Pressure Mounting to Raise Rates
René Nourse: One of the biggest things they want to focus on is wage growth, and we haven’t seen that across many different sectors. But, at the same time there needs to be a better positioning of that. It’s mostly been occurring at the lower wage level of employees, so as we start to see that spike up a little bit more, I think it will put more pressure on them to look at the September rate hike.
Adam Bakhtiar: Is that more of a structural issue rather than a cyclical one?
René: Structural, yes I think so. We’ve come out of a very difficult phase over the last seven or eight years now, coming out of the recession, so they have to be very cautious about when they’re going to flip that switch. It’s also, I might add, not just a U.S. decision. I think that whatever decision the Feds make is going to have a rippling effect across the global economies. So with the crisis that we are seeing going on in the rest of the world, that’s got to play into some of their formula for making that decision.
Pauline Chiou: You talk about this being a structural issue, but we’d like to get your take if we drill down deeper into the weeds of domestic policy because now President Obama wants to increase overtime pay for more salaried workers. This is going to be a real burden for smaller and medium sized businesses. How do you think that’s going to play out?
René: I think it’s going to be over a period of time. If I can use Los Angeles as an example, we recently voted, almost unanimously, to increase the wage base. It will be gradually brought into our local economies over the next five years, so we don’t see that this would be an across the board increase. But at the lower end of the wage scale we’ve been trying to get to living wage here, not just locally in Los Angeles, but across the country. This is finally something that is coming into play that was badly needed. It will be gradual and it is something that is long overdue. Businesses will have to adjust to it and we’re also seeing a higher demand now for labor. They’ll end up paying for it one way or another if they want to keep good personnel.
Adam Bakhtiar: Let’s switch the direction of the conversation now to the U.S. market. We’ve had this 3-day rebound in a month of course and the complications with Greece are proving to be a bump in the road more than anything. What are the challenges you think will face the US equity markets?
René: It’s really interesting because Greece is certainly overshadowed the Puerto Rican crisis which is a lot closer to home and U.S. territory. But nevertheless, as you mentioned earlier in the program, we seem to be hitting on all cylinders pretty much as far as what our economy is going through and experiencing, and as a result of that we are more in the mid stages of this more mature market. I’m still looking for a strong year. I think we’ll finish out at about 20,000 on the Dow and if not at the end of the year then certainly by the first quarter, but that’s only twelve percent up from here. Earnings are still going to be strong on a year over year basis. They slowed down a bit last year and the first half of this year has been a little bit slow, but the second half will be very strong, in particular driven by mergers and acquisitions, and a lot of that is being driven by productivity leads, finding strategic partnerships to be profitable, etc.