Manager sees
soft economy
as short-lived

COURTESY PHOTO The stock market is focusing on geopolitical issues, says Bank of Hawaii Chief Investment Officer Toby Martyn. Toby Martyn >> Named chief investment officer and executive vice president of Bank of Hawaii Corp.'s investment services group. Martyn, who has served as vice president of investments for A.G. Edwards & Sons Inc. in Honolulu, will manage institutional client relationships and coordinate teams that manage investments on behalf of clients.

I think from the standpoint of where we were vs. where we are, a month or two ago, I think you could probably make a case that the value of the market is better than it was as little as a month ago. The reason for that is the markets have seen a pretty meaningful consolidation due to what the Fed has called a soft patch in economic growth, and of course the problems with oil prices and probably thirdly the geopolitical issues that are continuing to vex the marketplace. Those points seem to have created an environment that growth as measured by GDP is going to be lower than expected in the third quarter. It depends who you follow but most market experts have cut their estimates back in the fourth quarter. I think most people also feel there will be a short-lived soft patch. I think that's the big issue: How prolonged is this soft patch? I've been watching things like unemployment, retail sales and those indicators have shown that things have kind of flattened out a little bit, as opposed to recent growth. I think most people might have trimmed their estimates; they are still optimistic the economy can rebound in the fourth quarter. I think the market represents better value than it did. And I think there's expectations that stocks will do better once expectations for growth become clearer.

What's the impact of the election?

It's going to be close. It's reminiscent of last election where it was nearly 50/50. I'm not sure the market is telling us one way or another. I honestly think from my own perspective that the geopolitical issues that face the market right now, those seem to have more of the market's attention than the election, because it creates uncertainty and markets don't like uncertainty. I think if you look at what's going on in the oil markets -- oil prices act like a tax -- the uncertainty imposed by the day-to-day warnings of terrorism ... is more daunting than the outcome of the election, in my opinion.

Will the uncertainty over terrorism lift?

Being the eternal optimist that I am, I'm hopeful we can see that mitigate over time and maybe the efforts put forth to bring stability to the Middle East and other parts of the world where we have some conflicts today are successful, but it's based upon how things are continuing to proliferate. It seems unlikely to think that can change any time soon.

The state pension fund recently cut in half its assets managed by Bank of Hawaii because of concerns over performance and employee turnover. Any comment?

I was an ERS trustee for six years. Having sat on the other side of the table, I understand the system has a fiduciary duty to its constituents, so I can completely understand the position it has taken but I'm equally enthused to be in a position to help restore the confidence in the asset management group in the Bank of Hawaii. I think a lot of the heavy lifting has been done. I think the folks in management, Al Landon and Peter Ho and Howard Hodel have made a concerted effort to try to put together a team of professionals that can bring immediate results to the table. I think he's got a group of proven professionals who have been in the business a long time who have what it takes to be successful. And I'm excited to be a part of the team.

If there's another terrorist attack against the United States, would we see a repeat of what the market did after 9/11?

I'm almost afraid to comment on that. I think most people would agree that it would not be helpful to investor psychology. Saying that is enough, because we all know what happened after 9/11. It was destabilizing in many ways. I think if you look at this economic expansion that we're in, we have decent growth, moderate inflation, improving manufacturing, job creation is there, though it's not optimal. I think fundamentally we're in good shape to have a fairly sound broad-based economic expansion. An attack could create some problems. Air travel, security issues and the impact it has on willingness to travel and spend money. Consumption is two-thirds of GDP. And Hawaii sees that more directly than most, because of what happens with Asian visitors. Terrorism is hard to quantify but it's definitely on the mind of investors.