Country Indices Flash Report – December 2022
Global and U.S. stocks turned in their worst annual results since 2008, as several major central banks abandoned zero interest rate policies with some of the most rapid rate increases in the past thirty years.
Waterville Industrial
Waterville Industrial is a single free–standing industrial and manufacturing property, totaling 101,435 square feet situated on six acres of land located at 7828 Waterville Road in San Diego, California.
Bailard Wins Fourth in its Category for Best Places to Work
San Francisco, CA (December 2022) – Bailard, a values-driven asset and wealth manager in the San Francisco Bay Area, has been included in the 2022 Best Places to Work in Money Management awards, announced by Pensions & Investments this week. The firm is honored to be ranked 4th in its category (of companies with 50-99 employees) and, notably, this marks the fifth consecutive year Pensions & Investments has recognized Bailard as a Best Place to Work.
Presented by Pensions & Investments, the global news source of money management, the 11th annual survey and recognition program is dedicated to identifying and recognizing the best employers in the money management industry.
This recognition follows with Bailard’s commitment to its values on behalf of our colleagues, clients, and community. Each day, our employees show their commitment to the core tenets of accountability, compassion, courage, excellence, fairness, and independence. These values serve as a foundation to help create strong, prosperous relationships with clients and to also establish a safe and thoughtful work environment for employees.
“As their employees attest, the companies named to this year’s Best Places to Work list demonstrate a commitment to building and maintaining a strong workplace culture,’’ said P&I Executive Editor Julie Tatge. “Even as firms grappled with volatile markets and stresses from the pandemic, their employees said they felt strong support from their managers, enabling them to do their best work.’’
“Pensions & Investments is proud to honor the Best Places to Work in Money Management for the 11th year. A strong workplace culture that supports talent, advocates progress, and drives innovation is paramount to driving the best outcomes. These asset managers demonstrate that. Congratulations to the 2022 honorees for fostering healthy and inclusive workplaces in the face of a rapidly evolving and challenging market,” said Chief Operating Officer of the publication, Nikki Pirrello.
“I humbly thank our employees for their continued exceptional efforts on behalf of our culture as well as our clients,” said Chief Executive Officer Sonya Mughal. “We pursue excellence across different functions and facets of our business. Yet, it is the manner in which we treat each other that allows us to distinguish ourselves. One of my goals as CEO is to uphold a considerate and welcoming environment, and receiving this multi-year honor from P&I stands as a strong testament. It’s our values that connect us to each other and to our clients.”
Pensions & Investments partnered with Best Companies Group, a research firm specializing in identifying great places to work, to conduct a two-part survey process of employers and their employees. The first part evaluated each nominated company’s workplace policies, practices, philosophy, systems, and demographics. This was worth approximately 25% of the total evaluation. The remaining 75% of the evaluation consisted of an employee survey to measure the employee experience. The combined scores determined the top companies. For a complete list of the 2022 Pensions & Investments’ Best Places to Work in Money Management winners and write-ups, go to www.pionline.com/BPTW2022.
About Bailard Inc.
Founded in 1969, Bailard is an independent asset and wealth management firm serving individuals, families, and institutions alike. Bailard has built a long‐term asset management track record across domestic and international equities, fixed income, and private real estate, as well as robust, in-house ESG expertise. Through it all—and in line with its core principles and strong ESG mindset—Bailard works with clients to align their financial goals with their values. With $4.8 billion in assets under management as of 9/30/2022, Bailard is a majority employee-owned and women-led firm, and a Principles of Responsible Investing (PRI) signatory. A values-driven firm based in the San Francisco Bay Area, Bailard has its own private charitable foundation* and is deeply committed to its core values of accountability, compassion, courage, excellence, fairness, and independence.
About Pensions & Investments
Pensions & Investments, owned by Crain Communications Inc., is the 50-year-old global news source of money management. P&I is written for executives at defined benefit and defined contribution retirement plans, endowments, foundations, and sovereign wealth funds, as well as those at investment management and other investment-related firms. Pensions & Investments provides timely and incisive coverage of events affecting the money management and retirement businesses.
About Pensions & Investments’ Best Places to Work in Money Management
The 2022 ranking was released by Pensions & Investments in December 2022. To have been eligible for consideration, companies must meet the following criteria: be a for-profit or not-for-profit business or public agency; have a facility in the United States; have a minimum of 20 full and/or part-time employees working in the United States; must be in business a minimum of one year; and have at least $100 million of discretionary AUM. This award does not evaluate the quality of services provided to clients and is not indicative of Bailard’s future performance. There was no cost for Bailard to enter. In 2022, 121 firms were ranked with 26 managers recognized in Bailard’s category of 50 to 99 employees. 2021’s ranking included 76 firms, 22 of which were in Bailard’s category. 2020’s ranking included 94 firms, 23 of which were in Bailard’s category. 2019’s ranking included 76 firms, 17 of which were in Bailard’s category. 2018’s ranking included 69 firms, 19 of which were in Bailard’s category.
*The Bailard Foundation has a board of directors that is led by chairwoman Terri Bailard, widow of firm co-founder Tom Bailard, and features both friends of Bailard, Inc. and employees.
Bailard’s View on the Economy: Everybody Act Normal
In this quarter’s closing brief Jon Manchester, CFA, CFP® (Senior Vice President, Chief Strategist – Wealth Management, and Portfolio Manager – Sustainable, Responsible and Impact Investing) takes a look at the difficulties of defining, and returning to, normal.
In the 1920 United States presidential election, 55-year-old Ohio Republican Senator Warren G. Harding handily defeated Ohio’s Democratic Governor James Cox, winning 37 states and amassing 60.4% of the popular vote. Two-term incumbent Woodrow Wilson—eligible to run again—had been brushed aside by the Democratic party after suffering a severe stroke and amidst tepid enthusiasm for his foreign policies in the wake of World War I. The election was notable for many reasons. It closely followed the passage of the Nineteenth Amendment to the U.S. Constitution, giving women the right to vote in all 48 states (at the time). That greatly helped in boosting the total number of voters by over eight million, or nearly 45%, compared to the 1916 election. The 1920 ballot also featured two future presidents as vice presidential candidates in Republican Calvin Coolidge and Democrat Franklin D. Roosevelt.
When voters went to the polls in November 1920, the U.S. was mired in a recession marked by sharp deflation, an overcorrection from high wartime inflation. The nascent Federal Reserve, founded seven years prior to stabilize the banking system, had hiked its lending rate as high as 7% in mid-1920 in an attempt to temper what had been rising prices. Nobel-prize winning economist Milton Friedman and colleague Anna Schwartz later argued in a landmark 1963 book titled A Monetary History of the United States that the Fed miscalculated the lag times associated with monetary policy changes, resulting in the central bank still raising rates during the early stages of the recession.1 Unemployment jumped higher, and the Dow Jones Industrial Average sank nearly 30% over the twelve months leading up to the election. Tensions ran high seemingly everywhere: labor strife, race riots, plus a bombing on Wall Street that killed 40 and injured hundreds.
Meanwhile, the world was still reeling from the Great Influenza pandemic. An estimated 500 million people worldwide were infected by the virus in the 1918 to 1920 timeframe, or roughly one-third of the world’s population.2 A staggering 50 million or more died, including approximately 675,000 in the United States. In comparison, the World Health Organization (WHO) currently estimates 6.67 million have died globally from COVID-19.3 Needless to say, it was a challenging time.
In retrospect, then, it doesn’t seem particularly surprising that Harding’s main campaign slogan was “return to normalcy.” It had a simple, timeless appeal. Malleable and open to interpretation, normalcy is somewhat in the eye of the beholder. A main facet of Harding’s pitch was to put America first, a phrase which ironically Wilson had used to justify staying out of World War I in its initial years. In a May 1920 speech in Boston, Harding suggested America’s present need was “not submergence in internationality, but sustainment in triumphant nationality.”4 For a nation weary from battles both home and abroad, the message resonated sufficiently to carry Harding and Coolidge to the White House.
Back to the Future
A century later, with the COVID-19 pandemic hopefully on the wane and the Fed again in inflation-battling mode, there appears to be some clear parallels to that time. One interesting link from a societal standpoint—although certainly not unique to either time period—is the collective yearning to see things get back to some version of normal (however defined). We’ve been through this before, whether it was the aftermath of 9/11 or the credit crisis. In each instance, what follows seems to be a race to declare a “new normal” has arrived. There is some truth to this, of course. The COVID-19 pandemic has likely indelibly altered the way we work, for instance. Other behaviors, such as returning to crowded arenas or airports, quickly revert.
Each crisis alters the landscape in its own way. Roughly three years past the onset of the COVID-19 pandemic, the global economy is still trying to find its footing. In a November 2022 outlook piece, the Organization for Economic Co-Operation and Development (OECD) projected global real GDP (gross domestic product) growth of just 2.2% in 2023. Per the OECD: “Tighter monetary policy and higher real interest rates, elevated energy prices, weak household income growth, and declining confidence are all expected to take a toll on growth, especially in 2023.”5 For the U.S., they estimate scant 0.5% growth this year, followed by still negligible 1.0% growth in 2024.
Any economic growth in the U.S. for 2023 might be viewed as a minor victory. The consensus view seems to be coalescing around a shallow recession at some point this year. The Bloomberg Economics team foresees a 0.9% GDP contraction in the second half of 2023, driven by an investment downturn as companies reduce inventories amidst slower consumer spending.6 They also expect a decline in residential investment due to higher interest rates, and note that U.S. home prices would need to fall around 15% to restore the housing market to equilibrium. This is not 2008, Bloomberg assures us: a structural undersupply of houses and higher credit quality of mortgage borrowers limit the downside and the spillover risks to the wider economy. After 124 consecutive months of growth for the Case-Shiller U.S. National Home Price Index, October 2022 marked four straight months of declines. Before we hit the panic button, the Index was still up 9.2% on a year-over-year basis.
Too Much of a Good Thing?
nKeeping inflation in check remains the Fed’s primary focus, but its other mandate is to maximize sustainable employment. With the unemployment rate at just 3.5% nationally as of December, matching a five-decade low, you’d have to say that box is checked. However, Fed Chair Powell has been clear that the labor market is too tight. Job openings have slowed, but remain elevated at roughly 10.5 million as of November. The Fed’s favored gauge for labor market tightness—shown below—is the vacancy-to-unemployed ratio, which was 1.74 versus 1.15 at the end of 2019.7 This excess demand for workers puts upward pressure on wages, and makes the Fed’s inflation-fighting job more difficult.
The December jobs report provided some good news. Average hourly earnings rose 4.6% year-over-year, a deceleration from +4.8% in November and a continuation of a slowing trend that saw this metric hit a 2022 high point at +5.6% last March. If sustained, this is the formula that could potentially deliver a “soft landing” for the economy: unemployment remains low, but wage growth and inflation moderate. As former Fed governor Randall Kroszner said: “It’s not that the Fed wants fewer jobs. What they want is lower wage growth more because they’re worried about persistent inflation.”8
If employment stays strong and housing prices remain resilient, it’s hard to imagine a near-term recession. Layoffs have picked up, but at a reasonable clip. According to the data firm Challenger, U.S. companies announced 320,173 layoffs over the first eleven months of 2022, a six percent increase. Just over 25% of those occurred in the tech sector where Amazon, Facebook, and others are attempting to right-size their operations. Despite the pressure on tech companies, California’s unemployment rate declined 1.7 points over the twelve months ending with November 2022 to 4.1%. The lowest state unemployment rates were in Utah (2.2%), Minnesota (2.3%), and North Dakota (2.3%).
Transitioning away from ultra-low interest rates never promised to be an easy road. This process of normalization took some prisoners in 2022. The tech-heavy Nasdaq Composite Index sank 33% on a price-only basis as investors repriced high growth, high valuation stocks. Some of the biggest winners in 2021 dropped to the bottom of the 2022 scoreboard, including California-based chipmaker Nvidia, which soared 125% two years ago before a 50% plunge in 2022. The lone S&P 500 Index sector that posted a positive price-only return in 2022 was Energy. The closing price of West Texas Intermediate (WTI) crude oil jumped as high as $123/barrel last March, up 64% from its year-end 2021 level, before fading to $80/barrel when 2022 came to a close. Nevertheless, the S&P 500 Energy sector returned 59% price-only last year, helped by attractive dividends and low valuations. It was an abnormal year, as usual.
A couple years after that 1920 presidential election, poet Robert Frost composed “Stopping by Woods on a Snowy Evening” at his home in Vermont. It contained the famous concluding (and repeated) line “And miles to go before I sleep.” That is a pretty apt saying for the markets in 2023. Many challenges remain for corporate America: higher interest rates, higher input costs, and likely lower margins. The easy money era is over.
1 “In the Shadow of the Slump: The Depression of 1920-1921,” www.econreview.berkeley.edu, 3/18/2021
2 “History of the 1918 Flu Pandemic,” www.cdc.gov
3 “WHO Coronavirus (COVID-19) Dashboard,” www.covid19.who.int, 1/4/2023
4 “Warren G. Harding’s pledge to ‘return to normalcy’,” www.britannica.com
5 “OECD Economic Outlook, Volume 2022 Issue 2,” www.oecd-ilibrary.org, 11/22/2022
6 “US Growth Outlook 2023,” Bloomberg Intelligence, 12/29/2022
7 “US REACT: Quitters Make It Hard for Fed to Cool Wages,” www.bloomberg.com, 1/4/2023
8 “Fed Gets ‘Goldilocks’ Report: Slower Wage Growth, Solid Hiring,” www.bloomberg.com, 1/6/2023