Tag: Assets

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When’s the Next Recession? Will You Be Ready This Time?

Will we fall into another recession?  Absolutely.  Will you be ready this time with future-proofed strategies?

 

Get an early handle on the potential for a major recession, consider the potential impacts on you, your career, your organization and respond sufficiently ahead of any expected economic downturn.

 

Source: Shaping Tomorrow’s AI Robot, Athena. 

Forecast: The Fed will tighten too much and tip that curve into recession territory sometime next year.

Trend: Economic, Political

Sector: Financial

Insight and Source: Economist who helped discover predictive powers of bond market says there’s no sign of recession right now   Ron Insana | @rinsana

 

Forecast: Developed countries are badly equipped for another recession, both economically and politically, and central banks should be wary of raising interest rates just to control inflation.

Trend: Economic, Political

Sector: Financial

Insight and Source: Summers Warns the Biggest Economies Are Not Prepared for Another Recession Christopher Condon , Joao Lima , and Paul Jackson

Forecast: Many economists now expect a mild recession in the U.S. by 2020 at the latest.

Trend: Economic, Political

Sector: Financial

Insight and Source: IDC Forecasts Worldwide IT and Telecom Spending to Slow After Last Year’s Rebound; Economic Risks Have Increased

Related Forecasts:

  • “The U.S. central bank forecast one or two more hikes for 2018.
  • Assuming no additional stimulus in 2020, the fading of the U.S. fiscal sugar-rush after 2018-2019 could lead to withdrawal symptoms that could exacerbate a cyclical slowdown.
  • The U.S. could target an additional $200 billion in Chinese goods, followed by another $300 billion – bringing duties on a total of $550 billion Chinese products, which is more than the $506 billion the U.S. imported from China in 2017
  • In the US, headline inflation is projected by the IMF to increase to 2.5% from 2.1%.
  • The IEA predicts the U.S. will add 1.7 million barrels per day in 2018, followed by another 1.2 mb/d in 2019.
  • Being well overdue for a recession in the US, the unbridled optimism of global investors will eventually end, once they consider the plethora of rising risks.
  • Achieving policy objectives will become more challenging from 2020 amid a technical recession in the US and a faster deceleration in Chinese economic growth rates.
  • In the next three years, a rising amount of bonds maturing within one year entails rollover risk if financial conditions tighten abruptly.
  • A recession in the US will cause economic growth in Canada to slow to a little above 1% in 2020.
  • The risk of a recession really picks up after a year, or sometime in 2020 because that is when you start to see the fiscal stimulus start to fade.
  • One change from recent years is that corporate car rental prices in North America are expected to rise by as much as 5 percent in 2018 due to operator issues.
  • The US stock market is on the brink of an imminent crash that could trigger another global recession.
  • Borrowing costs climb to a four-year high just as investors begin to anticipate a downturn in the global economy.
  • US rate hikes risk triggering a recession in 2019 or 2020 by putting the brakes on growth.
  • With unemployment at 4.1%, inflation fears are rising: Typically, the Federal Reserve starts to increase interest rates to slow the economy and push inflation back into its lair – but in doing so, the Fed raises the risk of recession and pushing down already lofty stock markets.”

Steps:

6)   Anticipate changing circumstances and economic cycles.

7)   Persist and pivot to navigate external threats and opportunities.

17) Sketch out your trajectory in 5-year timeframes.  Will we fall into another recession?  Absolutely.  Will you be ready this time with future-proofed strategies?

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Appreciation

“Why swim upstream, if the current is moving everything in the opposite direction, right?”

Using economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.

 

An excerpt from Book Two in “The Knowledge Path Series” dedicated to helping you make more money from a lifestyle businesses you’re truly passionate about.

Peak around the corner.

About the time of my own mid-life crisis I discovered the author Harry Dent.

Bubbles Bursting

He introduced me to economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.

Any Poehler’s Leslie Character

Amy Poehler’s fictitious Pawnee, Indiana didn’t grow on me until season five when neighboring Eagleton, an ultra-affluent town, was written into the script.

In the sixth season the town of Eagleton, involved in a longstanding rivalry with Pawnee, goes into bankruptcy and is absorbed by Pawnee.

Fictitious Pawnee, Indiana

An effort spearheaded by Leslie after she sees no other way to save the town.

Having lived in a small Indiana college town on a bluff overlooking the Ohio River for four years and, then in another rural college town for my masters degree, I sought higher quality-of-life choices in a region that wasn’t so topographically flat.

But where?

  • And what if I discover after I move that I don’t like it?
  • What do I need to know ahead of time?
  • What if I chose a new Eagleton somewhere else and it files bankruptcy?
  • That can’t be good – except for Amy Poehler, right?
  • Nearly anybody can forecast the future.

How do you know which ones will come true?

I set up “The Journal of 2020 Foresight” after researching the top 100 trends and predictions from a variety of technical, economic, social and political sources.

And, knowledge labs to monitor key indicators in 5-year timelines –

  • 2003 to 2008,
  • 2009 to 2014 and
  • 2015 to 2020.

Why swim upstream, if the current is moving everything in the opposite direction, right?

The first knowledge lab, conducted during the 5-year timeline between 2003 to 2008.

Top Forces, Trends and Predictions

We began tracking some of Dent’s forecasts, especially the following four out of our original 100:

“4 – Basic innovation in communication technologies is allowing more people to relocate their homes to small towns and exurbs, and telecommute to business. 

3 – The baby boomers are moving into their vacation-home-buying years, which, in combination with the first trend, will stimulate demand for property in attractive resort towns. 

2 – The echo baby-boom generation is now moving into its household formation years, which will stimulate demand for apartments and rental property in the cities, and has already caused commercial property in these areas to appreciate, 

1 – There is a broad geographic migration towards areas of the country with warmer climates. You can expect the first three trends to be accentuated in the southwestern United States. “

Back to Harry Dent’s economic cycles and bubble forecasts.

He included a bubble wildcard as a fifth forecast.

The mother-of-all depressions, arriving sometime in the 2009 to 2015 time horizon.

Which presented itself as the mother-of-all Great Recessions.

More on that later.

The Warm Migration Trends
  • But, let’s say you decided to investigate opportunities triggered by the warm climate migration?
  • How do you explore the possibilities?
  • How do you go about it?

Dent borrowed from innovation, growth, and maturity product lifecycle curves to describe the potential for community growth and real estate appreciation.

S-Curve of Growth

You might say he spoke my language coming from my career in high technology.

  • Innovation – .1%, 1% to 9%.   
  • Growth – 10% breakout to 25% and from 50% to 75% and 
  • Maturity then to 90% – 99% percentiles.

What if the lifecycle model could be applied to resorts – estimating investment appreciation and community growth?

How does that work?

“The time it takes for an idea to move from a .1% idea to a 1% prototype, and finally to a 10% niche in the marketplace (Innovation), is roughly the same amount of time it takes for that niche to accelerate up the curvilinear curve of market acceptance through 50% to 90% (Growth).”

In the innovation stage, the risk is high and the potential reward could be astronomical.

If you found a small pristine mountain community at this stage and moved or invested in a vacation home on a lake, you may see your small down payment and mortgage pay off handsomely decades later.

Or not.

  • No guarantees.
  • Buy low, sell high.
  • As an investor, you’d want to find that goldilocks moment.

You wouldn’t want to invest too soon and wait forever, but definitely not too late when it is way too expensive to buy.

Pick sometime in the early growth stage but before the late growth phase turned into maturity.

When everyone else has heard of the premier destination.

As the mix of community residents begins to shift from High Country Eagles to Wireless Resorters.

You might find Pawnee attractive, but you probably missed the golden opportunity to move to Eagleton.

And by “season six” you’d be glad you did.

In priority order for finding the first three driving trends in one place – broad communications, Baby Boomer vacation-home buyers and echo-boom (Gen-Y, Millennials) entering the rental market, he lists:

  • Resort Towns
  • Small College and University Towns
  • Classic Towns
  • Revitalized Factory Towns
  • Exurbs
  • Suburban Villages
  • Emerging New Cities
  • Large-Growth Cities
  • Urban Villages

What if you’ve already built your mobile knowledge company, “Mobile KnowCo” and weren’t bound by your current fixed location?

How would you know if you found a town to fit your needs?

On your next vacation Harry Dent said to keep your eyes open for:

  • “A new look that includes intelligent town planning for increased human interaction; and abundant open space; 
  • flexibility in home design; 
  • planning for safety; shared facilities; and high-tech communications infrastructure.”

With those criteria in mind, we initiated coverage of “Resort Towns” in western United States like…

And, continued to aggregate lists of “Best Places” that fit Dent’s other eight categories of towns and cities.

Southwest Region from Wikitravel

From those thousands, we focused on and curated only those from six western and island regions:

  • Hawaii and other Tropical Regions;
  • Texas Regions;
  • Southwest Region (Arizona, Nevada, Utah and New Mexico);
  • Pacific Northwest Region (Washington and Oregon);
  • California Regions; and of course my favorite
  • Rocky Mountain Region (Colorado, Montana, Idaho and Wyoming).

But guess what?

All vacation destinations aren’t equally attractive and the reasons why aren’t obvious until you dig in and find out for yourself.

So, the only real question becomes, which one is right for you?

Especially if you longed for a fresh start.

Or were forced to take one.

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

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Millennials and Boomers Shape the Economy

If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy. Find the stocks that performed horribly, lagging far behind the market leaders.

Stock Market Performance
“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Three in a 3-Part Series.

Part One: Tomorrow

Part Two: What Lies Ahead?

Please remember.  Check in with your financial planner as the following trends and opinions change and may have before you read this.

Rules of Thumb

Is there a rule of thumb you can count on going forward?

You know like “buy low, sell high.”

As they say in my family, it’s all relative.

 

If stocks earn 4% a year, but cash in the bank earns just 1%, stocks still win by a long shot.

  • So Baby Boomers will have to stay in the stock market for a portion of their portfolio.
  • For Millennials who invest on a regular basis in an IRA or 401(k) plan, and who won’t need to tap into their funds for two decades or longer, just buy and hold.
  • Unlike the Baby Boomers who fear a significant loss over the next five years, don’t fret about bad financial news.

In fact, root for falling stocks, because you’ll be getting more shares for your money.

If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy.

Find the stocks that performed horribly, lagging far behind the market leaders.

Tracking Winners and Losers

While the market leaders run out of steam, the laggards will probably …

beat U.S. returns over the next five years by buying low to  eventually sell high. But psychologically, it’s hard to buy losers.

 

Losers like:

  • Foreign stocks and bonds.
  • Emerging-market stock funds .

They’ve lost 5.8% a year.

“We’re expecting to raise our positions there in the back half of 2016.”

Understand the risks, though.

In a world where a stronger dollar and weaker currencies depress the returns for American investors in foreign markets it may be time to nibble here and there.

Bears vs. the Bulls

“It will never be obvious when the markets, or their currencies, have hit bottom. next five years.” 

  • In a reversal, financial advisors and economists expect China’s share of global growth to fall to 21%.
  • But, they expect emerging economies’ share to climb to 34%.
  • And, previously out of favor European and Japanese stocks will continue to benefit from their central bank policies aimed at keeping interest rates at rock bottom to support growth.

But there’s no getting around the fact that …

“the world will face a financial crisis rooted in mammoth debt levels.”

  • In 2016 a pivot in pay increases will be welcome news in the U.S. households.
  • But, maybe not for stockholders as promotions and bonuses usually come at the expense of corporate profit margins.

And, the grass is greener.

Getting Ready for Musical Chairs

The percentage of talented employees voluntarily quitting their jobs for better opportunities is the highest since early in the Great Recession.

Typically though …

“It takes a long time for people to realize they’re in a better bargaining position.”

That can change quickly thanks to the Internet and social media.

Once trading places begins, Millennials and savvy Gen Xs can take advantage of a powerful means to discover which companies are good ones to work for and which to avoid.

Consumer Behavior Influencing Stock Performance

It won’t take long for workers who feel under appreciated to make the jump.

And, that’s great, right?

“In a perfect world, rising wages would spark a ‘virtuous circle’ where workers would boost spending, driving up demand for goods and services. That would lift business sales and earnings, in turn allowing companies to continue raising wages.”

 

A virtuous circle takes time to develop in a less than perfect world like the one you and I live in.

But, here’s another simple rule of thumb.

Changing Tech Leaders
  • Where the real economy may influence the stock market.
  • Where consumer spending by Millennials and Baby Boomers may figure into gains in your portfolio.

As one expert put it.

“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”

 

Steps:

(6) Anticipate changing circumstances and economic cycles.

(7) Persist and pivot to navigate external threats and opportunities.

(17) Sketch out your trajectory in 5-year time frames.  Will we fall into another recession?  Absolutely.  Will you be ready this time with future-proofed strategies?

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

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Building Your Rental Business

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

Rental Properties
Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Three in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Part Two: Real Estate Investment Types

Is there a simple way to evaluate which properties merit your investment?

Look at absorption vs. overhang.

Absorption describes the demand for units — not enough units in a specific location to satisfy demand usually measured by vacancy rates — low is better.

Overhang refers to renter turnover.

Multi-unit Apartments

More renters leave than the number of potential tenants signing up.

Simply, supply outstrips demand.

Several factors favor higher absorption demand.

Location, location, location, right?

Yes, renters prefer closeness to both transportation and to shopping areas.

How about the amount of income you can generate?

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

A major factor is the condition of your property.

Condition of your Property
  • Everything from how old is your wiring — will it need to be upgraded to increase your units attractiveness.
  • Same for plumbing.
  • Size of units — bigger is better in certain areas — so spaciousness and cleanliness command higher rents.
Costs for Upgrades

And, finally consider the value trends in the property’s neighborhood.

From your potential list of properties fitting your investment criteria you’ll want to check off those that fit the lowest price you can negotiate.

  • To do so you need to know your cost and income per square foot for the property type and community.
  • The experts recommend opening your negotiations by asking for 10% lower than the property’s asking price.
  • They also suggest agreeing to the longest mortgage terms to lower monthly payments.
  • And finding the lowest interest rates you can.
Comparing Potential Profit and Loss

In the right market, you might even consider taking a balloon payment when you can after three to 10 years.

Remember, if the real estate market tanks, you’ll need to come up with the payment if you can’t renegotiate it.

Do the properties fit your criteria?

Shoot for a 30% positive cash flow so you can pay your monthly mortgage and bank the profit.  

Negotiate a lower gross multiplier figure.  

Typically in the middle of the last decade it ranged between 3x to 12x annual rental price. 

In other words if the property’s annual rental income totals $25,000 at 3x the purchase price equals $75,000.  

The bonus, of course, is you can borrow against 100% to close the sale. 

Likewise a gross multiplier at 12 times yields a $300,000 price.

Then, as the new owner going forward you want to reach the point where your property is self-supporting and pays for itself.

Finding Ways to Make Your Business Self-Sustaining

You’ll want to reduce costs at the front end and during operations while you begin to raise rents.

Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

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FOMO

Just before the Great Recession managed to dash homeowner dreams and investor real estate businesses, most of the different methods promoted common profit goals.

Which Type of Real Estate Investment is Right For You?
And, as a business model you could evaluate different types of real estate investments

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part One in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part Two: Real Estate Investment Types

Part Three: Building Your Rental Real Estate Business

Housing markets.

Real Estate opportunities.

What Do You Really Need to Know?

Are we experiencing the fear of missing out (FOMO) again?

Are we experiencing the past all over again?

But with a new generation?

Remember the absolute real estate feeding frenzy before the melt down?

  • Rich Dads,
  • Trump University,
  • Wealth Management Expos.
Real Money Was In The Training Programs

We sat in the audiences and listened to their high pressure pitches to buy their training programs in downtown LA.

We encountered no shortage of

  • books,
  • tapes,
  • seminars pitching ways of making money with
  • OPM – Other People’s Money.

Timing?

The worst case materialized when thousands jumped in and over-extended themselves just as the bubble burst.

They got caught holding the bag.

Risk of Foreclosure

In a game of real estate musical chairs, the economy pulled the chair out from under them.

  • What were they thinking?
  • Obviously, not expecting a reverse cycle?
  • But, looking back now and projecting ahead, do the methods work?
  • Can you still find opportunities with the degree of risk you can afford?
  • What should you know?

So far we focused on moving to resort communities that bring out the best in you.

  • Should you just buy a second-home, but keep your primary residence and rent out your vacation home?
  • If you do move, are there any other ways to make money in real estate that make sense for you?

Just before the Great Recession managed to dash homeowner dreams and investor real estate businesses, most of the different methods promoted common profit goals.

Each recommended real estate deals that only …

  • generated a positive monthly income,
  • appreciation growth, with
  • zero or near zero down payments
  • securing a mortgage, and
  • cash in your hand on each deal.

Your job, then is to research and then visit communities that fit your criteria with fewer tradeoffs.

And, as a business model you could evaluate different types of real estate investments —

  • multifamily residential properties,
  • industrial and commercial units,
  • shopping centers and strip malls,
  • raw land or self-storage warehouses.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

 

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Equity

“Buy land, they’re not making it anymore.” — Mark Twain.

Unlocking Equity. From www.SeniorLiving.Org
Figure out if you should unlock that equity for investments.

Or more specifically, how to tap into your source of capital to fund your retirement.

Part One in a 4-part series weighing the pros and cons of investing in real estate over the course of a life time.

Nest Egg

Leaving aside rental and commercial property or other indirect forms of investing in real estate, such as REITs, a more common scenario involves typical homeowners.

Those who bought years ago, paid off their mortgage or will have shortly and despite the negative impact of The Great Recession managed to build a decent amount of equity.

Point one.  

Don’t take what follows as financial advice.

If you haven’t consulted professionals, well, what are you waiting for?

Do so at once!

Back in February of 2007 I read a FidelityReport published by Fidelity Research Institute that compared unlocking equity for investments to risks and relative returns of stocks, bonds and cash.

Point two. 

Fidelity emphasized how much a home, and therefore it’s equity, is subject to market cycles.

History lesson.

Previous generations of Americans treated home equity as an illiquid asset being built up almost invisibly as mortgages were paid down. 

History Lesson

They considered this growing equity either as an “asset of last resort” or as a source of bequests to heirs.

And, of course, back then those homes cost what a luxury car today goes for today.

So, it’s no surprise that future generations are on track to carry much larger mortgages.

And, they will continue to do so into their late middle age and even deep into their retirement years

… perhaps on the assumption that these larger debts will be compensated for by a continued rise in home values.

By 2007, more than 80% of all Americans over age 65 owned homes.

The median price of new homes in the United States has averaged an annual appreciation rate of 5.9% since 1963.

Point three.

Fidelity cautioned, even before the more recent Great Recession

Market Cycles

… historical experience suggests that real estate investments can suffer serious and sometimes prolonged downturns. 

Sometimes it can be across the board.

But, baring a prolonged deflationary slump teetering on an economic depression, it is certainly true for local regions struck by extended economic decline.

Local real estate prices and your return on investment rise and fall with economic factors

… such as interest rates, per capita income, building costs and unemployment rates. 

Shifts in your mortgage loan market can reduce your monthly payments.

Those innovations make housing more accessible.

Like variable rate and interest only loans.

But, they don’t come without their own set of risks.

Beyond the loan market, don’t forget to monitor important variables expanding or constricting the local supply of real estate properties.

  • General availability of land.
  • Land use restrictions.
  • Tough zoning rules.
  • Building regulations.
  • Slow administrative procedures.

And, of course shifts in demographic trends

  • Population growth.
  • Migration patterns.
  • Immigration rates.
  • Average household size.
  • Household formation age (individuals in their thirties).

Fidelity said American real estate values endured three sharp “corrections” during ten-year intervals.

  • From the early 1970’s to the early 1980’s.
  • During the early 1990’s.
  • And, during The Great Recession at the end of the 2000’s to mid 2010’s

With the severity and duration of the downturn that occurred in 2006 still uncertain (published in 2007).

Fidelity tracked investment performance back to before you were born.

How did they say real estate investments held up?

Returns on a dollar invested in residential real estate in 1963 have been only lightly better than returns on low-risk Treasury Bills.

What about compared to stocks, then?

Over this more than forty-year time period, real compound returns to stocks outpaced realty, averaging 5.95% versus returns of just 1.35% to real estate after adjusting for inflation. 

Downturns and Rebounts

So, if you took a dollar and invested it in the 1963 stock market it would have “compounded to $12.36 by 2006.”

But, the same dollar invested in real estate would have grown to just $1.79. 

What about those higher appreciation regions on the coast?

Golden Gate Bridge
On the West Coast. Golden Gate Bridge. Courtesy of http://www.burningwell.org/gallery2/v/Objects/100_5478.JPG.html

Even the highest appreciating regions of the country, the Northeast and West Coast, only realized real returns of 2.35% and 2.49%, respectfully, and underperformed the returns on bonds at 2.74%.

Don’t they say past performance isn’t a guarantee of future performance?

Still data are data.

Home values have underperformed stocks and bonds in terms of average annual returns over every five- and ten-year period from 1963 to 2005, but have only been slightly above the returns on treasury bills.

Why bother, then?

Part Two: Five Options for Unlocking Equity

An excerpt from Book Four in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Rocky Mountain State.