by Max Marbut
Staff Writer
One of the realities of economics as a science is that timing is everything. That point was brought home Tuesday evening at Jacksonville University’s Davis College of Business.
Several months ago, the Economic Roundtable of Jacksonville scheduled as its first guest speaker of the 2008-09 season Morgan Stanley Vice Chairman Margaret “Mag” Black-Scott. In addition to the fact that over her 28-year career with the firm Black-Scott has risen through the ranks from financial advisor to managing director and vice chairman for national sales, she also has a considerable connection to JU. It’s where she earned her MBA and was also an adjunct professor.
Those are all good reasons to invite her, but the recent Lehman Brothers meltdown and Merrill Lynch being bought by Bank of America set up this week as the best time to hear what an authority on the world’s investment climate might think about current events.
“I am not an economist,” said Black-Scott. “My role has always been to interpret what our economy is saying so that our clients have an idea of what do do about their investments.”
She believes America is “65 percent of the way through the bad news. U.S. institutions have been very aggressive in writing down the value of their distressed securities. We have had two bubbles going on — credit and real estate — and we’re probably only 20 percent of the way through that bad news. In terms of our global cross-border linkages — trade flows, capital flows, information flows and labor flows — we’re probably only about 10 percent through the bad news.”
Improvement in the economy won’t begin until the second half of 2009, based on Morgan Stanley’s analysis, added Black-Scott, “So we’re going to have a workout until that time.”
She even brought up the “R” word during her presentation and said, “According to one of my very learned colleagues, we’re entering into a recession. I say we’re already in one.
“Along the way we moved from income savings to asset-based savings. We saw our homes increasing in value and we went on a buying binge. If people didn’t have enough money, they refinanced their house. If they wanted a car, they refinanced their house. If they wanted a boat, they refinanced their house. Instead of saving for the events of life, we just took the money from an asset that we had that we believed would grow to the sky forever.”
Black-Scott said that trend has led to this week’s headlines.
“By perpetuating excess consumption in the country, we have created all this that has come to pass. If this crisis is anything, it’s a wake-up call. Politicians in Washington, all of them from both parties, insist this can go on forever. But it cannot.”
Black-Scott said her hope is that when either Sen. John McCain or Sen. Barack Obama moves into the White House in January, “He needs to encourage more tax-sheltered savings opportunities for retirement. We also need some investment-related tax reform and an evaluation of the capital gains and dividend tax rates.”
She also said while neither candidate would ever want to admit it to the electorate, “The reality is we’re going to have to pay more taxes and start saving money.”
No matter who fills out a change of address card for 1600 Pennsylvania Ave. there will be investment opportunities, albeit different opportunities depending on the choice the people make at the polls in November.
“In the case of a Republican victory, good places to invest will be credit card companies, large-cap pharmaceuticals and the oil and gas industry. In the case of a Democratic victory, we’d like biofuels, geothermal, solar and wind power, generic drug companies, hospitals and Medicaid companies.”
There are some things investors should do no matter the outcome of the election, said Black-Scott.
“At this stage we are advising our clients to focus on capital preservation and raising cash.
“For people who have a long time horizon — by that I mean two to three years –– good companies that you buy today will do well for you. If you have some additional dollars available, look at money-market funds or fixed-income investments like good-quality industrial bonds. We think there’s a lot of opportunity there but stay short, in the one- to three-year range.”
The next Economic Roundtable of Jacksonville will be held Oct. 14 when U.S. Rep. Ander Crenshaw will present a “Congressional Report Card.”
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