Taxes, inflation and growth all heading up: wealth conference

The third annual global TIGER 21 conference was held in Palm Beach, Florida last month. It was attended by almost 400 high-net-worth (HNW) members and spouses from across the U.S. and Canada. Members have ranges of net worth from $12-million to over a billion, from all different sectors and walks of life.

The annual conference offers an excellent opportunity to get a "sneak peak" into the financial topics and issues that HNW individuals are concerned (and excited) about. I've found Tigers enjoy being "plugged in" to the best information possible, and talking with some of the best investment minds out there. It helps them make better decisions (not perfect, but better) and encourages them think outside the investment box as it were.

This year, I had the pleasure of speaking one-on-one to dozens of fellow TIGER 21 Members and listening to the world-class speakers. I also chaired a session for Canadian members. Here are some of the big ideas that came out of the conference, along with some thoughts on how you might capitalize on them.

Cautious optimism

On balance, I would say the general mood was better than a year ago, and considerably better than two years ago. Call it a feeling of cautious optimism – a sense that the worst has passed, but we're not out of the woods yet.

That said, skepticism remains about the strength of the U.S. economy, and there's a good deal of concern about macro-economic issues. There's also a feeling that the market has gotten better very quickly, and most believe we're due for a correction or pause over the next three to six months.

The TIGERS I spoke to are maintaining a close watch on their portfolios, and are now taking a defensive stance while avoiding speculative positions. I think this is a prudent approach right now.

Inflation, inflation, inflation

A recurring topic was future inflation. Almost every one of the conference speakers had something to say about it, and many of the members also mentioned specific steps they've recently taken to protect themselves from a potential uptick in inflation.

The reason: governments around the world are printing money at a furious pace, and are likely to continue as they struggle to deal with fiscal deficits. Sooner or later, it seems likely that inflation might come back–with a vengeance.

Most TIGERS I spoke to believe short-term rates could remain low for the next two to three years. However, there's a belief that when mid-term to longer-term rates do turn up, they could turn up quickly.

Such a view has important implications for the proactive investor. Most TIGERS tend to be ahead of the curve in their thinking–so it was no surprise when I found that a lot of them have already positioned themselves defensively on fixed income by shortening duration and investing in floating rate bonds, TIPs, and similar securities. They're also investing assets with built-in inflation protection–income-generating real estate was mentioned several times, and a number of presenters and TIGERS suggested gold as a possible "Tylenol hedge" for possible market "tail events."

Get rid of variable rate debt

One interesting theme I came across was to capitalize on potential inflation by locking in long-term debt now. Sam Zell and Barry Sternlicht (both real estate gurus and noted contrarian investors) suggested now is the time to get out of variable-interest rate debt.

Zell in particular expressed how he believes that he doesn't buy into the theory of gradually rising interest rates; when rates rise, they could go up rapidly, in response to some unexpected economic or political catalyst. He suggested that extending and locking in terms at extremely low rates now would be a very good idea.

I think this is important insight for everyone with a mortgage or other debt to consider. If bonds yields go up, mortgage rates will go up. Those who locked in for longer term won't be affected as negatively.

Tax rates are going up

There was a lot of talk about taxes this year. That's not a surprise, considering the fiscal cliff debate raised taxes for wealthy Americans. Here in Canada, we can see provincial income tax rates are going up in Alberta, British Columbia, Ontario, and Quebec.

Most TIGERS I spoke to expect this trend to continue. Such an attitude would certainly explain the ongoing popularity of tax-advantaged investments such as muni bonds in the U.S., for example, as well as dividend-paying stocks.

Bottom line: tax efficiency is going to be an extremely important "filter" when assessing investments. Tax alpha strategies are going to be an even more important theme in the years ahead.

Modestly bullish on global growth

I hosted a session with David Darst Chief Investment Strategist of Morgan Stanley and Heidi Richardson, Chief Investment Strategist for BlackRock. Their insights on global investing sparked a lively discussion with Canadian TIGERS.

Darst is a "cautious bull" on global growth, and a fan of European and Japanese equities. Richardson echoed his general sentiment. They confirmed that equity valuations are cheap in Europe, and many companies are well-positioned to sell to emerging markets because of the fall in the euro and looser labour conditions. Darst for one believes the financial conditions are "calming down" on the continent, and both suggest that it may be time to take a look at Northern Europe (i.e., Germany, Scandinavia).

Their discussion provided a good counterpoint to the U.S.-centric approach that many investors (including myself) have taken over the past several quarters. My own feeling is that Southern Europe is a place for only for the bravest of investors. But we'll be taking a look at Northern European equities more closely in the months to come.

Thane Stenner is founder of Stenner Investment Partners within Richardson GMP Ltd., as well as Portfolio Manager and Director, Wealth Management. Thane is also Managing Director for TIGER 21 Canada (www.tiger21.com/canada) . He is the bestselling author of ´True Wealth: an expert guide for high-net-worth individuals (and their advisors)'. (www.stennerinvestmentpartners.com) (Thane.Stenner@RichardsonGMP.com). The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Richardson GMP Limited, Member Canadian Investor Protection Fund.