Category Archives: Investing

Talking the Economy into Recession

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In the past four to six weeks, the financial forecasters and entertainment media hosts have been stoking fears of recession occurring in the next twelve to eighteen months. Additionally, numerous financial TV hosts and commentators have performed a Paul Revere like “recession is coming” warning (e.g., “Recession Countdown Clock) despite existing strong fundamentals of the U.S. economy. Essentially, they’re following the standard news media mantra that “if it bleeds (economy perceived to be falling into recession), it leads”.

Whether recession becomes the top trending financial search engine topic or fanned by the hysterical coverage by the financial entertainment media, Americans are succumbing to worry about recession. As a result, they are behaving and taking action that may be detrimental to their long term financial goals and health. Several reports indicated that investors have been moving from equities to less riskier asset classes of bonds, cash and cash equivalents.

Recently, a financial pundit commented that we’re in a peculiar environment of increased U.S. recession fears in the midst of a fundamentally strong economy. Anecdotally, the growing recession fears are due to the near constant media coverage about recession. This recession talk persist despite the strong economic fundamentals, an economy that is still growing, and a strong labor market and consumer spending. The pundit also commented when such dichotomous conditions are present, there are always opportunities present for the savvy and patient investor.

Bottom line, the U.S. economy remains strong and is still growing, but the rate of economic growth is slowing (decelerating growth). Labor market remains healthy and the consumer is spending. The uncertainty of the trade turmoil has caused a slowdown in capital expenditures and business investment. One question disturbing economists is whether businesses have slowdown on hiring due to economic uncertainty. And, finally, Americans are working and Americans are getting paid, according to the August 2019 Payroll numbers.

What Is Financial Health? – Morningstar Blog

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When evaluating a client’s “financial health,” advisors should take into account both economic stability and emotional well-being.

Emotional health is wreaking havoc on their finances. Some clients may be financially well-off, but so fearful of making a wrong choice that they don’t make any, leaving their wealth to slowly erode in cash accounts. Then there are clients who spend too freely, choosing blissful ignorance about potential damage to their bottom line.

Neither of these types of clients are financially healthy—regardless of wealth—because an individual’s attitude toward finances is just as essential to overall health as it is to the economic aspects of one’s life. In fact, the American Psychological Association  reports that money is continually one of the top sources of stress in U.S. households, regardless of the economic climate. 

It’s time to redefine the term “financial health” so it includes both a person’s economic stability and emotional well-being around his finances.  

— Read on www.morningstar.com/blog/2019/04/11/financial-health.html

U.S. Recession has Already Started

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BNN Bloomberg

Published on Jun 17, 2019
There has been growing concern over the state of the global economy. David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, thinks the U.S. recession has already started.
An anomaly continues in the market. Bond yields, a “safe haven” asset, have been falling while stocks have been rising. “We all have to make up our minds as to which of these two asset classes has the right story,” Rosenberg indicated.

Citi Personal Wealth Management — Mid-Year Outlook 2019:  Hope and Fear

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Summary:  After a strong start to the year, financial markets are now being driven by both hope and fear. Hope that the U.S. can reach bi-lateral trade deals with key trading partners (China, Europe, Japan, etc.) and fear that the global economy may slow in the absence of such deals.

The global economy remains on solid footing, but faces downside risks. Citi’s economists are looking for global growth of about 2.9% year-on-year in both 2019 and 2020. However, global trade war simulations suggest that global growth could slow to a rate of 2.0% year-on-year in just 12-months’ time if trade tensions escalate on a broad scale. Under such a scenario, global growth forecasts for 2020 would be lowered dramatically.

We think that the bull market remains intact, but are recommending a more cautious stance over the near-term. While underweight U.S. stocks for now, Citi’s mid-year 2020 S&P 500 target of 3,000 still presents upside from today’s levels. Globally, Citi’s bear market checklists are signaling some caution, but are not yet worrisome. As such, Citi’s global equity strategy team thinks that global equities can return an additional 13% over the next two years.

A dramatic shift from the Federal Reserve helped to boost stocks in the first part of 2019. After once predicting three rate hikes in 2019, the Fed is now signaling that it may be willing to cut rates if the U.S. economy were to weaken due to trade tensions. However, monetary policy often operates with a significant lag and may not be sufficient to offset the immediate impact of tariffs. Our fixed income preferences remain geared towards U.S. Treasuries and short- and intermediate-duration corporate debt.

https://marketinsights.citi.com/marketoutlook/2019-hope-and-fear/

Negative Interest Rates And The Future Of Investing: MARKET COMMENTARY – Charles Schwab

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https://client.schwab.com/secure/cc/guidance/insights/content/negative-interest-rates-and-future-investing

Key Points:
Over 20 years ago the Bank of Japan first cut interest rates to zero, a policy adopted in both the U.S. and Europe a decade later during the financial crisis.

Japanese investors have become more attracted to stocks as stocks’ dividend yields rose relative to bond yields.

Investors’ increasing focus on income may lead to long-term shifts in portfolios that favor international stocks.

Dividend yield table

 

What Is Financial Health? – Morningstar Blog

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Economic stability is only part of reaching financial health 

What is financial health? The topic usually brings to mind only a person’s monetary wealth, but, as many advisors know, even the wealthy can suffer because of their finances. For example, consider the client who has more than enough financial resources to last the rest of his life, but gets anxious about even the smallest splurge. A standard financial algorithm would classify this type of client as being in excellent financial health, since he possesses enough material wealth to withstand any reasonable economic shock. Yet, this finance-related anxiety can ultimately mean his quality of life is quite low.
— Read on www.morningstar.com/blog/2019/04/11/financial-health.html

Should You Try Timing to Avoid Bad Markets? – Retirement Researcher

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Everyone likes the markets when stocks are going up. We’re all getting the returns that we are “supposed” to be receiving for putting our money at risk. Naturally, we aren’t big fans of the market when stocks start falling. Unfortunately, stocks are “supposed” to go up and down – a lot.

The financial markets are based on the relationship between risk and return. We wouldn’t be able to harvest the long-term returns we expect without the risk. And, well, this is what risk looks like.
— Read on retirementresearcher.com/occams-should-you-try-timing-to-avoid-bad-markets/

Should You Own Bonds in a Rising Rate Environment? – Retirement Researcher

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One of the first things that finance students learn is that bond prices (and therefore bond returns) are inversely related to interest rates. Considering that all else is equal, when interest rates are going down, bond prices will go up, and when interest rates are going up, bond prices will go down.

This is fundamental to how finance works, and this raises the obvious question of why you would want to hold bonds when rates are rising – why would we choose to lose money?
— Read on retirementresearcher.com/should-you-own-bonds-in-a-rising-rate-environment/

Recession Risk

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Many economists and financial analysts insist that a recession is unlikely in the next twelve to eighteen months. They cite data that indicates that the consumers are healthy. The economic data shows that American consumers all have jobs, they are working in record numbers and their wages are growing. And, they’re spending.

Additionally, consumers are tuning out the financial entertainment media unending talk about recession, tariff tensions and inverted yield curve. Since, one of the biggest risk to the economy is the possibility that Americans become overly concern about their financial well-being and self talk the economy into a recession.

Furthermore, history reveals that an inverted yield curve has preceded every recession; it, however, has not predicted every recession.