Shiller surprises with equities prediction at US conference

The 70th Annual Chartered Financial Analyst (CFA) Conference in Philadelphia was a grand affair, attended by almost 2,000 investment professionals from around the globe, most of whom are CFA charter holders. I was there in my capacity as chairman of the Investment Analysts Society of South Africa and was pleased to see the South African contingent punching way above its weight, with the third-highest number of delegates at the conference after the US and Canada.

Philadelphia is the US’s fifthlargest city, with a population of just over 1.5-million and is historically significant, being the home of the Liberty Bell and George Washington’s original White House. Clean and neat, it lacks the grittiness of New York, the elegance of Chicago or the scenic beauty of San Francisco. It lacks “gees” — that expressive Afrikaans word for spirit — being well-ordered and functional, but a little bit sterile for my liking.

I refused to embarrass myself by running up and down the famous Rocky Steps outside the Art Museum, but I did walk around the now redundant Eastern State Penitentiary and visited the superb Rodin Museum. I ate plenty of Philly staples — being Cheesesteaks and cheesecakes — and drank excellent local craft beers.

As always at such events, there were great highlights alongside some very mediocre presentations. I came away with sharp insights accompanied by dollops of confusion and contradictions. There were some outstanding drawcards, notably Abby Joseph Cohen from Goldman Sachs; John Bogle, founder of investment house Vanguard; nobel laureate Professor Robert Shiller of Yale University; and Professor Richard Thaler of the University of Chicago.

Shiller was probably the main attraction, given the prominence attached to his somewhat bearish Cyclically Adjusted Price Earnings (Cape) model he has developed over the years. Disappointingly I found his presentation perplexing. It was certainly a case of hedging his bets. For some time, Shiller has been expressing concern about the rarefied level of the S&P 500 as measured by Cape, and I was expecting a very concerned message on equities from him. But he surprisingly said there could be modest outperformance by equities over bonds in the next few years, additionally recommending investors should stay in the market as a 50% rise from current levels (time period unspecified) was not inconceivable.

Attempting to discern a theme from this conference was not easy, though most presenters agreed global interest rates are likely to remain relatively low for the foreseeable future and that total returns on the equity markets from these elevated levels are set to be muted.

Abby Joseph Cohen said that at current levels equity markets were priced for the economy to keep on performing well and not overvalued. She is concerned about bond markets, however and believes their yields could rise.

Cohen also exploded a few perceptions about the US economy. She said it would grow closer to 2% in 2017 rather than the 3% being touted by the Trump administration. She also pointed out that the fastestgrowing component of US GDP was exports. The US economy was in decent shape, Cohen said. With South African investors desperate for offshore opportunities, I took time out to interview the investor relations teams at three Philadelphiabased companies: Aramark, which is similar to SA’s unbundled Bidcorp; the iconic Campbell’s Soup Company across the Delaware River in New Jersey; and Comcast, the world’s largest media group by revenue.

Aramark is growing steadily and appears to have much potential to increase earnings progressively over the next few years, while Campbell’s is suffering, with too many product lines that are not always aligned to millennial demands.

Comcast, which owns such brands as NBC and Universal, is growing strongly and displays great investment metrics.

SHILLER RECOMMENDED INVESTORS SHOULD STAY IN THE MARKET AS A 50% RISE WAS NOT INCONCEIVABLE