Iraq, Rate Fluctuations Will Rule Investor Fate

Rebecca Garner, president and chief investment officer of Garner Asset Management Co., said the biggest single trend she sees among investors headed into 2003 is a cry for dividends.

“There’s going to be no more of this, ‘Trust me,’ stuff,” Garner said. “Investors are demanding dividends and they’re going to get them with avengence.”

Investors have started the new year by playing yo-yo in and out of defense industry stocks, Garner said.

The continued uncertainty over what will happen with Iraq is causing volatility.

John Dominick, a professor of finance at the University of Arkansas, said interest rates have probably bottomed out in the banking industry. And he expects they’ll remain low throughout 2004.

That is creating a negative real rate of return for many investors since the rate of inflation exceeds the rate they’re receiving on instruments such as money market funds, mutual funds and commercial paper. And because a significant percentage of the two-county area’s population makes its living off investments, there could be a dip in local disposable income.

“People in areas of high prosperity are looking to invest in bonds and stocks,” Dominick said. “That will impact bank deposit growth. Right now there’s a lot of local money flowing into real estate trusts. That’s one of the few areas where you can still get a decent rate of return.”

Dominick, who holds the Arkansas Bankers Association’s chair of banking and the J.W. Bellamy chair of banking and finance at the UA, said the low rates will continue to help drive longterm financing such as loans on homes and other construction.

He said the consolidation of 14 Arvest Bank Group Inc. charters into one Fayetteville-based charter should show the Bentonville chain significant cost savings. That will enable the company to provide additional investment services and other products most competitors can’t afford.

The bank group is the second largest in Arkansas with $2.5 billion in deposits.