What Lies Ahead?

So, the forecast remains turbulent with plenty of volatility

Market Cycles
Harry Dent years before even predicted the “Mother of all Depressions” lasting well into the decade beginning in 2010 and lasting until 2020.

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 Two in a 3-Part Series.

Part One: Tomorrow

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

What about the 25 year old Millennials?

Many, if not most of the college educated are burdened by student loans and high rents that eat up a huge share of income.

Good news for landlords, probably not so much for the starter home demand, yet.

But, for those who successfully found good employment with a fresh start on a career path, even if their pay rises they’re reluctant to  spend — or take a chance on a new job — so, don’t count on a broad positive impact on the economy just yet.

Their risk aversion may be one of the biggest overhangs from the Great Recession.

Look, they witnessed the financial woes their parents or friends endured after the 2008 crash.

While the demographic trends probably aren’t as negative for growth, you should account for them and prepare to adjust in any long-term scenarios you construct.

Obviously they’re the early adopters for companies including Airbnb and Uber..

And as another expert cautioned …

It’s impossible to know in advance how many business ideas will spring up to disrupt or even replace existing industries.

The period after the 2008 financial crash turned out to be pretty decent for the U.S. economy.

Many economists and financial news channel pundits peddled dire forecasts in 2009 and 2010.

Harry Dent years before even predicted the “Mother of all Depressions” lasting well into the decade beginning in 2010 and lasting until 2020.

Instead, by the end of 2015 …

  • The official unemployment rate is back to 5%. 
  • Corporate earnings reached record highs. 
  • And a venture capital boom has funded thousands of promising start-up companies.

But, what lies ahead?

Have we celebrated too soon?

  • The contrarian message appears more reasonable.
  • The economy and markets face challenges that could make the next five years very different.

Like what?

  • Don’t expect more than “low single digit returns on stocks and bonds.”
  • The annualized investment returns will be lousy as the January 2016 steep plunge foreshadowed.
  • Were talking 4% to 4.5% roughly half of what wealth managers plan for their clients.

And, that’s through the end of the decade

So, the forecast remains turbulent with plenty of volatility.

News at 11.

Will we ever return to tried and true savings vehicles for the Baby Boomers hitting retirements like their parents swore by?

One economist says don’t hold your breath,

“As for bonds, with yields so low it’s mathematically impossible for fixed-income securities to earn high returns.” 

How is that possible?

Five years ago a 10-year U.S. Treasury note was paying 3.5% in annual interest. 

Now, new notes pay 2.11%. The drop in yields means older, higher-yielding bonds have risen in value, boosting their “total return” — interest plus principal change.

Yeah, so?

But with the Federal Reserve’s decision in December to begin raising short-term interest rates from near zero, it becomes more difficult to imagine longer-term rates declining significantly, barring a new recession or global shock. 

Here’s what hurts my brain when wrapping my head around bonds.

  • If longer-term rates stay where they are, all you earn is the interest. 
  • And if market rates rise, older bonds will fall in value, offsetting some or all of your interest earnings.

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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