At Schwab Impact, Optimism Reigns on the Markets and Economy

Liz Ann Sonders, Mellody Hobson share outlook for 2010, and 2011, with advisors and Maria Bartiromo

Kicking off Schwab Advisor Services’ Impact 2010 conference in Boston, a panel consisting of Schwab’s chief investment strategist and Ariel Investments’ president said they were optimistic about the economy and the markets for the rest of 2010 and into 2011.

Mellody Hobson of Ariel answered Maria Bartiromo’s opening question by saying she saw “slow but steady improvement” in the economy, saying “we’re beyond green shoots at this point.” Her optimism was echoed by Liz Ann Sonders (left) of Schwab, who said she was “quite optimistic: the economy is like a combustion engine—everything is there, we just need a spark.”

Addressing next the housing market, CNBC’s Bartiromo (left) asked how the continuing bad press on housing, notably “headline after headline on the foreclosure mess,” would play into the two women’s “opimistic scenario.” Hobson noted that while new home building and its attendant construction jobs are important players in the stubbornly high unemployment rate, the psychological effects on consumers of being house poor remained, and that the impetus for a housing rebound was all about “how can you get the loans going again?”

For Sonders, she sees that the “underlying pillars of support you need are stacking up” for housing, including a drop in what she calls the “real” mortgage rate, which she defines as the nominal rate minus the depreciation of homes. Moreover, she said housing has become again a regional story: “Once the bubble popped, we went back to a local focus.”

Both then addressed another bubble on many advisors' minds these days, the bond bubble, with Hobson (left) saying that the massive flows of investor dollars into bonds “doesn’t make sense,” and that she was particularly concerned “on the pension side—they’ve bought the whole argument that fixed income is less risky. But rates are going to move!” Instead of bonds, she suggested that a much better place to invest now is in equities that pay dividends.

The discussion then tuned to international investing, which Sonders has long suggested should play a larger role in investors’ portfolios. But Hobson said the excitement about emerging markets sounded too reminiscent to her ears of how many American investors felt about Japan 20 years ago. “China and India sound like that now to me—that same rosy scenario—it makes me nervous,” Hobson argued, an assessment shared by one advisor during the Q&A session that followed the discussion.

Sonders, who visited China a few months ago, said that during her trip she talked to many American expat business leaders about outsourcing and business opportunities in China and back at home. Because China has raised the living standards of the middle class, the costs of real estate in China have gone up, she said, which coupled with wage pressures and declining home prices in the U.S. has led “some of these folks to talk about the opportunities to bring plant and equipment back to the U.S.,” especially in rural areas and hard-hit cities. Such “deglobalization,” she suggested, could be an important investing theme for advisors.

The conference formally begins on Wednesday morning, featuring an appearance by former U.S. Treasury Secretary Henry Paulson, and winds up on Friday morning, following a Thursday evening talk by Bush Administration Secretary of State Condoleeza Rice. Schwab officials had suggested that attendance at the annual conference might set a record topped only by Schwab’s 20th anniversary celebration of serving advisors in Las Vegas in 2007, which boasted 3,800 attendees. 

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