economy, retirement, risk management

Tariffs, Trade Wars, and Risk

“All things being equal, trade is a good thing, although it can also eliminate certain jobs and hurt some firms or workers. On balance, though, trade creates jobs and boosts the overall welfare of a country… Trade can be an engine of increased production, economic growth, development, and poverty reduction.” (1)

–Richard Haas

In 2018 I had several clients ask about what impact the proposed trade tariffs might have on their retirement plans.

On June 19th, 2018 the S&P 500 sank the most in three weeks with industrial companies getting hit hardest after President Donald Trump threatened tariffs on another $200 billion of Chinese goods, and the Asian nation pledged retaliation. (2)

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Climate change, economy, environment, retirement, risk management

Climate Change, Sea Level Rise and Retirement Risk

One of the oft repeated risks from climate change is the threat that comes from rising sea levels. Depending on the forecast, even in the most optimistic ones, seas are projected to rise several feet before the end of the century. With the accelerating build-up of CO2 and the rate of temperature increase (2017 being the hottest year on record), many expect dramatic sea level rise to occur much sooner than most expect. CO2 concentrations in March 2020 was 414.5 ppm, much higher compared to 411.97 ppm in March 2019. (1)

 

While people might want to buy shore property for benefits that include potential rental income, capital appreciation and personal use, they also face potential risks of hurricanes, sea level rise, etc. Some of these risks can be mitigated by purchasing flood insurance.

 

Last summer I explored the question, “if sea levels rise, what will be the impact on a clients’ net worth and portfolio?”

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economy, income, interest rates, retirement, risk management

Where to from here? July 2020

It has been a difficult year on many levels. Given the past few months I want to catch up in several areas… with what has transpired since the spring, where things currently stand in the economy, and what I foresee going into the second half of the year and beyond. This may take a while…

As a reminder, the current economic downturn did not occur spontaneously due to COVID. In September of 2019 Repo rates indicated problems in lending markets. For several year’s companies have been borrowing extensively, especially at lower levels of credit quality. In the Fall of 2019 Morgan Stanley noted that over 20% of corporate borrowers were “zombie companies”; companies with no positive cashflow, excessive debt, and borrowing to stay afloat. This was the situation when the economy was “healthy”.

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economy, interest rates, retirement, risk management

Fed Reluctant To Raise Rates While Raising Questions Around The Economy

On July 29th, 2020 the federal reserve committed to keeping interest rates pinned to the zero bound and stated their expectation to maintain this position for years to come.

In his meeting with reporters to discuss fed policy, fed chair Powell stated, “We haven’t even thought about thinking when we plan to raise rates.” The FOMC statement explained why; The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” (1)

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economy, interest rates, retirement, risk management

What is the Long-Term Economic Impact of nCov19?

In the Spring of 2020 the Coronavirus led to the quarantine of 800 million people in China. As the virus spread to other countries, economies were forced to close in order to limit the spread of the virus and protect populations.

As economies implemented social distancing policies and closed down, unemployment skyrocketed and GDP plummeted. The economic impact was faster and more severe then the Great Financial Crisis (GFC); some even compared conditions to the Great Depression of the 1930’s.

In April 2020 PIMCO sponsored a virtual forum with Dr. Ben Bernanke. Bernanke is a senior advisor for PIMCO and a policy advisor at Brookings. Bernanke was chairman of the Federal Reserve during the GFC and is an expert on the Great Depression. His insights during the current crisis are valuable on many levels.

Bernanke was asked how is this crisis different from the GFC?

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economy, interest rates, retirement, risk management

The End of the 10 Year Bull Market

There is a Chinese curse… “May you live in interesting times.” (1)

 

Given the past month, we clearly live in interesting times. Twice this week the market has opened down more than 5% triggering circuit breakers. While these breaks helped, the market still declined.

 

As of March 12, 2020 the SP500 is down 26%.

 

On March 3, 2020 the Federal Reserve announced a 50 basis point rate cut and are expected to cut rates another 100 basis points at its March 18th meeting. (2) On March 12, 2020 the Fed announced a $5.5 trillion program to assist in Repo operations. (3)

Yes… $5.5 trillion… The scale of the program is beyond anything ever attempted to stabilize markets.

 

WHAT ARE THE ISSUES THAT ARE FEEDING INTO EACH OTHER? HOW DID WE GET HERE?

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Climate change, economy, environment, ESG, retirement, risk management, Socially Responsible Investing, SRI

Climate Concerns Rise, but Energy Sector is Fighting Back…

In the past year Climate Change has become a focus of central concern for people worldwide. Warnings have been issued by IPCC that we need to collectively and drastically reduce our use of fossil fuels within 10 years in order to avoid the worst impacts of a rise in temperatures above 1.5 degrees.

Institutions are joining in the demand for change.

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economy, retirement, risk management

Psychology and the Market

On Monday February 24th 2020 the Dow dropped over 1000 points in a single day.

 

Human behavior is driven two forces, fight or flight. When facing a dramatic event we as individuals are forced to REACT to what happens. 

When looking at the market, if a person is underinvested and it goes up day after day making new highs, that person may experience FOMO… fear of missing out. They might make the decision to invest based on emotion instead of fundamentals.

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income, retirement, Taxes

RMD: What are the Risks and How Can We Address Them?

Several recent studies show peoples number one fear is running out of money during retirement.

To prepare us for retirement the government gives workers the ability to set up qualified accounts in order to save for retirement and get tax deferred growth. By deferring taxes money saved can grow faster. You put money away, not paying taxes now, but paying taxes on the money when you pull it out during retirement.

When you get to retirement, you can start pulling money from your account. In the past it has been considered good practice to not draw more than 4% from an account during retirement in order to make sure you don’t outlive your money. In the past bond yields have been 5-7% and that makes a 4% draw down possible. Now over the past 5 years bond yields have been around 2-3% and because many retirees rely on bonds to deliver income to their portfolio, many economists and advisors have been advising clients to withdraw less from their IRAs; this is so retirees don’t run out of money when they are older.

Now what if I told you there was a government program that requires you to draw more income from your account, without any consideration for how long you or your spouse will live, and without regard for whether you will run out of money or not.

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