“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.”
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?
Please remember. Check in with your financial planner as the following trends and opinions change and may have before you read this.
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.
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.
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.
“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.
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.
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.
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.”
(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.
If they follow the broad trend lines, they will retire in place.
The community they now call home after their last corporate transfer.
Where their children and grandchildren call home.
Dent recommends checking out the best suburban and exurban communities on the edge of attractive cities in addition to the more compelling resorts and university towns.
If we look at the trends in which cities and geographical areas have attracted the most retirees in the last decade we can get a better clue as to where the growth will continue to accelerate as the pre-retirement and retirement age groups grow in the coming decade.
Psychologists have found that midlife is typically a time when many of us take stock of our values and goals.
He ticks off several reasons.
We attain a certain level of affluence through the combination of high earnings and a sudden drop in necessary family expenses as children leave the nest.
We confront our mortality, either by taking care of ill or elderly parents or by seeing the inevitable aging in ourselves.
For baby boomers and older Gen X-ers each reason can usher in a more positive ending.
Above all, retirement looms on the horizon as an expanse of freedom that many of us, working 8-to-5 jobs, have not known before.
All of these reasons compel us to pause, reflect, and consider how we are going to live the rest of our lives.
California doesn’t have a corner on the market for individuals and businesses seeking pristine natural quality-of-life communities with an open and innovative social environment.
While Dent believed California would grow, other communities in the West were forecasted to grow much faster.
And without paying a high price tag for a similar lifestyle.
Dent suggested these additions to your Western bucket list.
From Hollywood to Silicon Valley, along the coasts into Portland, Seattle and Vancouver, and inland to Utah, Colorado, Arizona, New Mexico and Texas, we see the most innovative cities in America spawning most of the growth companies.
What do they have in common?
These businesses, primarily in the fields of high technology and entertainment, are the backbone of the new information economy.
If you’ve ever lived or traveled in the West, you know there is a clear difference in culture between the western states, the east coast, and the central areas of North America.
(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.
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.
For each of the following predictions more current forces may delay and extend the age ranges for the Millennial generation.
But first, what about the Gen X generation?
They “occupy” several life stage demographic profiles.
Recall that the Gen X cohort accounts for roughly 51 million who were born between 1964 and 1980.
By 2015 they range from between age 35 and 50 years old which stretches across
30-44 year old Singles and Midlife
35-54 year old Families
45+ year old Families and Empty Nest Couples.
They have or are just now reaching their“peak spending years,” between the ages 46 and 53. Dent correlates demographic age to real estate segments.
Spending on trade-up homes accelerates from age 35 and reaches a peak by around age 44.
As time marches on they’ll move the Baby Boomers aside as target real estate buyers of resort property …
Sales of vacation property begins to accelerate from age 46 and peaks around age 52 to 55.
The Baby Boom generation conformed except for those members caught by surprise during the Great Recession.
Investment in retirement property begins to accelerate from the late 50s and peaks in the mid-60s.
In 2014 the huge generation numbered 75.4 million.
Born after World War II between 1946 to 1964, their median age 60 years old anchored their range between 51 and 69 years old.
Having moved through all of the other life stage and age segments they now occupy
55+ Baby Boomer Couples,
Empty Nests, and
65+ Couples and Seniors
In addition, Dent describes how broad geographical migration patterns significantly influence long-term real estate trends.
Certain areas of the country clearly and consistently have experienced faster growth than others.
For example in 2002 …
The Northeast and the Upper Midwest Plains states have generally been losing population; the Midwest has seen flat or modest growth; and the Southeast, Southwest and Northwest have all been growing substantially.
Will the majority of retirement age baby boomers move to remote resort locations like Mammoth Lakes, Dillon, Colorado or in recreational areas like Lake Tahoe?
DOUBLE AND TRIPLE CHECK YOUR SCENARIOS WITH A FINANCIAL PLANNER WHOSE FIDUCIARY DUTY IS TO YOU!
Option Four – Stay in your home, invest your equity
Reverse Mortgage or
Home Equity Line Of Credit (HELOC)
HELOC rate is 8.0%; this is based on a loan for 80% of the home’s value and is .25% below prime (Source: Countrywide).
Assume that there is one refinance after 10 years.
HELOC mortgage interest deduction is limited to the interest on the first $100,000 of the loan.
Assumes home is sold off to pay the loan; if another mortgage is taken out, transaction costs could be lower.
Allows both couples to live in their home.
Works well when the home continues to appreciate in value.
The HELOC debt is covered by the increase in value.
After paying off the credit line heirs receive substantial legacies
Remember both couples could deduct the mortgage interest by itemizing on Federal taxes attributable to the first $100,000 of the loan.
HELOC transaction costs are also quite low at about 1% of the loan and the credit line offers flexibility in timing any drawdown.
The costs and responsibility of home maintenance.
As cost of living expenses increase both couples may be tempted to spend down more than the initial 80% debt value ceiling.
Or, as their home value increases they may continually ramp up their debt.
Of course, they will need to make regular monthly payments on their HELOC or face the risk of foreclosure.
Reverse Mortgage scenarios:
Assumes that proposed legislation is enacted that would change housing limits to a national limit of $417,000.
Limit increases at 4% annually.
Assume current interest rate of 7% – includes the 6.5% interest rate and the .5% insurance premium.
Monthly servicing fee of $30/month is added annually.
This scenario assumes that interest rates stay fairly constant.
Reverse mortgage interest deduction is limited to the interest on the first $100,000 of the loan; accrued interest is deductible by the heirs in the year that it is paid.
It is assumed that the heirs will be able to deduct the mortgage interest in the year that it is paid, and that the heirs will be able to utilize $100,000 of that interest deduction.
The utility of the deduction will depend on the individual tax situation of the heirs.
Assume home is sold to pay off loan; if another mortgage is taken out, transaction costs could be different.
Enable these couples to receive regular payments (actually loans) secured against the value of their homes and be assured that they can remain in those homes for life.
Homeowners live in their homes and tap into their substantial amount of equity.
Depending on their age.
Prevailing interest rates.
As long as they live in their home, life is good.
No payments need to be made on the reverse mortgage (though they must, of course, cover the home’s routine expenses and maintain it).
Better still, loan payments to the borrower may feel — and function — like ordinary income, but they are not taxable income.
Under current law, payments received by a reverse mortgage borrower don’t count towards Medicaid resource limits provided they are spent each month and not accumulated.
Here’s the bonus while you live in your home.
They don’t count toward the income threshold for determining whether regular Social Security payments are subject to federal income tax.
Also, reverse mortgages do not count toward the $500,000 – $750,000 home equity test for nursing/long-term care assistance under Medicaid.
Here’s the bonus for your kids.
Heirs to a home carrying reverse mortgage debt do sell, they should be able to deduct the mortgage interest (subject to any applicable limitations).
During 2007 Fidelity cautioned.
Because the reverse mortgage market is still emerging, upfront costs are much higher than a HELOC — up to several percent of the loan value.
The product is complex and the amount available for lending is inversely correlated to interest rates — which are difficult to predict and impossible to control.
Are these five options the only scenarios for both couples?
It is possible to combine these strategies in various ways.
Both couples could choose to combine the first scenario,
Sell Home and Buy a Less Expensive Home, with either a HELOC or a Reverse Mortgage on the new home.
Why would this be in their best interests?
They could generate incremental cash flow.
Heirs would benefit from the new home.
Equity could be extracted for their comfort or future investments
But, here’s the kicker.
Time to age 94.
One couple’s planning horizon is 32 years while the other is just 19 years.
You need to take into account the difference in possible home values, cash flows and other variables.
Think of it this way — if these couples chose one of these options in the (year 2016) — the results we project would be realized for the Walkers (by 2035)… the Smiths would not see the results the table suggests until (2048 )— the last year of their 32-year planning horizon.
Since this age and timeframe difference is so substantial, the only meaningful comparisons to make are among each couple’s own options.
Remember, don’t rely solely on your home equity as a significant retirement funding source.
Recurring cyclical downturns in real estate can inflict severe damage.
Investment returns on residential real estate have been lower historically than
on stocks and bonds.
If you pour all your funds into your home you’ll have nothing left to invest for higher marginal returns.
Don’t count out the emotional components of owning a home.
The emotional aspects of homeownership can also present significant barriers to the use of home equity for retirees.
Whatever the financial case, the emotional investment involved can make it hard to sell, rent or float debt on a home after a lifetime of paying off mortgages — even if that strategy makes sense financially.
The comfort of living in a familiar home as one ages or the desire to leave the home’s full value to heirs compound many retirees reluctance to tap their home equity by either sale or leverage.
If you’ve planned well and acquired significant equity when reaching retirement age you’ve got multiple options for mobilizing it.
Decisions on precisely how to tap home equity require careful analysis and he financial and emotional trade-offs change as retirees age.
Non-financial personal preferences may quite reasonably trump sheer financial or cash flow benefits.
Peace of mind, convenience, familiarity are all real, if hard-to-quantify values.
Reverse mortgages do offer many advantages for retirees —
… notably, regular cash flows that do not count as taxable income.
But this market needs to mature.
High initial costs of reverse mortgages scare off many retirees.
Many fear losing their homes to the lender, even though there is no such risk.
The reverse mortgage market will likely grow substantially once upfront costs drop, securitization takes hold, and customer awareness of potential advantages grows.
With your financial planner double-check all of the
your spreadsheet calculations.
If the calculated risks are baked in, then go ahead with your eyes wide open.
Like all carpenters know, measure twice and cut one.
Pulling the trigger on any major decision like this one with consequences (intended or unintended) will significantly impact the rest of your life.
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.