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By Tim Hunt

Thoughts on the state of the economy

Uploaded: Sep 13, 2018

Liz Ann Sonders, the senior vice president and chief investment strategies for Charles Schwab, told members and guests of the Pleasanton Men’s Club that the current economic expansion may be moving into the third of the four phases of an economic cycle this week.
She also pointed out how crazy some people can be who have told her “what risks” when it comes to investing and the economic cycle. She said her group currently is basically neutral across the economic sectors after being over-weighted to technology, health care and finance earlier. Schwab advisor and men’s club member Joe McKissick arranged for her presentation, which he conducted as a sit-down interview.
Sonders expects, when the cycle does enter the fourth phase, that it will be much more normal than the past two downturns that were ignited by massive bubble bursts of the economy in 2000 and the financial and housing crisis of 2008. She remarked that, because of those two shattering bursts, they may have lost a generation of investors.
She pointed out that economic fundamentals were strong when the stock market crashed in those situations. More normal would be a recession with a 20 percent correction in the stock market.
One of the risks to the continued economic cycle is a trade war over the tariffs that President Trump has applied that have sparked responses from other countries. Sonders also jabbed the financial media for its sensationalistic reporting including, for instance, citing $267 billion in trade with China. The more accurate number would be 25 percent of that, because that’s the impact of the tariffs.
She was asked how the economy could continue to grow with the United States at full employment with more jobs available than people to fill them. Sonders, who said she stays out of politics, pointed out that the president has a goal of 25 million new jobs and yet wants to cut way back on immigration in a time of full employment. The positions are incompatible, she said.
Given the strong jobs picture and growth in wages, she expects the FED to raise interest rates in December as it continues to move to normalize the interest rates. That’s in contrast to the rest of the world
When asked about the third and fourth stages and when it was time to “get out,” she immediately challenged the thought of timing the market and getting out. Schwab encourages clients to build strategic plans for investing and then routinely rebalance—for instance the recommendations change from “overweight” to neutral in sectors—but stick with the plan.
When asked what kept her up at night—she joked her 18-year-old college freshman—and then said it’s the long-term issues of the deficit and the debt. Tackling them requires reforming both Social Security and Medicare. She said three smart people with a napkin could devise a fix for Social Security, but Medicare is more complex.
One veteran observer and long-time friend noted that he really appreciated her gracefully deferring from commenting on areas out of her area of expertise. When asked about bitcoin, she said her knowledge would barely fit in a thimble. She came back to the same phrase when asked about mortgages.
After her nearly 90-minute interview, she graciously entertained individual questions as well as taking pictures with fans.
Sonders was an original guest on Wall Street Week with Louis Ruykeyser and often is seen on business channels and quoted in business publications.
Incidentally, she pointed out that Schwab, in contrast to many financial services firms, makes it recommendations and research available to the public on its website.