, he’s the “market whisperer” who presents the firm’s thinking on things like how it perceives economic data, how the firm perceives the earnings season and how the firm perceives economic inputs like monetary policy, among other things.

He also tries to wrap that around what’s actually happening, in real-time, in the marketplace. And he’s got two distinct audiences for his commentary and analysis. The firm’s private client service group is what Hogan spends at least half his time in front of, and then the other half finds him with the institutional investor population.

For that reason, he’s sought out frequently on business news programs like CNBC and Bloomberg. And that’s why on May 15 he’ll be the keynote speaker at The Daily News’ seminar Money & Markets: The State of the Economy.

The seminar, which will include a panel discussion with other local experts in the same field, will be held at the Memphis Brooks Museum of Art, 1934 Poplar Ave. The panel will include David Waddell, president and CEO of Waddell & Associates; Kent Wunderlich, chairman, CEO and general counsel for Financial Federal; and Tom Sullivan, a member with Reynolds, Bone & Griesbeck PLC.

When Hogan joined Wunderlich in March, firm CEO Gary Wunderlich said his firm was thrilled to have the veteran market guru on board to help advise clients of the firm, who represent more than $8 billion in assets. He said Hogan also would be providing daily reports on the markets for Wunderlich’s advisers to use.

“There is little doubt that cult-like momentum names get overvalued,” Hogan wrote in one of his recent stock market commentaries. “It is the nature of the beast. And when that group heads in a given direction it is not for the faint at heart to get in the way, up or down. Stocks can remain irrational longer than you and I can remain solvent.”

During his presentation in Memphis, Hogan isn’t likely to be any kind of harbinger of economic doom.

“I certainly think I’m more bullish philosophically at this point in time,” he said in an interview. “I think a lot of that’s sort of based on current valuations and broader markets. If you’d put a historic multiple on where the S&P should be trading in an interest rate environment where we basically have sub-optimal inflation and very low interest rates, I would say you could make the argument that we should be trading at about a 17 multiple. And that would be conservative, I think.

“How, though, do you express your views if, in fact, you are bullish on this market? What’s the best way to express that for an individual investor? There’s a lot of ways to manifest that in one’s portfolio. What are some of the appropriate ways to represent that opinion? I’m hoping with those broad strokes that that sort of works its way into a larger conversation with the panel and some Q-and-A from the crowd.”

From the vantage point of an outsider, the average investor, or just a member of the general public, it would appear optimism might be misplaced at the moment. The Commerce Department, for example, in recent days said that the nation’s gross domestic product grew by 0.1 percent in the first quarter – the weakest quarter in three years, according to The Wall Street Journal.

It also came in below analyst estimates of 1.1 percent.

Hogan and others argue that the weakness of the quarter can be attributed in part to “harsh winter weather” and other one-time or short-term factors, according to the WSJ.

Specialist John O’Hara works on the floor of the New York Stock Exchange on a recent morning. Anyone interested in hearing the latest about the economy should attend the May 15 seminar Money & Markets: The State of the Economy, which is being sponsored by The Daily News.

(AP Photo/Richard Drew)

In April, meanwhile, private employers added 220,000 jobs to their rolls. That was the most since November, according to ADP. The Federal Reserve also has said it will pull back its monthly bond buying by $10 billion – but the central bank is still keeping short-term interest rates near zero.

“Five years down the road, we’re still proceeding with emergency monetary policy,” Hogan said. “It’s a difficult task to unwind. Especially in a fragile economy that’s just getting its feet. Janet Yellen, the new Fed chairman, seems to be someone who wants to be both transparent and consistent, so I think as far as the messaging we’ve gotten so far on tapering, that’s pretty consistent. The message we’ve gotten so far on data-dependence also is pretty consistent, as is the message of throwing away some of the standard rules like having targets for inflation and unemployment.

“I would argue the Fed will probably keep interest rates lower longer even if we do hit some of the old targets, whether it’s 6.5 percent or 2 percent inflation, things like that. I don’t think you’d see any panicked monetary adjustments at 2.5 or 3 percent inflation. And I only say that because I think the Fed knows inflation is a lot easier to fight with monetary policy than disinflation or deflation.”

But the problem with taking medicine for a long period of time, Hogan cautions, is that it becomes harder to wean off of it and go back to the status quo.

“Having had unusual and unconventional monetary policy for an extended period of time, you sort of get a market that gets used to that,” he said. “I’m not so sure the economy’s used to that, because I don’t know that a lot of liquidity that’s been put into the system has actually been put to work and put to actual productive use.

“One thing I find encouraging over the period of this latest earnings reporting season, understanding the first two weeks is pretty heavily laden with financial companies – the one consistent thing, whether it’s on the regional level or on the money center bank level that we’ve seen on the financials of the U.S.-chartered domestic banks is that they’ve spoken to an increase in loan activity. As a matter of fact, the year-over-year loan growth rate is about 8.8 percent right now, on a four-week moving average.”

That growth rate compares to a historic average of about 5.3 percent, he added. With that in mind, he thinks capex – capital expenditure – spending will probably drive the next leg of growth in the economy, and robust loan growth is one way to spur that.

Such loan growth helps fuel companies’ buying new technology and investing in new plant equipment, for example.

Hogan said the U.S. economy also is more frequently seeing people these days willing to take the risk to start a business, get access to capital and credit and get a bank on board with them to give their business plan a thumbs-up – and sign them a check for a loan.

“That’s something we weren’t seeing a lot of two years ago,” Hogan said. “I get the sense 2014 may be a breakout year for the economy. We’ll see how much of a corner we’ve turned in the economic data calendar, but so far it’s been pretty good. The March data’s come in better than the January-February timeframe, and if we continue that, picking up a bit of a head of steam, we may break out of the pattern of the spring doldrums where we haven’t been seeing the pickup again until fall.”

PROPERTY SALES 56 437 16,061
MORTGAGES 76 508 18,556
BUILDING PERMITS 241 876 33,390
BANKRUPTCIES 64 301 10,314