Sunday, July 28, 2019

Recession coming? Consensus Points to “When” not “If”


Rick Telberg (@CPA_Trendlines) and I did a quick show of hands at last week’s @Accounting Show in New York. To begin our presentation, we asked audience members if they thought we were heading into a recession. More than half the hands shot up immediately and a few more were raised tentatively. That aligned with our 2019 CPA/Wealth Advisor Confidence Survey™ which found that almost half (47%) of the 300 financial advisors who responded expected a recession within 12 months--up from 33 percent who felt a recession was imminent at this time a year ago.

On Friday, the Commerce Department reported that GDP rose by only 2.1-perent in Q2, down from the first quarter’s 3.1 percent. It was the weakest quarterly increase since Q1 of 2017 when President Trump first took office. Further, the Federal Reserve Bank of New York’s recession probability chart indicated a 30 percent chance of a downturn over the next 12 months, up from 10 percent early this year. Experts say the Fed’s probability chart is heavily influenced by the inverted yield curve.

While it’s not time to run for the hills and stuff your money under a mattress, it’s pretty sobering considering the current economic backdrop: Unemployment is supposedly at lowest level since Neil Armstrong man first walked on the moon. GDP growth remains positive and stocks are just about at their all-time high--up 50 percent since 2016.


Yes, we’re savoring the longest bull market and longest economic expansion on record. But, as any gambler or elite athlete will tell you, winning streaks never last forever.
Bob Doll, chief equity strategist and senior portfolio manager at Nuveen wrote in Financial Advisor last week, that stocks are up by double digits this year, as the S&P 500 Index has climbed nearly 19 percent. “The end of the second quarter marks the fourth time that index has been trading in the 2,950 range over the past 18 months (after previously reaching this level in January 2018, September 2018 and May 2019). That means stocks really haven’t gone anywhere in a year-and-a-half,” noted Doll.


And then there’s the the yield curve, which inverted earlier this year. Yield curve inversions don’t cause recessions, but inversions have preceded every single one of the last seven U.S recessions. In fact, the inverted yield curve signaled both the 2001 and 2008 recessions about one year in advance.

Matt Topley, chief investment officer at Fortis Wealth in Valley Forge, PA told me that recently while the stock pullback at the end of 2018 was a buying opportunity, “we are now in a more precarious situation.” He said the inverted yield curve should not be ignored, “and our economy is running out of qualified workers as the jobless rate settles below 4 percent. “Amazingly we have not experienced inflation despite such a historically low unemployment rate, so the stock market continues to rise,” added Topley. That being said, he is cautioning investors to prepare mentally for “recession-size drawdowns in equities in the range of 30 to 40 percent,” but to be aggressive when stocks are on sale.

Meanwhile, The Economist’s R-word index (number of times national financial journalists have been mentioned the word recession ticked up at about the same time. Today, the yield curve suggests that a recession may be imminent, and America’s leading newspapers are discussing recessions more often than at any point since 2012, although Topley says to “ignore the headlines and doomsayers, especially as elections approach.”

Timing is the real challenge

Traditionally, we had to wait for the National Bureau of Economic Research (NBER) to announce a recession after we’ve already been feeling the pain for a, or wait for the Commerce Department to confirm that GDP had declined over the last two consecutive (completed) quarters. That’s like finding out over Halloween that it was a record heat wave in August. It’s certainly not helpful for policymakers, or more importantly for people losing their paychecks or trying to keep their businesses afloat.

As The Brookings Institution reported last month: “The NBER announced the Great Recession in December 2008, a full year after the recession started—far too late to initiate a timely monetary or fiscal policy response.” Brookings, says it’s important NOT to focus on the unemployment rate itself, but on rapid increases in the jobless rate.

Not all jobs created are worth taking


Here at HB, we’ve long been skeptical of the historically low jobless rate, because wage growth has been so meager during this 10-year expansion and because many of the newly created jobs during have been in the low to midrange of the wage scale. In fact, the Labor Depart says almost of one-fourth of those who are out of work have been looking for over six months. The standard measures of unemployment do not count the millions who are back in the workforce, but at a fraction of their former salaries. The stats don’t take into account millions of gig economy workers (young and old), plus mid-career and older professionals who are consultants and contract workers who are doing okay, but who’d rather be employed somewhere full-time with benefits.

The Brookings folks seem to agree with us: “Of course, changes in the national unemployment rate do not tell us everything we might want to know about the health of labor markets. In particular, they do not capture the extent to which workers have left the labor force or are under-employed, both of which are important for understanding the degree of labor market slack,” reported Brookings.

Recession at a 4.1% jobless rate?

As economist Claudia Sahm wrote in a new Hamilton Project at Brookings and Washington Center for Equitable Growth book, if the unemployment rate (in the form of its three-month average) is at least 0.50 percentage points above its minimum from the previous 12 months, then the economy is already in a recession. Still skeptical. Well Sahm’s Recession Indicator has never called a recession incorrectly since 1970 and is usually four to five months ahead of any other credible economists or analysts.

See helpful charts here courtesy of Brookings.

According to Brookings, the unemployment rate in November 2000 was 4.0 percent and by June of 2001, it was had edged up to 4.5 percent. While 4.0 or even 4.5 percent are low unemployment rates by historical standards, a recession had in fact begun in March of 2001, and the unemployment rate continued to rise rapidly. The Sahm indicator called this recession at the beginning of July when the unemployment data for June was released.


So here we are at a half-century low jobless rate of 3.6 percent. Whether you agree with that number or not, if the unemployment rate rises to 4 percent (still extremely low by historical standards), the Sahm index suggests a 76 percent likelihood of recession and if the jobless hits 4.1 percent – just half a percent higher than today—there’s a 97 percent likelihood of recession in the coming months.
Housing hiccups

There are also a number of sobering housing indicators suggesting it’s not a matter of “if,” but “when.” See William Emmons’ Recession Signals: Four Housing Indicators to Watch in 2019
Emmons is an assistant vice president and economist at the Federal Reserve Bank of St. Louis and the lead economist for the Bank’s Center for Household Financial Stability. “Data on single-family home sales through May 2019 confirm that housing markets in all regions of the country are weakening,” wrote Emmons. “The severity of the housing downturn appears comparable across regions—in all cases, it’s much less severe than the experience leading to the Great Recession, but similar to the periods before the 1990-91 and 2001 recessions.”

Last week, Senator Elizabeth Warren (D-Mass.) published a scathing Medium post entitled "The Coming Economic Crash--And How to Stop It." The Democratic Presidential contender pointed the finger at manufacturing slump and recklessly high levels of corporate debt—akin to the junk mortgages we saw during the global financial crisis.
“The overall numbers about GDP or the stock market are great, but they don’t reflect the lived experiences of most Americans,” Warren wrote. “Wages haven’t gone up in a generation and yet the cost of housing, the cost of health care, the cost of childcare, the cost of sending a kid to college have all gone through the roof. The middle class squeeze is real and it has gotten tougher for people over the last few years.”

Finally, a Gallup poll found that even as Americans‘ approval of the overall economy have risen, anxieties about their own personal finances have remained largely the same over the last few years.

Conclusion

Bottom line: you can’t stop a recession any easier than you can hold back the ocean. But you can make a real difference in your clients’ lives by helping them manage their finances and personal dreams when economic prosperity hits is next inevitable speed bump. For more about what your peers think about the economy, the recession and their own firm’s growth prospects, see my recent presentation of the 2019 CPA/Wealth Advisor Confidence Survey™ with the one and only Rick Telberg @CPA_Trendlines.

# Recession #yield curve #Sahm Recession Indicator  #Rick Telberg @CPA_Trendlines  @Accounting Show  #Matt Topley  #William Emmons



Wednesday, July 17, 2019

Survey: Highest-Performing Advisors Earn their Media Coverage and Bylines


It was great seeing so many of you last week at the NYC @AccountingShow. Here's a link to my presentation about the findings from the 2019 CPA/Wealth Advisor Confidence Survey™ with the one and only Rick Telberg @CPA_Trendlines. Click here for the presentation.

As shown below, the highest performing advisors tend to put the greatest value on public speaking, publishing under their byline and getting quoted in the press. Blake Christian (HCVT) and Kyle Walters (L&H CPAs) have long been regular monthly contributors to Accounting Today.

Guy Baker (Wealth Teams Alliance) was recently quoted in Forbes (New Retirement Bill Is Coming: The SECURE Act -Setting Every Community Up For Retirement Enhancement). Matt Topley was quoted in US News & World Report (8 Types of Passive Investment Risk) and James Nevers (Soundmark Wealth) was quoted in Business.com (Business Insurance: How to Safeguard Your Livelihood).
  

Anthony Glomski, author of the new book (Liquidity & You) also presented at the NYC @AccountingShow with a focus on habits of millionaire CPAs and CFOs.










Cecil Nazareth
, author of the new International Tax & Compliance Handbook was across town at the New York State Society of CPAs yesterday for a live presentation and webinar about international tax issues and changes post-Tax Reform. 


Meanwhile, Molly Grubb, author of the forthcoming book Build Your Dynasty will discuss Keys to Entrepreneurship at the LA Accounting & Finance Show next week.

Conclusion

Are you sensing a trend? These influencers make time in their busy schedules to speak, publish and share their knowledge regularly. Like going to the gym, they know that being consistent, working hard and having accountability partners is the only way to get results. They know there’s no secret formula, magic silver bullet or life hack for becoming an instant thought leader. Don’t let anyone tell you there is.

If you’re interested in building your thought leader muscles but don’t know where to start, reach out to us any time. We’re happy to provide you with some complimentary workouts.


# Public Speaking  #Practice Development #Wealth Advisor Confidence #Accounting & Finance Show



Monday, July 08, 2019

Survey: Highest-Performing Advisors Do the Most Public Speaking


As we compiled the results of our 2019 CPA/Wealth Advisor Confidence Survey™, we wondered if there were any data points separating the most optimistic advisors from all the rest.  Every type of advisor seems to be more concerned about the economy, the high value of the stock market, the inverted yield curve and Trump tariffs and retaliation than they were at this time a year ago. We also saw across-the-board increases in client outreach and marketing efforts beyond word-of-mouth referrals.

But, when it came to thought leadership tactics, that’s where we started to see some separation. Take public speaking, the highest rated of the 15 thought leadership tactics we asked our nearly 300 respondents about. Two-thirds (66%) of firms that were expecting to grow by 10 percent of more in 2019 found public speaking to be “very” or “extremely” valuable. By contrast, only 60 percent of firms expecting single-digit growth considered public speaking to by highly valuable and only 54 percent of firms expecting flat or negative growth put a high value on public speaking. A similar trend followed for most of the top thought leadership tactics including publishing articles and books, getting mentioned in the press, producing videos, blogging and holding client events and webinars.


It was not until we got into the bottom the rankings that the under-performing firms placed the same value (or more) on lowe-rated thought leadership tactics such as Facebook (15% vs. 12%), Twitter (7% vs. 5%) and Instagram/Snapchat (4% vs. 1%).
Survey co-author Rick Telberg (CPA Trendlines) and I will be presenting our findings at the NYC Accounting and Finance Show on Thursday afternoon at the Jacob Javits Convention Center. Can’t make it to the show? Send me a note if you’d like a copy of the presentation.

If you’ll be at the show this week in NYC or in two weeks in Los Angeles, make sure to catch the presentations of our clients. Anthony Glomski, author of the new book (Liquidity & You) will discuss habits of millionaire CPAs and CFOs. Cecil Nazareth, author of the new International Tax & Compliance Handbook will discuss cross-border transactions post-Tax Reform and Molly Grubb, author of the forthcoming book Build Your Dynasty will discuss Keys to Entrepreneurship.
Are you sensing a trend? They make time in their busy schedules to speak, publish and share their knowledge regularly.

Conclusion
Even if the prospect of a microphone, video camera or podium makes you break out in a cold sweat, you’ve probably got more of a story to tell than you think. As with so many things in life, the more you practice public speaking the better you get. Like many of your peers, over time you may actually start to like it. Speaking is certainly one of the very best way to get yourself noticed and to attract new prospects, strategic partners and talent. What’s not to like about that?


# Public Speaking  #Practice Development #Wealth Advisor Confidence #Accounting & Finance Show