economy, income, interest rates, retirement, risk management

Recession Risks Rise

In a recent presentation to investors, Doubleline CEO Jeffery Gunlach stated he sees a 75% chance of a recession by 2020. (1)

Many signs are popping up that point in the same direction.

In August 2019 the yield curve inverted. (2) An inverted yield curve is seen within the financial industry as a reliable leading indicator for recessions.

August 2019 Consumer Confidence declined precipitously, the most since the start of the year, “as Americans’ expectations for the economy and the job market deteriorated, posing a risk to the household spending that is underpinning growth.” (3)

Hiring appears to be slowing. “The preliminary IHS Markit services purchasing managers’ index for employment fell to 49.1 in September, the lowest since December 2009, from 50.4 the prior month, according to data released Monday.” According to IHS chief economist Chris Williamson, “Firms have become more risk averse and increasingly eager to cut costs. At current levels, the survey employment index is indicative of nonfarm payroll growth falling below 100,000.” (4)

In September 2019 PMI manufacturing surveys in many countries moved to near or below 50 in several industrial economies, including the United States, Germany and the European Union. (5) PMI below 50 signifies contraction.

On September 17, 2019 financial markets were shocked by liquidity fears when Repo rates soared overnight. (6) The Fed has since committed to Repo operations into October to help stabilize market liquidity. Higher Repo rates are an indicator of illiquidity in the financial system. “Without a permanent fix, sudden cash shortages could lead to broader financial market turmoil in a downturn.” Prior to the Great Recession of 2008, the Fed was forced engage in larger Repo operations as defaulting mortgages raised liquidity fears.

Given these facts, how are investors reacting?

A recent Bloomberg article outlined how high-net worth investors are dealing with the what they see. (7)

“There’s more caution and fear of the public equity markets among ultra-high-net-worth investors,” said Timothy O’Hara, president of Rockefeller Global Family Office. “That has more people thinking about private investments, alternative investments or cash.”

“Rick Stone, a former partner at Cadwalader, Wickersham & Taft, sees treacherous times ahead for family offices trying to deploy cash. The head of Stone Family Office said he doubts the bond market will provide any real return over the next decade, that equity markets will suffer a substantial drop and then be flat, and that too much venture capital and private equity money will continue to chase too few opportunities.

’It’s a very hard time for family offices to allocate money.’”

Regardless of your net worth, it is important to work with a financial advisor who is focused on managing not just economic risk, but also liquidity, credit, and foreign investment risk, among others. (7) By managing risk investors can improve long term prospects and financial security.

Another way to manage risk is to include annuities that provide lifetime income as part of your overall financial planning. (8) How can we keep up with inflation, make sure we don’t outlive our money, and create a guaranteed income stream?

For savers and retirees, a solution to these issues are annuities that provide guaranteed retirement income. These types of annuities create a lifetime guaranteed income stream while giving the investor the ability to stay invested in the market. If the market declines, they will continue to get their stream of income.

By contrast, someone invested in the market without such guarantees, drawing income and experiencing a down draft in the market they may find themselves running out of money during retirement.

This fear, running out of money during retirement, is people’s number one fear according to several recent studies.

If you are concerned about the economy and want to discuss managing risk within your portfolio, please reach out to me.

Retirement Income. Tax Efficient Planning.

Life Insurance. Disability Insurance

Socially Responsible Investing

To learn more contact:
James Cox
Cell: 267 323 6936
Email: james.cox@FFGadvisors.com
First Financial Group 150 South Warner Rd.  Suite 120 King of Prussia, PA 19406

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Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 7101 Wisconsin Ave Suite 1200, Bethesda, MD 20814 301-907-9030 Securities products and advisory services offered through PAS, member FINRA, SIPC.  CA insurance license #0I64535. First Financial Group is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 

2019-86798 exp. 9/21

  1. https://www.bloomberg.com/news/articles/2019-09-12/jeffrey-gundlach-says-u-s-on-pre-election-recession-watch
  2. https://seekingalpha.com/article/4291560-inverted-yield-curve-always-mean-recession
  3. https://www.bloomberg.com/news/articles/2019-09-24/consumer-confidence-in-u-s-fell-more-than-forecast-in-september
  4. https://www.bloomberg.com/news/articles/2019-09-23/u-s-ihs-markit-services-employment-gauge-dips-into-contraction
  5. https://www.bloomberg.com/news/articles/2019-09-24/german-business-sentiment-stabilizes-but-expectations-are-dire?srnd=economics-vp
  6. https://www.bloomberg.com/news/articles/2019-09-22/repo-market-s-liquidity-crisis-has-been-a-decade-in-the-making
  7. https://www.bloomberg.com/news/articles/2019-09-23/world-s-wealthiest-families-stockpiling-cash-on-recession-fears?srnd=premium
  8. https://jamesacox.com/webinar/
  9. https://jamesacox.com/2018/06/22/how-to-set-up-guaranteed-retirement-income/