This past week, one of the most anticipated economic conferences kicked off. In attendance was the who’s who of world central banking and global financial markets hung on every word from keynote speeches by Janet Yellen, Chair of the U.S. Federal reserve, and Mario Draghi, president of the European Central Bank. The annual conference, which has been going on since 1978, is a chance for central bankers, finance ministers and academics to talk about the world economy in a public but informal setting.
So where is this world renowned financial conference held…New York, London, Hong Kong, Geneva? Wrong on all accounts. Try Jackson Hole, Wyoming. Sounds very financial, particularly with its proximity to the financial hub of Idaho.
So why Jackson Hole? The Federal Reserve Bank of Kansas City has hosted an annual economic policy symposium at Jackson Lake Lodge since 1982. They chose Jackson Hole in 1982 because of its trout fishing, as they were trying to attract Paul Volcker, who was Chairman of the Federal Reserve and a keen fly-fisherman. Apparently, it worked.
The tone is low-key: Jackson Lake Lodge, the relatively spartan setting for the talks, remains open to the public throughout the event. And there is little chance of an 18-course dinner like the one consumed by G8 leaders a few years ago at a summit in Japan on ending starvation (not the best optics by the way). The event is formally known as the Federal Reserve Bank of Kansas City’s “Economic Symposium.”
In a textbook case of network effects, Volcker’s regular attendance attracted other policymakers and made the event an unequalled gathering for big economic hitters. Most conferences are hungry for attendance; Jackson Hole is by invitation only, and in recent years those invitations have become scarcer.
To maintain the relaxed atmosphere, reporters must observe what are now known as “Jackson Hole rules”: the proceedings are all on the record but all other remarks during the conference, such as mealtime conversations, are off the record.
Yellens’ Speech
Ms. Yellen broke little new ground in her speech. She reiterated the Fed’s basic guidance after its July meeting that holding short-term interest rates near zero remains necessary and useful to increase employment. She said the gap between current conditions and a return to full health was still “significant.”
Acknowledging the uncertainty surrounding this assessment, Ms. Yellen added that the Fed was prepared to adjust its stance as the economic evidence became clearer, either moving more quickly to raise rates or holding steady for even longer. She said the Fed expected to end the expansion of its bond holdings in October.
Some analysts viewed Ms. Yellen’s speech — along with the minutes of the Fed’s July meeting, released on Wednesday — as evidence that the Fed had become a little more likely to raise rates earlier, if the economy kept gaining strength. For us, it does not appear that Yellen has changed her core views and that rates will remain low, supporting equities in the near-to mid-term at the least.
Stay the Course
While we remain with significant cash at the ready if or when a true correction occurs, we continue to see outperformance by our core “cash rich” small-caps stocks in our Focus 8-12 stock portfolios. Sticking with strong, cash rich balance sheets and stocks with above average growth prospects over the next 1-3 years remains the right strategy.
Unlevered stocks that do not need external capital to grow are well positioned in both up and down markets. We continue to be very selective in our efforts to uncover these specific types of Small-Cap Growth stocks to our clients.
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