Mill Creek’s Chapin: Take More Risk With QE3

September 12, 2012

While the Fed may end up trying to lend a helping hand again, patience and commodities seem sensible as the economy slowly normalizes, Mill Creek Capital’s Chapin says.


Tom Chapin, chief investment officer at Conshohocken, Pa.-based Mill Creek Capital Advisors, says it sure looks like the market believes the Federal Reserve will launch QE3. The market should know by Thursday after the Fed’s policy meeting concludes.

More broadly, Chapin, whose firm manages more than $2.5 billion with a particular focus on high-net-worth families as well as endowments and foundations, says patience is crucial for investors as the economy continues to work through the indebtedness that led to the financial crisis. He says his firm favors ETFs for broad equity market exposure, and is looking with particular interest at asset classes such as commodities to deal with a difficult investment environment.


Ludwig: The market seems to be warming up to the idea of QE3. For example, GLD was the most popular ETF last month. Do you think it’s going to happen?

Chapin: My sense is the market thinks it’s going to happen, and the Fed has certainly left the window open; if they think we need it, they’ll do it. It’s helping support the markets in general. But we've seen this story before. And we keep hoping for some panacea. But it seems to me a stretch that that’s really going to make all the difference.

Ludwig: We’re in the sixth year of this balance-sheet recession. What’s your general sense about what it’s going to take to restore some sense of normality—a growth trajectory that looks more like most post-war recoveries?

Chapin: It’s going to take time. That’s what we all said at the outset: that this time it’s different. It was a much worse recession. If we think about it being a three-legged stool—the U.S. consumer, the U.S. government and the U.S. corporations—the U.S. government has gotten itself overleveraged. The U.S. consumer did as well.

It is going to take some time for consumers to deleverage themselves, and for the government to get out of the problem of increasing spending at a time of decreasing revenues. Those sorts of problems are larger than any we’d seen. It will take time to work them out. Corporations, on the other hand, quickly de-leveraged themselves and are operating at very high profit margins. So that leg of the stool is on firm ground anyway.

Ludwig: Would you say the economy is halfway through this period? Less? More?

Chapin: For consumers, we’re probably at least halfway through it. Consumer balance sheets are certainly improving. We’re finally getting improvements in home prices and stuff is starting to sell in some markets. But on the government side, we don’t seem to see any progress yet, for all the obvious reasons that we’re still climbing out of a deep recession.

So we’re still spending to keep things from getting worse, and there hasn’t been any congressional progress towards closing the gap. We’re less than 50 percent of the way there in fixing that problem.



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