ROBERT G. SMITH
Chairman, Smith Affiliated Capital Corp.
Assets under management: $882 million
Total return for fixed income: 7.5%
30-year T-bond yields: 4.75% to 5.75%;
10-year T-note: 4.25% to 5.25%
Robert G. Smith thinks the recovery in the U.S. economy will not occur until the fourth quarter of 2002, and perhaps not until the first quarter of 2003. Then it will be modest, he said.
Mr. Smith believes deflation is a major concern, and there are signs it is already occurring. The signs of recovery in the economy at present are a false dawn, he said. One reason for his pessimistic outlook is that much of the damage in the economy is undetectable now, and the impact of the recent layoffs will be greater than the impact of past layoffs.
"The Enron employees who have been laid off often have lost not only high-paying jobs, but also their 401(k) plan savings," he said. "Tech company employees who have been laid off generally had higher salaries than auto workers who were laid off in the past, and they don't have any union help. The multiple of these layoffs will be higher."
For fixed-income investors, Mr. Smith believes quality is key now because companies will have trouble making their debt payments in a deflationary environment. In Smith Affiliated's core portfolio he is keeping the duration 15% less than the 5.44 years of the Lehman U.S. Government Credit index. The assets are in Treasuries, agencies and high-rated corporates.