Inflation risk? Minimal. Double-dip recession? Forget about it.

Local business executives heard a guardedly optimistic economic forecast during the annual Investment Summit at Reynolds Alumni Center hosted by the Commerce Trust Co.
“When I was standing at the podium last year, I would have guessed the recession would have been twice as deep,” said Scott Colbert, the chief economist and director of fixed income at the trust company, a division of Commerce Bank.
Colbert cautioned that the recovery is still fragile. The private sector’s growth during the past two quarters was largely fueled by the government’s deficit spending, he said, and the real question is whether the pace will be sustained. There will be no “whirlwind recovery,” Colbert said, but rather a “gradual recovery.”
“I see no chance of a double-dip recession in this country,” he said, dismissing predictions by some analysts that the nation is heading for a second round of declining growth.
Colbert also diverged from conventional beliefs that the Federal Reserve will begin to raise interest rates before the end of the year to stave off inflation. He said high unemployment, low housing prices and subdued bank lending should keep inflation and the interest rate in check.
“Although some people are saying the Fed will raise rates as early as June, I’d say it will be closer to two years than six months,” Colbert said.
There is still a tremendous amount of slack in the economy, Colbert said, as well as “cash on the sidelines that will start to be put to work.” Loans for speculative projects will continue to be hard to come by, but strong companies won’t lack financing, he said. He expects the housing and auto markets to begin to pick up, but he warned that it could be seven to eight years before vacant commercial properties are filled and building resumes.
“This commercial real estate market will continue to be a drag for years and years and years,” Colbert said.
Commerce’s Director of Equity Management Joseph Williams pointed to a rebound in consumer confidence since its March 2009 low but said the stock market is likely a bit overvalued right now, and there’s a lot of cash that could still be invested.
“The market just needs some time for earnings to catch up,” Williams said.

Overall, Williams stressed that investors need to diversify their portfolios to include assets from developing economies such as China, India and Brazil. Emerging economies are contributing a larger share of world growth as their middle classes grow and their governments improve infrastructure. Plus, with a mounting federal debt in the U.S., the dollar will likely decline in the long term, he said, and that will add to the potential of foreign investments.
Williams said U.S. companies that contribute to infrastructure development in emerging countries will be strong, and he cited Caterpillar as an example. He also said raw materials will be in high demand as the emerging world continues its growth, as will natural gas and other energy sources.
Williams gave good marks to Visa, which will benefit as consumers move more to debit cards and away from cash. There are also plenty of opportunities now in health care stocks, which were getting battered by a push for health care reform that has stalled, Williams said.
There were few questions from the more than 100 attendees at the event, but the presentation’s optimistic tone was generally well received.
Georgia Morehouse, 76, said she felt the presentation was on target and doesn’t expect to make any big changes to her portfolio. She generally rides out her investments and doesn’t panic and sell, she said. But even so, “They were far more optimistic than I have felt for a while.”