Acclaimed money manager Jeffrey Sica, founder of Sica Wealth Management, talks with the Opportunist’s Managing Editor Leslie Stone about the government shutdown, how Fed policy could kill the public market and why investors have become all too familiar with euphoria and disaster.
Jeffrey Sica became a wealth manager quite by accident. “I originally thought I would become a teacher or a writer but I didn’t find a teaching job, so I found a position where I was commissioned to become a financial advisor,” he says. “I figured I’d do that until I got a teaching job and here I am 20-some years later still trying it out. [Laughs] I always liked the adrenaline aspect of the financial world—I still remember taking a trip to the New York Stock Exchange in the fifth grade and thinking it was the coolest thing in the world. It was my backup plan that turned out to be my passion.”
Today, as founder, president and chief investment officer of SICA Wealth Management, LLC, Sica’s passion is advising affluent high-net-worth individuals, families and businesses with financial planning, asset management and private equity services. He assists these clients as they accumulate, enhance and preserve wealth for future generations.
Widely recognized for his expertise in a broad range of personal finance and investment areas, Sica is a regular guest on CNBC, Bloomberg Television and Fox Business Network and is consistently featured in print outlets including the Wall Street Journal, Financial Times and Thompson Reuters. He is also a Forbes contributor and publishes his own column: “Sound Off.”
Sica is a member of the 2014 New York/New Jersey Super Bowl Host Committee, a fitting role for the self-proclaimed “NFL fanatic.” “I was born and raised in New Jersey, so I am incredibly honored to be part of the single greatest sporting event to take place in New Jersey/New York,” he exclaims. “I anticipate a significant economic benefit to the area. It will be a memory that will last a lifetime.”
Opportunist: What was your reaction to the deal Congress just passed to avert default and fund the government?
Jeffrey Sica: Well, I think politicians have cemented their incompetence to the world through this ridiculous process they dragged us through. You cannot look at what they’re doing—or not doing—as having anything but a negative impact on the economy.
Opportunist: Do you hold out hope that lawmakers will negotiate a long-range solution or are you skeptical?
Jeffrey Sica: They will continue to be an opposing force. Look at what they destroyed and their adversarial stance toward investors. This whole process is a dismal failure and isn’t generating any winners. It showcased just how dysfunctional our government can be and it certainly does nothing to enhance our position going forward. Americans cannot live their lives believing that politicians or the government will do anything to make investing more profitable.
Opportunist: The S&P 500 hit an all-time high after the budget dispute was resolved. How will the country’s long-term debt affect the markets?
Jeffrey Sica: We need to look at long-term debt as a medical condition. The government has left it untreated and learned to function impaired and, as a result, the economy has learned to function impaired. Things move along and there are periods of time where ignorance is bliss, but then reality sets in. Building up $4 trillion of government debt will do nothing to enhance the future economic resiliency of this country. Every debt needs to be paid. It’s the law of cause and effect. One point that I have yet to see anybody else identify is quantitative proof that long-term debt does not slow our economic growth. We are constantly fighting the battle of higher taxes and the lack of incentive to succeed is difficult to overcome when there is this much debt hanging over the general population. Considering that we’ve been languishing in a secular bear market with 13 years of anemic growth proves the S&P 500 hit an all-time high because of a quick fix. The government didn’t do anything magical; all they’ve done is impair the economy. We have a Federal Reserve that is going to print $85 billion per month of new money for an extended period of time and that’s the only thing driving the market up right now
Opportunist: You have said that investors have become all too familiar with euphoria and disaster. Can you expound on that?
Jeffrey Sica: The leverage and market manipulation results from the Central Bank and institutions in general that are relying on high frequency trading and institutional trading to generate results. This has created an atmosphere of victims and perpetrators in the market. The Central Bank creates bubbles and investors buy into them. Whenever the market hits an all-time high investors experience an intense fear of missing out and so they buy—in spite of any trepidation they may have. Then institutions that were able to capitalize on the momentum become the perpetrators who leave the party and investors are left as victims when the bubble bursts. A cycle of euphoria and disaster has emerged because of this victim and perpetrator phenomenon. S&P investors have lived through two crashes of 50 percent or more and countless declines of 10 to 20 percent volatility have been extreme. That’s an awful lot of trauma to endure for what I would consider relatively minor returns. Eventually people aren’t going to want to deal with the disaster in order to experience the euphoria.
Opportunist: As a money manager and investor, what is your greatest fear in the markets?
Jeffrey Sica: A systemic crash of both the stock and bond markets. The bond market became almost a safe haven in 2008 when everything fell apart, but now because asset prices have been so inflated and mispriced it could quite possibly experience the broadest based decline we have ever seen. The bond market was the Holy Grail … the one market that the Fed could not or should not manipulate. Once you inflate the bond crisis you are dealing with a market that is broadly more impactful to the overall economy than even the stock market. Because interest rates are low, there will be implications across the board when that dynamic shifts. That’s why they need paper. Trillions of dollars in derivatives are underlying the bond market, and if bond prices fall too quickly yields rise. What you have next is a significant catastrophic effect on financial institutions that have relied on derivatives and assurances from the Central Bank that interest rates will remain low.
Opportunist: Is the U.S. economy strong enough to continue taking hits like the government shutdown?
Jeffrey Sica: I believe the U.S. economy has adopted a sort of ignorance is bliss attitude and isn’t facing reality. We have become a nation where three-fourths of the new jobs created are part-time jobs. That, to me, is the No. 1 terrifying statistic because we essentially have an entire demographic group of 18- to 24-year-olds—the very future of America—with the highest unemployment rate in the history of this country. If that doesn’t speak volumes what does? Meanwhile, we have multitudes of politicians and institutions trying to convince us how great things are. We have the most resilient country in the world and yet we have put too much faith in our politicians and they have made a mess of our economy.
Opportunist: How do you think that happened, Jeff?
Jeffrey Sica: It goes back to 2008 and the financial crisis, when there was so much uncertainty that nobody really understood what was about to happen. You can never trust what people do in times of desperation and 2008 was a time of desperation. Our society has become fixated on the quick fixes. It’s almost as if they began to believe that the Central Bank was the solution to all our problems. If intervention by the Central Bank is the remedy, isn’t our whole economy going to be based on a process of adding and subtracting liquidity? I debated this with a very big institutional strategist and he agreed with me and said the consequences would be horrible. Unfortunately, you cannot have a true solution without enduring pain in the process. You cannot bypass an economic slowdown with a Keynesian school of thought. Institutions aren’t lending the way they were. Businesses aren’t profiting and, therefore, aren’t hiring except for part-time workers. The embracing of quick-fixes is a cultural and societal problem. It’s definitely not what made this country great. My biggest problem with all of this is that I doubt anybody in charge of policy is thinking about tomorrow or the effect on future generations. We will ultimately be running up deficits that will need to be paid back by our children and our children’s children. Past generations of Americans always cared about future generations. Believing that the Central Bank is the solution will potentially cause one of the worst economic tragedies we have endured. The law of diminishing returns no longer works. And we are stuck with $4 trillion to $7 trillion on the Fed balance sheet? That definitely won’t lead to future economic prosperity.
Opportunist: What is your opinion of President Obama’s nominee for Federal Reserve Chairman, Janet Yellen?
Jeffrey Sica: I have read some of what Janet Yellen has written and listened to her talk through the years and have come to the conclusion that she’s basically an echo chamber for Ben Bernanke. She’s his Keynesian clone; the two of them share the same DNA. She’s a liberal who believes the Central Bank is the utopia of the economy and I believe she will print money until forever. I won’t even speculate about when QE [quantitative easing] will stop. That’s why the stock market celebrated her. Larry Summers was a bit of an oddball—you never know what’s going on in his head despite the fact that he talks a lot—and so it was hard to determine his definitive direction.
Opportunist: You have been outspoken in your belief that Fed policy will neither stimulate growth nor lead to a stable stock and bond market. You have also said Fed policy could be the death of the public market, albeit unintentionally. Please tell us more about that.
Jeffrey Sica: When the only thing that counts is Ben Bernanke or Janet Yellen, you have to know that the end is near. QE is very powerful to the market, liquidity and low interest rates. It will be very difficult for other fundamentals to equal that power. When you create dollars out of thin air, which is what QE is, and those printed dollars find their way into stock prices and you remove QE and don’t replace it with something real like fundaments or economic growth or other things that supported the economy before the Central Bank decided it was too frail to stand on its own, all asset prices will fall. That is proof that the public market has been so heavily manipulated and become so dependent that it won’t stand on its own. Banks have become hedge funds that trade big blocks of stocks. Regular investors are looking at this and thinking I don’t want to be the one left holding the bag when either the institutions or the Central Bank decides they’ve had enough. When you have a highly manipulated market dependent upon the Central Bank, you won’t find investors willing to put their hard earned money in the hands of the incompetent. That’s why the smart money is leaving the game.
Opportunist: When did you form Sica Wealth Management?
Jeffrey Sica: I have spent the last two decades as a financial advisor, first as a senior vice president at A.G. Edwards and then as managing director at Wachovia, which became Wells Fargo. I had been a part of three mergers and saw the evolution of A.G. Edwards, Wachovia and then Wells Fargo after Wachovia imploded in 2008. After becoming very dissatisfied with the whole culture around wealth management through an institution, although it had been quite successful, I realized that it wasn’t in line with what I saw for my future. I didn’t see any tremendous benefit to what the institutions were providing for clients and I envisioned a company very different than what I had experienced. So, in 2010 I made the decision to open Sica Wealth Management and create a more diverse, innovation-oriented company where I could offer opportunities for my high-net-worth clients to participate in some alternative investments in ultra-high-net-worth endowments. I wanted no more part of force feeding of products through institutions; I wanted to customize strategies and begin to advise funds and private equity firms and develop a more diverse structure for the company. It started off like any other company and evolved into what it is today, which is a multidimensional company that has really taken on the whole structure of alternative investments. Those include usually out of reach types of investing accessible to family offices and individuals and institutional investors.
I also decided to help create Innovation Equity Partners Asset Management with some industry legends I have known for decades, like Keith Greg who was an executive at Wells Fargo. The vision of IEPAM is to bring alternative investment strategies to investors who normally wouldn’t have access to them. Sica helped create a proprietary turnkey asset management program called IMAP, which Sica believes will change the future of wealth management.
Opportunist: What are your favorite market sectors and some of your best performing stocks?
Jeffrey Sica: I’m not a big fan of the stock market right now. The two sectors I am in are energy, including Exxon and Chevron, and the consumer discretionary companies such as Amazon and Disney. Being bearish on the market, I have exposure mostly through those two sectors.
Opportunist: Is Apple still promising in spite of its downward trend since a $700-per-share peak?
Jeffrey Sica: I was one of the first people who went on record to say that Apple was overvalued. I felt it had fallen under the curse of high expectations but everyone else thought it was priced to perfection at $700. When it declined I said Apple cannot grow by simply rolling out new versions of old products. I don’t see it as a buy over $400. They need to show a new level of innovation—post Steve Jobs—because they cannot count on the growth of the past. Although Apple has changed the whole framework of society, it cannot become a victim of its own success and must innovate beyond what it has already achieved. Otherwise, it will languish in its current range.
Opportunist: What about Facebook and Twitter?
Jeffrey Sica: I went very public in saying that I believed Facebook was overhyped. I sensed a lack of enthusiasm for the public offering and that came to fruition. There were a tremendous amount of family and institutional investors handling the offering who weren’t selling their shares. I anticipated the IPO would not do as well as people anticipated and that turned out to be the case. I do think Facebook made significant progress with mobile advertising; however, since it’s a trend oriented company it won’t have the staying power most people think it will. It will never be in the category of Amazon or Apple.
Twitter, on the other hand, is quite different. I have optimism about Twitter. Sure, it’s overhyped on its IPO, but Twitter has changed media and entertainment and retail and it is the platform of the future. As long as the company is able to monetize the market share I have very high hopes for Twitter.
Opportunist: Can you share some of the lessons you have learned during your years in the business?
Jeffrey Sica: Here’s a quote I heard just yesterday: ‘A lion does not worry about the opinions of sheep.’ One lesson I learned is to not follow the herd because most of the time the herd is wrong. You can’t just take a public opinion poll and assume you can guess where the market is going from one minute to the next. The market has proven to be incredibly unpredictable, so you have to go against the grain to be successful.
Don’t trust the government. The government has tried to control things through Fed Chairman Bernanke saying the subprime crisis is under control or that QE was going to help the economy, but when it comes to the market and investor behavior they have nothing to say. It’s good to hear what they say but not trust or believe what they say because it’s all irrelevant to the investor.
Understand that investing is not an exact science. You have to be resilient when you invest and you cannot get too tied up in being able to guess from one minute to the next. You must press forward and be diligent and disciplined until you find winning strategies.
Opportunist: What inspires and motivates you?
Jeffrey Sica. I am intensely competitive and enjoy being creative and innovative and coming up with strategies that crush traditional investments. I enjoy being a trailblazer and looking for out of the ordinary investments that people don’t know about because they’re not being pushed by the people with the loudest voice. Helping people succeed gives me a tremendous amount of joy. Seeing good things happen and strategies work and visions be fulfilled makes me happy.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989.
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