Careers, economy addressed at West Central Association meeting
By Susan Fong
Career and
economic issues were on the docket at the Jan. 17 West Central Association
luncheon meeting, held at the Crowne Plaza Hotel at 733 W. Madison St.
President Thomas Broderick opened the meeting, which featured William O. Kasten, principal from William Blair & Company, as keynote speaker. Also speaking at the meeting were 2nd Ward Aldermanic candidate Larry M. Doody and Arabella Perez, partnership manager from the Chicago Public Schools (CPS).
After Doody discussed his candidacy (see related article, page 1), Perez spoke on the Education to Careers Program (ETC) offered through CPS. ETC allows high school students to gain real life work experience before graduation through a combination of work and classroom instruction.
ETC seeks partnerships with Chicago area businesses to provide work experience for ETC students and to offer positions for Kid Start, ETC’s summer internship program, Perez said.
Kasten then spoke, saying the economy is being “slowed” by the “decline in the housing industry.” Otherwise, the economy is stable, well balanced, and non-cyclical, he noted, based on income, balance sheet, and employment statistics.
U.S households today hold $66 trillion in assets, Kasten went on, noting roughly two-thirds is in financial instruments and one-third is in real estate. Of the real estate assets, 54% is equity. America’s mortgage debt is now at $9 trillion.
“Corporate profits are quite strong,” Kasten said, moving into the double digits since 2002 and continuing to outpace economic growth. Personal income also has continued to grow, reflecting an “active management” effect in both corporate and personal sectors. “Corporate America has never been healthier,” he said.
Interest rates are steady and have remained relatively “low since 9/11,” Kasten said. They have risen since that period to 5-1/4%, but “that is still very low,” he noted. “We don’t expect them to go much higher, and the consensus is that they may again drop.”
Inflation is low and seems under control, domestic mergers and acquisitions are booming, and commodity prices have fallen from overheated levels.
Although U.S. companies continue to sustain above-average returns, international markets have outperformed the U.S. over the last six or seven years, according to Kasten. Foreign companies have “caught up to the U.S.-led strength in corporate health. This will lead them to outperforming the U.S. equities over time,” he said.
Despite their growth, international markets’ economic base is not nearly the size of that in the U.S., making them inherently more risky. Kasten recommended holding only about 15% to 20% international investments in one’s portfolio.
Emerging markets, being smaller and more undeveloped, should make up only about 5% of a portfolio, because of their instability. As for large capitalization stocks, their valuations make them more attractive than small and mid capitalization stocks.
Kasten added growth stocks are more desirable than value stocks, whose better performance in the last period is expected to change based on the price earning ratio.
Kasten closed by saying equity valuations in the U.S. market look reasonably favorable. According to the S & P 500, earnings are now at the 16% to 17% range, but the valuations indicated they would rise to 17% to 18%.
