And Kochis is quick to say that he is not an optimist about opportunities in the U.S. "We fully expect that the average American in 20 years will be wealthier than today, enjoying longer life span, better health care and more toys," he says. The issue is not absolute wealth but relative wealth, he says. Twenty years from now, a much larger part of the world population will have computers and cell phones and enjoy more of the world's wealth. "The U.S. may be at the top of the heap for the next 25 or 50 years but there is no right the U.S. has to be at the top of the heap forever," he says, "and when it is not at the top of the heap, it is not the end of the world if the U.S. is no longer the center of the world's economy. The Dutch were at the top of the economic heap in the 17th century and are very happy today even though no one looks at Amsterdam as the center of the economic universe."
Jason Thomas, chief investment strategist at Kochis Fitz/Quintile, says bubbles have always been a part of economic history. He says the correction in investor sentiment is analogous to the behavior of drivers leaving Las Vegas. On a stretch of highway in the desert where you can see for miles ahead of you, skid marks appear on the open road. Thomas wondered why. So he pulled over and observed the spot. "People became overly optimistic about how fast they could drive and they realized it and slowed down," says Thomas. "But the drivers behind them don't know how much to slow down, and when a car in front of you slows from 80 to 75, you have to slow from 80 to 70 to be safe. That's what we're seeing in the capital markets, where people don't know how much to slow down even though visibility and conditions seem fine."
The firm's client portfolios typically have a 10% position in less-developed economies, 30% in developed foreign countries, 35% in U.S. stocks (with little or no allocation to bonds), and 15% in alternative investments.
Richie Lee, whose RIA, Lee Financial Corp., manages $1 billion, was one of the first graduates of the College of Financial Planning. He began his career just months before the '73-'74 bear market started.
"We certainly have a serious situation on our hands now," says Lee. "But the world is not collapsing and it's not like we have not been through things like this before."
Lee says that in the early '80s, oil stocks at their peak prices constituted 30% of the market capitalization of the Standard & Poor's 500, and technology stocks at their peak in early 2000 accounted for 30% of the S&P 500 market cap. In both instances, the mania about these sectors subsided and they reverted to a much smaller share of the S&P 500 value. At their peak in 2007, financial stocks accounted for 30% of the S&P's valuation, but they have recently collapsed and accounted for about 20% of the value of the S&P 500. "What we're seeing is nothing new," he says.
"But if you happen to be in your 60s, then for you things are different this time," he says. "Even if the economy and the markets come back and things are great 10 years from now, suffering big losses in your principal just before or after retirement is something you may never recover fully from."
"In a period when we have a larger percentage of our population than ever heading toward retirement-a generation of Americans expected to live longer than any previous-we are experiencing a gut-wrenching reversal," says Lee. He says many new retirees may have to go back to work if the stock market continues to drop. Front-loading retirement savings with earnings of $30,000 a year is equivalent to investing $1 million and earning 3%.
Lee predicts that just as income statements in recent years have become the focus of corporate America, balance sheets will be the focus for the next few years. He is encouraged by how quickly big financial institutions like Merrill Lynch and UBS could attract foreign capital infusions after announcing their huge write-offs of bad loans. "There's about an $800 billion surplus of oil money every year and it has to go somewhere," Lee says. "It's the process of globalization."
Lee recalls the gloom that descended on America in the late 1970s, when inflation was high, growth was low and America's prestige was tarnished by Vietnam and Watergate. Pundits predicted gold would rise to $3,000 an ounce, he recalls. "If you bet that thinking that way would save you, then you would have created the disaster instead of avoiding it," he says.
"The problems we face are different this time," says Lee. "The issue isn't having the biggest economy in the world; it's having the best economy in the world, and nowhere is a system more adaptable than in the U.S.