What The Experts Are Saying About the State of the Union. Including the Odds of a Recession.
It is common, and perhaps even fitting, that a president will tout his or her achievements in the State of the Union address. However, what is not said in a report is oftentimes more important than what is said. Learn what the experts are saying about the state of the union, including the odds of a recession in 2019 and 2020, and in the eight other areas listed below.
And here is additional information on each of these subjects.
1. The Debt Ceiling and Another Government Shutdown. The Debt Ceiling will be hit on March 1, 2019. You might not hear much about this until the U.S. gets close to the “X date,” which should be in late summer or early fall, when Congress has to raise the debt ceiling or risk not paying its bills. Additionally, lawmakers must reach a budget deal before February 15, 2019 to avert another government shutdown. The government shutdown hasn’t prompted Fitch Ratings or Moody’s to review the U.S. AAA credit rating. A Debt Ceiling crisis will. However, nobody expects this to happen. As a result, debt will continue to rise at a rapid pace, as it has for the last two years.
2. Public and Corporate Debt. U.S. public debt has soared by $2 trillion since 2017, to $22 trillion. Consumer debt is higher than ever. Corporate debt (nonfinancial) is unsustainably high, at $6.2 trillion. Municipal and state debt are a problem as well, with $7.3 trillion in liabilities. Pensions and other postemployment benefits are underfunded by corporations to the tune of $454 billion.
3. Economic Growth. Economic growth for 2018 is expected to end up at 3.0% for the year, largely due to the boost that many corporations received from the tax cut. However, the tax cut was a one-time event that’s not expected to help 2019 growth (although lower taxes do help corporations, in general). 2019 GDP growth is predicted to fall back to 2.3%. That compares to predicted 2019 GDP growth in China of about 6.1%. The 4th quarter and full year 2018 GDP initial report will be released on February 28, 2019. 4Q 2018 GDP should be in the 2.4-2.7% range -- far below the 2nd and 3rd quarters of 2018.
4. The Gig Economy. While unemployment numbers are low and wages are rising, Americans are still finding the need to fill in the gaps in their budget with gigs, like driving for Uber, and debt financing. The gap between wages, employment, the gig economy and the cost of living is seen in the escalation of consumer debt. Consumer debt is back to an all-time high, at $13.5 trillion, with student loan debt at $1.44 trillion, auto loans at $1.27 trillion and credit card balances at $844 million (the rest is housing debt). Student loan debt has doubled over the last 10 years. 9.1% of student loans are seriously delinquent, twice that amount if you factor in deferrals, forbearance and grace periods. Due to the heavy debt burden of education, Millennials are delaying their home purchases for seven years on average (source: National Association of Realtors).
5. The Cost-of-Living. The cost for basic needs such as housing, heating, eating, transportation and medical care are so unaffordable for many Americans that many retired boomers are finding bankruptcy to be the only solution, particularly if they need medical care. According to a study on the “Graying of U.S. Bankruptcy,” bankruptcies among Americans age 65 and over has doubled. The minimum income requirements for home purchases in the U.S. has increased 78% since 2012 – more than doubling in hot markets like San Francisco and Los Angeles (source: National Association of Realtors). In hot job markets, like San Francisco, Los Angeles, Seattle, Denver and more, less than 1/3 of the locals can afford to buy a home. By comparison, real wages increased 1.1% in 2018 (source: Bureau of Labor Statistics). If you wait for a raise, or for politicians, to solve this problem, you'll be waiting a long time. This crisis has been building for decades. There are innovative solutions that can save you thousands annually and put you on the Thrive Budget, instead of the Buried Alive in Bills budget. Call 310-430-2397 to learn more about these solutions.
6. The Yield Curve, Late Stage in the Economic Cycle, Trade War. These all bode toward getting more conservative in your investment stance, as each are correlated with recessions. For additional information on yield curves, read my blog, “Harbingers of Recessions."
7. Energy Independence. The U.S. has been the top producer of natural gas since 2009, and petroleum since 2013 (under the Obama Administration). This helps the economy because recessions are highly correlated with gas prices. However, with oil production being cut by OPEC and Russia, their clear goal is to increase oil prices. When we fight foreign wars, we have to purchase oil from Saudi Arabia. Additionally, oil prices are a global marketplace and U.S. oil companies seek profits, too. So, oil prices will increase, if Putin and Saudi Arabia have their way. Consumers can save thousands annually by reducing their reliance on these fossil fuels, while increasing the quality of their air, reducing greenhouse gas emissions and limiting the economic impact of an oil shock. A win-win-win. For additional information on how to save thousands annually with smarter choices, read that chapter in the 2nd edition of my book, The ABCs of Money. Reduce your commute. Reduce electric and heating by insulating better and by understanding your energy hogs and vampires. Green the grid.
8. Asset Bubbles. Low interest rates create asset bubbles. Many companies, particularly those with high debt and low revenue growth, have been borrowing money very cheaply, buying back their own stock and using that financial engineering to make their sales growth look stronger and their stock prices look cheaper. This is at the heart of the interest rate battle between the Federal Reserve and the White House. Learn more about asset bubbles, financial engineering and leverage in my blog on "FAANG. Asset Bubbles."
9. Recessions. Goldman Sachs CEO David Solomon, who gives the U.S. a 15% chance of a recession in 2019 and a 50% chance in 2020, notes that there are five red flags to watch for. They are: oil shocks, industrial disruptions (inventory rebalances), overheating, inflation, financial imbalances and a tightening cycle. So, the prudent investor would take the time today to make sure that their home is secure from the economic storms on the horizon. As John F. Kennedy noted, “The time to fix the roof is while the sun is shining.”
Investors, politicians and citizens worldwide want economic expansion, and understand how intertwined our futures have become. Consensus and solutions are needed to solve the challenges of slow growth and high debt that the developed world faces. That is why it is so important to hold a microscope up to the State of the Union Address and reveal what’s misleading, what is untrue and what has been left out. The more we all understand the challenges we face and the solutions that we must embrace, the easier it will be to defuse the partisanship politics that prevail. A nation divided will never be as strong as a nation united, particularly now as we face very real challenges for our people and our economy.
Despite low unemployment and 3.4% GDP growth in the 3rd quarter of 2018, there are many storms on the economic horizon that are ready to rain upon us as early as this month. It’s time to fix the roof.
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Make sure that your financial house is secure enough to withstand the economic storms that are on the horizon. A diversified, hot plan that is annually rebalanced and underweights the over-leveraged companies and municipalities is your best defense against a market downturn. Sadly, most people are not diversified, are heavily invested in companies that are drowning in debt, and are still using Buy and Hope, instead of Annual Rebalancing and Modern Portfolio Theory. (Many broker-salesmen say they are using MPT; few are, however.) That’s why your first and best step is to Know What You Own. If you’re interested in an unbiased 2nd opinion, which includes a report of what you own, outlining areas of strength and weakness in your current plan, alongside a personalized sample nest egg pie chart, email info@NataliePace.com.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
9/2/2019 05:07:35 pm
thanks as always for the insight and information...my question is: with all the talk and talkers out there...who are the experts that you listen to...i.e. who should we be listening to in order to get unvarnished information?
9/2/2019 08:57:58 pm
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.