Bill Ehrman Positions For 2018: Tax Reform Will Benefit U.S. Economy Over Years, Not Just In 2018
(This article was first published on Seeking Alpha and is an interview of him by one of its editors.)
Bill Ehrman, managing partner of Paix et Prosperite Funds, served as Head of the Investment committee at Century Capital Associates, followed by Head of Investments for Worldwide Equities and Private Equities at the Quantum Fund. He was George Soros’ first partner. Finally, he was the Founding Partner, CEO and Head of the Investment committee at EGS.
Rena Sherbill (RS): As we enter 2018, are you bullish or bearish on US stocks?
Bill Ehrman (BE): We remain optimistic on most all stock markets including the U.S. as global growth is accelerating, inflation remains tame, interest rates are low, QE still exists in the ECB and Japan and earnings will be very strong.
RS: Which domestic/global issue is most likely to adversely affect US markets in the coming year?
BE: Geopolitical risks always exist. North Korea remains a problem child for the world. Competitive fiscal and regulatory pressures will build globally. And most all monetary bodies, including China, are clearly less stimulative than in 2017 so we expect the yield curves will steepen.
RS: How does the political climate affect the risks and opportunities for next year?
BE: Political risks are always present, whether it be in the Middle East and North Korea… also the monetary bodies could accelerate raising rates if inflation picks up.
RS: Do you expect the yield curve to continue flattening in 2018, and if so what impacts will that have on the equity market and the economy in general?
BE: The yield curves will steepen in 2018 but stay contained as inflationary expectations stay muted. Rising yield curves are indicative of an improving economy and will therefore benefit those sectors most tied to growth… banks, industrials, technology, capital goods and commodities.
RS: What do you expect to be the key driver of stock market performance in 2018?
BE: Global growth and acceleration in earnings will be the key driver of all markets.
RS: Will the transition in Federal Reserve leadership from Yellen to Powell impact equity investing sentiment? Why or why not?
BE: There will be no change in Fed policy under the leadership of Powell… let’s hope that he is as communicative as Yellen, who gets A’s across the board.
RS: What issue is receiving too much investor attention and/or already priced in?
BE: Tax reform, while a huge positive, will benefit the U.S. economy over years, not just in 2018. The near-term benefits are priced in the market but not the longer-term benefits like corporations, both domestic and foreign, building new plants in the U.S…. benefitting jobs and reducing the trade deficit.
RS: What do you see for emerging markets in 2018?
BE: The emerging markets will do well in 2018 as their economies are export-dependent so global growth trickles down to them.
RS: What ‘surprise’ do you see in the market that isn’t currently getting sufficient investor attention?
BE: I don’t believe investors are paying enough attention to the secondary benefits of tax reform… there will be a long cycle of capital spending growth in the U.S. as mentioned earlier.
RS: What’s your take on cryptocurrencies, and what does the price action in Bitcoin say about the financial markets in general?
BE: I don’t fully understand cryptocurrencies, therefore, I avoid the space and have no opinion.
RS: In terms of asset allocation, how are you positioned heading into the New Year?
BE: I am long global stocks, the dollar and industrial commodities. I am short the bond market.
RS: Any additional considerations you’d like to share with readers as they ponder their investing strategy in 2018 and beyond?
BE: Investors need to be patient and recognize that change is happening everywhere. You need to look through the windshield and not the rear view mirror. The past is NOT the prologue for the future.