Setting the Stage for the Coming Recession

Brian Smedley, head of the Macroeconomic and Investment Research Group at Guggenheim Investments, explains what the data tell us about the timing and severity of the coming recession.

Key Takeaways:

  • Fed rate cuts could start to have more impact, but so far data are consistent with our recession forecast, which also suggests the next recession will be of average severity.
  • Limited monetary and fiscal policy space may prolong the recession; the Fed doesn’t have much room to maneuver on rates, and the effect of 2018’s one-time tax cuts has worn off.
  • When the business cycle turns, the Fed is likely to pull out all the stops by cutting rates to the zero bound and recommencing asset purchases.
  • Historical evidence of “successful” Fed cuts is mixed, however, and it is difficult to correctly time policy moves.
  • At this point in the cycle, we believe there is more risk to the downside than upside and caution investors to focus on capital preservation.

Source: Guggenheim Investments 

Market Impact of a Trump Presidency

Donald Trump emerged as the winner last night of a hotly contested presidential campaign and will be inaugurated as the 45th president of the United States on Friday, January 20, 2017. The transition to a Republican presidency and Trump’s rejection of politics as usual, which drew so many voters, naturally lead to questions about his impact on the economy and markets. Today on our blog we provide a high level overview of our thoughts of the significance of a Trump presidency.


Does Trump’s win change LPL’s view on the economy over the remainder of 2016 and into 2017?

The election results have not changed our long-term outlook for the U.S. economy. We will continue to monitor many important economic indicators, including the Five Forecasters, the Current Conditions Index, and the Recession Watch Dashboard, and will keep you updated in the event of any changes to our views.

Will the election results cause a recession?

Elections do not in and of themselves cause recessions. Policies can, however, and we need to wait to see which policies Trump moves forward with and the details of those policies.

Our Recession Watch Dashboard continues to point to an overall low risk of recession within the next year.

What impact might the election have on overseas economies and markets?

Trade has been a major theme in this election, yet a president’s ability to impact trade directly and immediately is somewhat limited. Trump has been outspoken in favor renegotiating NAFTA terms and has been opposed to the TransPacific Partnership (TPP), which has little chance of passing. The Trump victory raises some concern across foreign markets about U.S. trade.


Will the election results impact Fed monetary policy later this year and in 2017?

We do not believe the election results have changed the Fed’s outlook. Furthermore, we believe the Fed is much less sensitive to financial markets than most people think. As it stands, we believe the Fed is on course to increase rates at its December meeting, with another 2-3 increases in 2017. It would take a major market disruption or a change in the economic fundamentals for the Fed to alter this course.


Will the election result cause a bear market in equities?

Just as an election does not cause a recession, it does not cause a bear (or bull) market. Government policies alone do not change the market’s long-term trend, although they are a factor.

Shorter term, elections are rarely a harbinger for a sell-off, and when they have been, the election has not been the primary cause. In election years since 1952, the S&P 500 has returned an average of 2.5% in November and December and has been higher 75% of the time. From Election Day until Inauguration Day, the S&P 500 has averaged a gain of 1.0% and has been higher 69% of the time. The median return jumps to 3.0% because of a nearly 20% drop in 2008 that skews the average return, but 2008 returns were fundamentally driven by the recession, not Obama’s election. The bottom line is some near-term volatility is likely, but a massive sell-off absent an economic recession has never happened in the period between the election and inauguration.

Are the near-term results impacted by the party of the President?

There doesn’t appear to be much of a difference in equity performance over the short term. Since the election in 1952, the final two months of the year have returned 2.6% when a Republican wins and 2.4% when a Democrat wins. Looking at the largest drops the final two months of an election year in 2000 (Republican victory) and 2008 (Democrat victory) stand out, as the S&P 500 dropped 7.6% and 6.8%, respectively. Both times the economy was either in a recession (2008) or about to fall into a recession (2000) – which greatly contributed to the equity weakness. With the end of the earnings recession, improving consumer confidence, and the best quarterly GDP print in two years – we presently have an improving economic backdrop, which should help contain any large downside moves in equities the rest of 2016.

Which sectors would likely benefit under Trump?

Biotech and Pharmaceuticals: Although Trump has stated his desire to repeal the ACA and has favored drug re-importation from other countries, controlling drug prices is unlikely to be as high of a priority for him as it would have been for Clinton. As a result, biotech and pharmaceutical companies may get a bump. We believe the market may have overreacted to perceived policy risk and we continue to favor the healthcare sector, which has historically performed well after elections.

Energy: Trump is likely to be positive for fossil fuels. He has promised less regulation on drilling, along with expansion of drilling areas. The segment of the industrials sector that services the energy sector may also benefit.

Financials: The Trump administration is likely to be easier on financial regulation than Clinton would have been. Trump has indicated he would like to roll back financial regulations, including the Dodd-Frank legislation enacted as a result of the financial crisis. Trump has also suggested bringing back Glass-Steagall, which would separate traditional banking from investment banking, a move we see as very unlikely.

How will the election impact the dollar and bonds?

Dollar: Trump’s policies are likely to be relatively negative for the U.S. dollar. His comments on renegotiating U.S. debt held by foreigners may limit the attractiveness of bonds to foreign investors.

Bonds: We saw an initial Treasury rally as stocks sold off overnight, but yields have since moved higher. We expect there may continue to be additional volatility as markets digest the news, but we broadly believe markets may be pricing in a rise in deficit spending, which is pushing yields higher; though continuation of low rates overseas is an offsetting factor, potentially keeping rates somewhat range bound over the near-term.

Will Trump’s policies lead to a debt downgrade?

Trump had mentioned last spring the possibility of renegotiating our debt and paying back less than the full amount if the economy were to falter. This idea, if implemented, would almost certainly lead to a debt downgrade. However, he backed away from this idea a few days after he floated it.

More realistically, Trump has signaled higher deficit spending. While deficit spending was a contributing factor to the U.S. debt downgrade by S&P in August of 2011, it wasn’t the only reason. The main driver of the downgrade was the debt ceiling crisis, as Republicans demanded a deficit reduction package before they were willing to join Democrats in raising the debt ceiling. Divided government and partisan politics led to months of debate and an eleventh hour deal that avoided a default. With Republicans keeping control of the Senate and the House, a fight over the debt ceiling fight that could threaten the U.S. credit rating is unlikely.


What is the election impact on gold?

Gold can thrive in chaotic environments and the uncertainty surrounding Trump’s policies could offer some support to the commodity.

What is election impact on oil?

When discussing oil, it is important to remember that oil stocks and crude oil can have very different performance, even though investors often expect similar returns.

Trump’s victory is likely a positive for oil stocks, especially in the short run. He has promised reduced regulations on oil and gas production, which would improve profitability of existing projects and may result in a very marginal increase in U.S. production. Note, this may be a negative for energy prices.


Will volatility increase due to the election outcome?

We expect that market volatility will likely increase. Equity markets have experienced abnormally low volatility recently, in part because of central bank intervention. As those interventions decrease, volatility should increase. However, we view that increase as a healthy aspect of equity markets. The degree to which the election results impact volatility will depend a great deal on which policies are actually enacted as a result of the changes in Washington.






The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. Because of its narrow focus, investing in a single sector, such as energy or manufacturing, will be subject to greater volatility than investing more broadly across many sectors and companies. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. This research material has been prepared by LPL Financial LLC.

Chart of the Week: April 6, 2016

Screen Shot 2016-04-04 at 8.58.36 PM

The dust of a volatile quarter has cleared. The equity market exhibited a higher correlation to oil prices over the quarter than it has historically: oil price movements drove large cap stocks lower early in the year, to -10.3% YTD at the lowest point, and subsequently helped them rebound and finish the quarter up 1.3%. Price appreciation in oil and metals pushed the commodities index up 0.4%, and emerging market equities also moved higher, helped by stronger commodity prices, lower expectations for U.S. rate increases and a fall in the U.S. dollar. Further rate cuts in Europe and Japan did not boost developed market equities, which fell 2.9%. However, very low global interest rates, in combination with an extremely dovish Federal Reserve, caused spread compression and lower base rates over the quarter, leading to positive returns from U.S. fixed income. Finally, some investors dialed down equity risk in response to the U.S. recession scare, leading small cap stocks to fall 1.5%. While in our view the chance of recession over the next year is low, we continue to recommend a diversified portfolio of assets as the best way of weathering market volatility while achieving long-term investment goals.

For more information please visit the Source below.

(Source: JPMorgan)

Idled Workers Return to U.S. Labor Force

Michael Mulvey of USA Today

Hundreds of thousands of Americans are streaming back into an improving labor market as employers raise wages and hire less skilled job candidates to cope with an intensifying worker shortage.

The portion of the U.S. population working or looking for jobs — known as the labor force participation rate — has risen to 62.9% from 62.4% since September, Labor Department figures show. The rate had been falling since 2008, mostly because of baby boomer retirements, and that’s still expected to be the long-term trend.

Yet part of the decline was caused by a bruising post-recession job market that prompted discouraged workers to drop out of the labor force and many other unemployed Americans to retire, go on disability or return to school.

At least some of those idled workers are returning to work or looking again now that the jobless rate has fallen to 4.9%, a level many economists consider full employment. They’ve been drawn back by employers who are raising pay or becoming less selective..

“We’re just hearing a lot more openness” from employers, says Tim Gates, of staffing firm Adecco.

Wells Fargo said recently the rebound appears to be driven by the less educated, including discouraged workers who had been on the sidelines. Since September, the participation rate for college graduates with at least a Bachelors degree has dropped to 73.8% from 74.4%. The rate for other groups, including high school graduates and those with less than a high school diploma, has climbed at least half a percentage point.

Even so, their unemployment rate has declined, indicating that many of those returning are landing jobs despite increased competition from their peers.

Other groups are also coming bac, including retirees, the disabled and people in school, according to a Goldman Sachs analysis. Many are enticed by rising wages. Although average wage growth across the economy has been tepid at about 2% nationally, average earnings for private-sector employees in the same job at least 12 months jumped 4.1% in the fourth quarter, according to payroll processor ADP.

Companies are also getting creative. Adecco’s Gates says some manufacturers unable to find experienced workers are splitting jobs into two positions and hiring less skilled candidates for the simpler tasks. Others are bringing on unskilled workers and training them, a strategy rarely deployed when unemployment was elevated after the recession, says Becca Dernberger, of Manpower’s Northeast division.

Written by Paul Davidson of USA Today

(Source: USA Today)

Here’s How China is Trying to Dodge Its Own Great Recession

Justin Chin/Getty Images

The multi-trillion dollar question, literally, for investors these days is, “How poorly is the Chinese economy performing?”

The globe’s second largest economy has been a driving factor in the weak performance of U.S. stock markets lately, as investors fear a so-called hard landing in China could drag the rest of the world into recession.

But the official Chinese economic data is notoriously unreliable. Even if we trust the numbers, we’re faced with the problem of how to interpret them. What’s more, there has never been an economy as important to the globe as China’s that has had a government so willing to use its extraordinary power to prop up economic growth.

In other words, understanding how the Chinese economy will affect the West requires that we correctly predict how the Chinese government will behave in the weeks and months ahead. To that end Deutsche Bank analysts Zhiwei Zhang and Li Zeng recently published a report called “Understanding the Tail Risks in China,” which looked at the regional policy response of the Chinese government to a slowing economy.

Zhang and Zeng isolate data from China’s northeast, a region that’s likely already in a deep recession. That segment of the country’s nominal GDP grew just 1% (factoring in inflation it would have been negative) in 2015, according to Deutsche Bank estimates. At the same time, fixed asset investment fell 11.6%, compared with an average growth of 25.5% in the ten years before. The region is dominated by state-owned enterprises involved in traditional heavy industries, or commodity and energy production, sectors that have come under particular stress in recent years.

Screen Shot 2016-02-22 at 2.58.51 PM
Provided by Fortune

Despite this sharp drop off in economic activity, the growth in consumer spending and income did not fall anywhere near as much. Furthermore, northeast China was the only region in the country that saw credit growth, i.e., banks making more loans in 2015 than they did the year before.

In economies not dominated by the Chinese Communist Party, stuff like this doesn’t happen. As Zhang and Zeng argue that the discrepancy between the huge drop off in business activity and consumer behavior is likely the result of direct central government support, but also “indirect support,” from the folks in Beijing. They write:

The sharp contrast between weak economic activities and strong credit growth shows that banks in the northeast likely supported, through renewed lending, the weak corporate sector regardless of economic viability, which helped to avoid unemployment and bankruptcy. In this case, it is the government’s priority of maintaining social stability that overrode profitability considerations.

Such government support, however, can only be a short-term remedy rather than long-term solution to the structural challenges facing the northeastern region, and it comes with dear efficiency costs. The central government started to talk openly about addressing the risk of “zombie companies” in late 2015. This is regarded as a key part of the “supply side reforms.” One way to judge how serious the government is about the “supply side reforms” is perhaps to see if such credit support to the northeastern region will be contained in 2016.

This is another reason why western observers seem so confused by what they’re seeing out of China. Because the government there has so much more ability and willingness to stimulate the economy than governments in the West do, it’s that much more difficult to predict China’s future performance.

But until China addresses the fundamental flaws in its economy, i.e. it’s over reliance on investment, exports, and debt, it will have to continue to rely on government stimulus to avoid a collapse in employment and the social unrest that would likely be the result. And the longer it does that, the greater the growing imbalances in its economy will get.

Written by Chris Matthews of Fortune

(Source: Fortune)

Three Financial Facts of the Week: February 17, 2016

© Provided by CNBC
© Provided by CNBC

Fact #1
According to the Bureau of Labor Statistics, in the past 50 years, every recession has seen the number of jobs in the economy decline by at least 1%, and have never declined by that much outside of a recession. Today, the number of jobs in the U.S. has been growing briskly—up 2.7 million in 2015.
Source: Wall Street Journal

Fact #2
According to FactSet, despite average intra-year drops of 14.2%, annual returns have been positive in 27 out of 36 years for the S&P 500 since 1980.
Source: FactSet

Fact #3
Nasdaq Private Market, a unit of exchange operator Nasdaq Inc. that provides software to private companies to manage employee share sales, says private startups bought back $940 million of employee stock last year via its platform, an increase of more than 40% from 2014.
Source: Wall Street Journal

What a Non-Recessionary Bear Might Look Like

Bear markets can occur without recessions. There have been ten bear markets in the S&P 500 since 1968, and four of them occurred without an accompanying recession. Bear markets are commonly defined as 20% peak-totrough declines based on closing prices, though we include two 19% drawdowns in this analysis, with one of them (1998) getting well past the 20% mark on an intra-day price basis (1976 is the other). Here we look at the characteristics of these non-recessionary bear markets to assess the probability that stocks enter a bear market even if the U.S. avoids recession in 2016.


Bear markets can occur without recessions. Going back to 1968, ten bear markets have occurred with six accompanied by recessions [Figure 1]. The accompanying figure shows just how much more painful bear markets are when they are tied to recessions. In the six recessionary bear markets since 1968, the average peak-to-trough S&P 500 decline was a whopping 39%. The thought of such a decline when compared to where we are now, 11.6% below the May 21, 2015 record high, could make your stomach churn. (In the February 1, 2016, Weekly Economic Commentary, John Canally spelled out reasons why we do not expect a repeat of 2008, which would remove one big negative possibility from the equation).

Based on our assessment of the economic data, we see the odds of a recession in the next year as still low (perhaps as high now as 30%), although certainly some indicators suggest an even higher probability. The risk remains that a policy mistake, such as an overly aggressive Federal Reserve (Fed), as in the mid-1970s, financial crisis (such as 1998 or 2011), or excessive speculation (a la 1987) drives the S&P 500 down another 8-9% to the 20% threshold. That is not our base case at this point but we do suggest a slightly more cautious approach toward equity markets as these odds have increased. The average S&P 500 loss in a non-recessionary bear market has been 23%; still more than 10% below Friday’s closing level.

Screen Shot 2016-02-09 at 3.17.34 PM


Taking a closer look at the non-recessionary bear markets of 1976, 1987, 1998, and 2011, we place the market declines into three categories: ƒ

  • Policy mistake. Fed tightening played a role in the 1976 bear market, which was accompanied by rising oil prices. The Fed raised the federal funds rate by 2 percent in 1977, the 10-year yield jumped 100 basis points, and oil prices started on a path to doubling in just two years. The 1998 bear market was partly brought on by policy mistakes in Asia regarding managing their currencies, and was exacerbated by a lack of regulatory oversight into Long Term Capital Management (LTCM) that led to its becoming a systemic risk and eventual failure. (LTCM was a very large unregulated investment management firm with significant leverage that led to a multibillion dollar bailout after more than $4 billion in losses.) The Fed’s 25 basis point (0.25%) hike in the federal funds rate in March of 1997 did not help, but the selloff didn’t start until July of 1998 and the Fed’s three rate cuts in late 1998 helped end the crisis. ƒ
  • Financial crisis. In 1998, a Russian default and collapse of LTCM got most of the headlines, but the Asian currency crisis that started in Thailand spread to other Southeast Asian countries (Malaysia, Indonesia, and the Philippines) and eventually into South America. In 2011, stocks struggled with two crises: the European debt crisis and the U.S. debt ceiling fight and related downgrade of the U.S. credit rating by Standard & Poor’s. The solvency of the European banking system was in question due to heavy exposure to bad debts from heavily indebted European sovereigns, e.g., Greece, Spain, Portugal, and Italy. At the same time, some were questioning the credibility of the U.S. as a borrower.
  • ƒ Excessive speculation. The crash of 1987 involved excessive speculation. Stocks were up 33% year to date as of September 30, 1987, one of the strongest starts for the S&P 500 in any year in history (second only to 43% in 1933). Stock valuations were very high relative to bonds, with the S&P 500 earnings yield (inverse of the price-to-earnings ratio) of 5.7% well below the 10-year Treasury yield at 9.6% as of September 30, 1987. Only 2000 saw a bigger spread over the past 40 years. Too many big players in the market tried to hedge portfolios at the same time, exaggerating the slide. The situation was exacerbated when institutions that sold portfolio insurance propelled another wave of selling when those “insurance claims” were cashed in.


The most important question for investors today is could we be entering a bear market and, if so, would one of these three potential catalysts cause it?

Policy mistake. The Fed is the most obvious potential policy mistake looming, although we do expect the central bank to pull back from its stated timetable of four rate hikes in 2016. It is tough to characterize a single quarter-point hike as a mistake no matter what the eventual outcome. But a series of hikes could end up as a policy mistake leading to a bear market if it precedes dislocations in global financial markets, tightening credit conditions, and another potential leg down in global growth and earnings.

Besides the Fed, a policy mistake out of Washington is possible, though unlikely, depending on how the presidential election in November plays out. Looking to overseas markets, though not our expectation, China could mismanage its economy and suffer a hard landing.

Odds: About 30%.

Financial crisis. China is a primary concern among those calling for a bear market or recession. A significant currency devaluation could potentially drive a financial crisis similar to the Asian currency crisis that preceded the 1998 bear market. We would place the odds of a China-driven currency crisis at well below 50% given: 1) most Asian currencies are no longer pegged to the U.S. dollar, as they were in the late 1990s, 2) Asian economies’ finances and trade flows are in much better shape today, and 3) China has the ability and willingness to prevent it.

Another possible scenario is a repeat of the European debt crisis of 2011-2012. European banks generally have less capital than U.S. banks and may be more vulnerable; although actions taken by the European Central Bank (ECB) and the weaker European countries since 2011 mitigate this risk. Balance sheets are in better shape today and sovereign risk is low. Another debt ceiling fight, which also contributed to the 2011 bear market, is simply not in the cards.

Also unlikely in our view is an oil-driven financial crisis. Energy company defaults could increase due to low oil prices, but we believe the markets are pricing in more defaults than will actually be realized. Also consider those defaults would put downward pressure on oil supplies and support prices. Finally, while credit spreads have widened even for non-energy companies, we have not seen credit availability restricted nearly enough to signal a financial crisis, as evidenced by the most recent Fed Senior Loan Officers Survey showing a still small, though gradually rising, number of banks tightening credit standards for business loans [Figure 2].

Odds: About 20%.

Screen Shot 2016-02-09 at 3.20.21 PM

Excessive speculation. This potential bear market driver may be the easiest one to dismiss. Stock market valuations are reasonable at roughly 16 times trailing earnings. Factoring in interest rates, the S&P 500 is significantly cheaper than it was in 1987. The S&P 500 earnings yield stood 4% above the 10-year Treasury yield as of January 31, 2016, compared to September 30, 1987, just ahead of the October 1987 crash, when the earnings yield was about 4% below Treasury yields.

We do not see signs of excessive risk taking in the options markets and investor surveys such as that from the American Association of Individual Investors (AAII) indicate widespread pessimism see January 19, 2016, Weekly Market Commentary, “Any Bulls Left”. Strategies to hedge against stock declines have become increasingly popular as a result of that pessimism and market participants waiting for the next shoe to drop.

Finally, while the S&P 500 had risen more than 30% in nine months in September of 1987, the index has been virtually flat since May of 2014 and traded in one of its tightest ranges ever over a 21 month period, hardly indicative of any excesses.

Odds: Less than 10%.


Our forecast remains no recession in 2016 and an S&P 500 correction that stops short of a 20% bear market decline. But even in the absence of recession, history suggests that a bear market remains possible. Given the possibility that a policy mistake or financial crisis sends U.S. stocks into a bear market, perhaps with odds as high as 30%, we would encourage investors, where appropriate, to consider maintaining slightly above average cash levels for dry powder should the recent selloff worsen.

Weekly Market Commentary: January 20, 2016

Provided by geralt/Pixabay
Provided by geralt/Pixabay

We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:

  • How much has China’s growth slowed? How will the country’s slower growth affect companies and investments around the globe?
  • How will the Federal Reserve’s changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?
  • Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?
  • How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?
  • How will demographics – particularly the changing ratio of working people to retired people – affect economic growth?
  • How will geopolitical risks affect markets during 2016?

Amidst all of this uncertainty, the words ‘market correction’ (a drop of at least 10 percent in the value of the market) and ‘bear market’ (a drop of 20 percent or more in the value of the market) are being bandied about frequently. According to Barron’s, the Standard & Poor’s 500 Index finished last week in correction territory. So, are we headed for a bear market? That remains to be seen.

Bear markets often are accompanied by recessions, and few experts believe a recession is likely in the United States during 2016. Historically, there have been bear markets which have occurred without a recession. These have lasted, on average, for about five months. That’s far shorter than the 20-month average length of bear markets that come in tandem with recessions.

One expert cited by Barron’s commented on the market downturn, “If there’s a silver lining, it’s that the market is a lot cheaper than it was a few months ago. The S&P 500 trades at 15.9 times 12-month forward earnings forecasts…back where valuations were at the beginning of 2014. That means there are values to be had.”

Data as of 1/15/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -2.2% -8.0% -5.6% 8.5% 7.7% 3.9%
Dow Jones Global ex-U.S. -3.4 -9.3 -14.1 -4.1 -3.3 -0.7
10-year Treasury Note (Yield Only) 2.0 NA 1.8 1.8 3.4 4.3
Gold (per ounce) -0.7 3.0 -13.1 -13.3 -4.3 7.1
Bloomberg Commodity Index -4.2 -6.5 -27.8 -19.3 -14.6 -8.0
DJ Equity All REIT Total Return Index -2.7 -5.6 -8.5 7.4 10.0 6.3

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Why Retirees are Moving Again

US News
Provided by US News & World Report

During the recession of 2008 and for a long time afterward, moving dropped off the map, especially for people who were retiring. For some years after the recession began, according to the Brookings Institution, both Florida and Nevada actually suffered out migration – not because so many people were moving out of these states, but because nobody was moving in.

For half a decade retirees stayed close to home. They couldn’t sell their house, so they couldn’t move. Many people were forced to retire early, which meant their finances were even more stressed. Many baby boomers also still had kids in school, and so they didn’t want to move anyway.

But now things have changed. Moving is back in style. In addition to new retirees, there is a backlog of people who retired a few years ago who now want to move out of big expensive states and into warmer, less expensive states.

The traditional retirement havens in Florida and Arizona still pull in many retirees. Last year the Phoenix metropolitan area topped the list of cities gaining population among people 55 and older. Tampa, Orlando and Jacksonville were in the top ten. But the Carolinas are also drawing their share of retirees, and a lot of retiring baby boomers are setting off for smaller cities like Nashville or Austin.

Here are the five main reasons retired people are now moving:

They can finally sell their house. The real estate market suffered a historic slump during the Great Recession, and it has been slow to make a comeback. But now both sales and prices have returned to more normal levels, meaning people in California and the Northeast – and even in the Midwest to a lesser degree – can finally sell their homes. Fewer people are underwater on their mortgage, which means they have more equity, while mortgage rates are still low and credit is easier to obtain.

Their stock portfolios have recovered. Baby boomers were not only frozen in place for half a decade, but they suffered huge losses in their savings and retirement nest eggs, which made them more cautious and less likely to pull up stakes and start a new life. Now that markets are back near historic highs, baby boomers are flush with more funds to use for down payments, moving costs and all the other expenses that go along with starting a new life.

It’s expensive to live in California and the Northeast. Although many states have slowed the rate of increase on real estate taxes – New York, for example, instituted a 2 percent cap – taxes are still high and going higher, even if at a slower pace. Retirees move to get away from high taxes. But there’s also the high cost of insurance, entertainment, heating and all the other necessities of living in the north.

It’s cold. Global warming may have brought a marginal rise in temperatures worldwide, but that’s cold comfort for those who see the outside thermometer stuck at 20 degrees. The unusually cold and snowy winters of the past two years only add to the motivation of retirees to find a more comfortable lifestyle in a warmer climate. A desire for healthier lifestyles also prompts people to seek out a climate where they can hike and bike and play outdoor sports all year round.

They’re going to move anyway, so they might as well go someplace nicer. Many boomers are moving not to retire, but to take advantage of late-in-life job opportunities. They have been downsized from their full-time careers, and are now looking at lower paying, but also lower pressure jobs outside major metropolitan areas. Along with low-powered jobs or part-time positions, they’re looking forward to gaining more leisure time and paying less “overhead” for their lifestyle.

The countertrend. Despite the fact that more people are moving, the majority of retirees still age in place. So don’t feel left out if you want to stay in your old neighborhood and live near your children and grandchildren. And then there is one countertrend. While most retirees head south, there are some who turn north. Northern states from Maine to Washington are losing population among those age 55 and over. But four states – New Hampshire, Vermont, Idaho and Oregon – are appealing enough to actually gain population among people 55 and over.

Written by Tom Sightings of US News & World Report

(Source: US News & World Report)

After Years Out of a Job, Older Workers Find a Way Back In

© Tom Merton/Getty Images

After five years of being unemployed or underemployed, Rosanna Horton, 55, is back where she wants to be: working full time.

In July 2007, Ms. Horton left her job at the University of California, Irvine, and moved north to San Francisco to take care of her mother and finish her dissertation. She sold her condominium, intending to live off the proceeds. She figured she would have no problem going back to work in a better position.

A year and a half later, she had completed her dissertation and received her doctoral degree in education. But the job market was a disaster.

Even with her new doctorate in hand, she found nothing suitable, setting in motion an unexpected downward spiral. At times, Ms. Horton, said she was “sofa surfing,” or sleeping on a relative’s or friend’s couch.

“It put you in a position of thinking, ‘I should not have left my job,’” she said. “I am the kind of person who thinks things happen and you take responsibility and you move on.”

Ms. Horton barely scraped by, she said, making it through a long period without much income only with the help of a “very small circle” of family and friends. She worked in unpaid fellowships, temporary and contract positions before finally turning, in September 2013, to the San Francisco Jewish Vocational Service, an organization that helps people build skills and find jobs.

The recession was over, but it was still a challenge to find a decent job in a rapidly transforming economy. In what she calls her “aha!” moment, Ms. Horton decided to take her degrees off her résumé — all of them — so as not to be perceived as overqualified, and to get her “foot in the door.”

At the beginning of 2014, she was hired as manager of radiology and biomedical imaging at the University of California, San Francisco, where she has been working ever since. She is making more money now than she was when she left her job in 2007. “What better way to end your career than doing something you care about and can affect others in a positive way?” she said. Her goal now? “I’m working till I’m 70.”

Long-term unemployment “is a challenging and often hidden problem,” said Abby Snay, executive director of the San Francisco Jewish Vocational Service, which is part of a larger network, the International Association of Jewish Vocational Services.

In the economic downturn that began in late 2007 and persisted through the middle of 2009, millions of people in their 50s and 60s were laid off, bought out, downsized or otherwise left without a steady paycheck. The Center for Retirement Research at Boston College, in a report titled, “How Will Older Workers Who Lose Their Jobs During the Great Recession Fare in the Long Run?” found that the recession hit many more workers over 50 compared with previous downturns.

By 2012, many of these people were still out of work, said Matthew S. Rutledge, a labor economist at the Center for Retirement Research and a co-author of the paper. “It was really difficult for them to get back in,” he said. “It didn’t matter if they had retired or were laid off.”

The stock market decline and the collapse of the housing market also took a huge toll on the financial resources of older Americans. For those without jobs, that put even more pressure on them to return to the work force and impelled many to keep working well past their original target for retirement.

One result is that the work force is growing older. According to Andrew G. Biggs, an American Enterprise Institute resident scholar and a former top official at the Social Security Administration, there are 3.9 million more workers age 60 to 64 today than in 2005, the last full year before the beginning of the economic slowdown. By comparison, he noted in an op-ed in The Wall Street Journal, there are fewer Americans age 20 to 55 working today than in 2005.

For older Americans, paths to returning to full-time work vary. Some go into consulting, others seek specialized knowledge and new contacts by working as a volunteer. Still others resume their education through courses online or at a for-profit or community college, while some enroll in professional association courses. Many decide to start a business.

The biggest challenge for those seeking a new job after an extended period of unemployment is updating their skills for the current workplace.

“If you have been laid off or retired for a couple of years, skill sets may have moved on quite rapidly without you,” said Mark Schmit, executive director of the SHRM Foundation, a research affiliate of the Society for Human Resource Management. “This puts you at a disadvantage to the people who are working, including peers who are the same age.”

Rich Feller is a professor of counseling and career development at Colorado State University, past president of the National Career Development Association and a thought leader with AARP Life Reimagined. Dr. Feller said a key credential for returning to the work force is the ability to “document your technology skills.” If you can, he said, employers will “overlook your age.”

He suggests community college or online courses as a way to master new skills.

The popular belief that younger workers are more productive than older workers is “largely a myth,” Mr. Schmit said. “The only evidence we have of that is in physical labor. It’s absolutely true that older people can learn and are motivated to learn just as younger people are.”

Rick Dottermusch, 58, began taking courses at Montgomery College, at first as a “diversion” until he found his next job. The new knowledge paid off. Five months ago, he began working in web development at a technology company in the Washington area, moving out of sales, his job for 30 years.

“The students — whether high school graduates or those with a master’s — are looking for current skills and they’re willing to spend their time taking courses if they are courses aligned with the market, with what employers need,” said Steve Greenfield, dean of work force development and continuing education at Montgomery College, a community college outside Washington. “We do labor market research before we even run a class.”

But just getting the training is not enough. “Networking is an important part” of a job search, Mr. Dottermusch said. “If you know someone who can provide an entree, anyone who can tell you more about the company, if nothing else pick their brain — what is the best way to approach that company?”

And those seeking a change in the type of work they do must be prepared to lower their expectations, at least initially. “If you have retrained for a new career and learned a new skill, expect to start at a lower level, lower pay grade,” Mr. Schmit said.

For Dave Gustafson, 61, moving from working as an employee for 30 years to working as a real estate broker on a commission-only basis has been taxing. “It takes a certain amount of courage,” he said.

He took a five-week class to prepare for the real estate broker’s exam in Colorado, passed it in late July and joined a regional real estate firm.

Even though he had worked in sales in the past, he found that he had to throw away the habits of a lifetime to learn the techniques the new company uses.

His advice for others starting on a new career path?

“Be pliable.”

Written by Harriet Edleson of The New York Times

(Source: The New York Times)

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