Neil Hennessy believes we are in a secular bull market, similar to the one that prevailed from 1982 to 2000, and that corporate profits will remain high.
However, that profitability won’t be sustained unless companies begin to hire to foster organic growth, and hiring won’t happen until “Washington” starts to “think out of the box,” just as corporate management has done over the past few years.
So does he believe that our endemically dysfunctional government — “there’s a lack of leadership in both the executive branch and Congress” — can actually start thinking out of the box to solve the three main problems (health care, taxes and regulation) that he says hinder economic growth?
“The real world has to kick in at some point,” he said optimistically at a Midtown Manhattan press conference on Wednesday. “Things won’t continue to stay the way they are” in Washington. “You’re seeing fractures in the House already.”
Hennessy is chairman, CIO and portfolio manager at the firm he founded, Hennessy Funds (HNNA), which crossed the $4 billion in assets mark this year (currently at $4.3 billion) in 16 different mutual funds, and which went public in 2002. In his remarks that accompanied the firm’s annual rebalancing announcement for its Cornerstone Mid Cap 30 Fund (HIMDX), Hennessy focused on the stubbornly high unemployment rate, which he blamed in large measure on his assertion that we’re still “no closer to clarity in Washington for four years” on addressing health care, high taxes and overregulation.
“Companies are still not hiring,” he said, bemoaning the fact that “20 to 25 million Americans who want full-time jobs with benefits are instead getting part-time jobs with no benefits.”
So what should the government do to bring down unemployment?
One thing is to “start treating business as a noble entity, not the enemy,” Hennessy said. Another is to reform the tax system, removing corporate subsidies, like those enjoyed by oil companies, which fail to help the individual consumer.
Always willing to speak his mind, Hennessy voiced approval of Steve Forbes’ flat tax scheme. Speaking of Obamacare, Hennessy said that the Affordable Care Act had “nothing to do with health care,” but everything to do with “Democrats retaining the White House” by getting 18-20 million votes by passing the bill.
As for investors, he said they remain on the sidelines, “and who can blame them?” Only 52% of Americans own equities, and over the past two years they’ve pulled $209 billion out of U.S. equities and mutual funds. This year to date, he said, U.S. investors have plowed $94 billion into international investments and only $9 billion into U.S. equities; in the mutual fund space specifically, those numbers are $26 billion flowing to international equities and only $2 billion to U.S. equity funds.