Climate change, economy, environment, interest rates, retirement, risk management

Rising global temperatures will hurt global GDP

A study released by the science journal Nature makes the connection between the rise of global temperatures and the negative impact this has on GDP around the world. In the study, titled “Global non-linear effect of temperature on economic production”, researchers found that “fundamental productive elements of modern economies, such as workers and crops, exhibit highly non-linear responses to local temperature even in wealthy countries.” Meaning as temperatures rise, the effect is much greater and accelerates in ways that are potentially disastrous. (1)

One of the lead authors, Marshall Burke of Stanford’s Department of Earth System Science, calls their study “the first evidence that economic activity in all regions is coupled to the global climate.”

The study continues, “If future adaptation mimics past adaptation, unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality.”

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income, interest rates, retirement, risk management

Closing the Retirement Savings Gap

A new report from World Economic Forum shows that retirees could outlive their savings by a decade or more due to higher life expectancy. “Women should prepare to bear the brunt of such shortfalls, going without retirement savings for at least two years longer than their male counterparts.” (3)

“The size of the gap is such that it requires action,’ says report co-author Han Yik. (1)

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economy, income, interest rates, retirement, risk management

“Data Dependent” Fed Changes Course and Markets React

In the Fall of 2018, equity markets sold off.

What was the cause?

Widespread view among economists was an expectation of slowing economic growth in 2019 and a Federal Reserve led by Chairman Jay Powell that was expected to continue to raise rates three more times in 2019.

As anxiety and stress built up in November and December, markets dropped. Between October 3 and October 29 the SP500 fell 9.7%. Between October 29 and December 7 the market bounced around rising 6.5% only to give it back and to fall .3%. However, in the weeks before Christmas, December 7 to December 24 the market fell another 10.7%. Showing the rapidness of the decline, on Christmas Eve the SP500 fell 2.6%.

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economy, income, interest rates, retirement, risk management

Market Risks and the Wall of Worry

 

“Current Bull Market Continues To Climb A ‘Wall of Worry’” (1)

 

The “wall of worry” is one of the phrases frequently used to illustrate the resistance or fear of investors to invest in a stock market that had earlier gone down.  Since the Great Recession of 2008 and the financial crisis many investors have worried about the possibility of another financial crisis.

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economy, income, interest rates, retirement

Bond Yields are Moving Higher

On October 3rd, 2018 the 10-year yield moved dramatically higher increasing 3.3% in a single day. Pundits have listed many reasons for rates and bond yields to move higher… a strengthening economy, decreasing unemployment, rising oil prices signaling inflation, a Federal Reserve committed to further rate increases into 2019. (3)

 

These pressures have been building for some time and signal a good economic environment.

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economy, income, interest rates, retirement

Fed raises rates, and questions, around the economy

On June 13th, 2018 the federal reserve raised interest rates 25 basis points and altered their expectation to raise rates a total of 4 times this year, compared to earlier expectation of 3 raises.

 

In his meeting with reporters to discuss fed policy, fed chair Powell stated, “Households are in good shape, and that is so important, that’s where we got into trouble before, and its often around property and housing that you see real problems emerge but we don’t see that now, and we take some solace from that.”

 

However, he also said, “Economic strength hasn’t reached everyone.”

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economy, income, interest rates, retirement

What are the risks as bond yields move higher?

Since December of 2017 bond yields for US Treasuries have moved up substantially. The increase in bond yields is having an impact on the US stock market, as well as markets around the world.

 

What is driving bond yields higher?

 

One significant driver is the Tax Cuts passed in December of 2017. The tax cuts are leading to an increase in the budget deficit and the need for additional bond issuance. More bond supply can lead to lower bond valuations and higher bond yields.

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