September 18, 2019
Inverted Yield Curve and the Economy
Talk of the next U.S. recession has made headlines recently, partly because the yield on 10-year Treasuries has dropped below that of 3-month Treasuries twice this year—once in March and again in August. This phenomenon, known as an inverted yield curve in the bond markets, happens when the rates paid on short-term U.S. Treasury bills exceed the rates paid on long-term Treasury notes. Historically, inversions in the yield curve have been a warning sign that a U.S. recession could be looming. However, AMG National Trust’s (AMG) research suggests that the Treasury yield curve is a far less reliable indicator of a recession today than it was in the past.
Instead, AMG has identified additional key leading indicators that provide an outlook for the U.S. economy. These include: 1) the four-week moving average of initial unemployment insurance claims, 2) year-over-year change in the Conference Board’s Consumer Confidence Index, 3) the share of U.S. banks tightening lending conditions, and 4) the Chicago Fed’s National Activity Index, a broad measure of U.S. economic strength.
These key measures currently indicate that the U.S. economy is healthy—and that no recession is imminent—but they also suggest that a mild slowdown could be possible in the short term. Going forward, the health of the economy will likely depend on how well policymakers at the U.S. Federal Reserve (“Fed”) are able to deal with any such slowdowns and to what degree they can continue to support economic growth. AMG’s research suggests that, as long as U.S. inflationary pressures remain modest, Fed policymakers can keep interest rates low and will likely be able to take the necessary actions to sustain the U.S. economic expansion.
At AMG, our expert and research-driven approach sets us apart from other wealth management firms. It allows us to provide forward-thinking guidance to our clients that enable them to stick to their financial plans and not panic when there is volatility in the economy and markets.
September 5, 2019
Economic growth decelerated in the second quarter of 2019. However, real GDP growth was respectable.
The second-quarter slowdown of U.S. real GDP growth is not a cause for concern. First-quarter growth was unsustainable, while current data show production and labor markets remain healthy. It is true that manufacturing activity has flattened out. However, activity in services remains quite robust. In any case, the near-term outlook for the economy still calls for solid growth. The main driver of domestic demand, consumer spending, is on track for trend growth of around 3.0%. Demand for labor remains strong, and household finances can support additional spending through income growth and lesser savings. Surveys show that consumers maintain a high level of confidence about the economy and their personal finances.
August 29, 2019
Elder trust can give you, your heirs peace of mind
QUESTION: I’m getting up there in years, and I’m worried that I might make a bad financial decision in the future and squander my children’s inheritance, or impair my ability to take care of my own needs. Should I establish an elder trust that safeguards my assets while giving me a fixed monthly allowance?
ANSWER: Each person’s solution to this question is unique, depending on financial means, goals and family. Revocable trusts have many advantages. You as grantor have unlimited ability to contribute and withdraw funds. It is more tax efficient than an irrevocable trust. You can also change the terms of the trust, including the trustee, at any time.
This gives you the ability to appoint a separate trustee, such as AMG or a close family member. The trustee can manage the trust and even use it to pay your bills while still giving you unfettered access to the account. While the separate trustee does not have authority to prevent an unwise withdrawal on your part, they are in a unique position to spot erratic behavior and inform you. Of course, the flexibility in the revocable trust is also its main drawback. The ability to withdraw money, change the terms and fire the trustee at will leaves it open to many of the problems you are trying to avoid.
The irrevocable trust has more built-in protections but is less flexible because it’s very difficult to change any provisions once created. However, most people can build enough access to get comfortable with irrevocability. An independent trustee would manage the trust. The trust could be discretionary only, meaning the trustee approves the distributions based on your needs. It could be non-discretionary, requiring the trustee to make distributions paid at regular intervals. Or it could be both: a mandatory income stream with discretionary distributions based on needs. There is a little more initial work for you as you help the trustee understand your needs, but once the irrevocable trust is in place, the trustee takes over the heavy lifting on distributions, investments and taxes.
August 22, 2019
Pick a trustee you can trust
QUESTION: I want to set up an irrevocable trust to take care of my needs as I age, and I need to pick a trustee. What should I consider?
ANSWER: A trustee has many responsibilities, one of which is making distributions from the trust to you, the beneficiary. Many people want their children or a lifelong friend to serve in this role. These are the people you trust the most. They have an emotional investment in seeing to your needs. While trust is critical, there are other important factors. The trustee has broad responsibilities, including making distributions per the trust document and trust law, managing the investment portfolio and filing taxes. If distributions are made inappropriately, or not documented properly, significant estate and creditor protections can be lost. The trustee can hire experts to help but they need to be sophisticated enough to understand the advice.
The trustee’s personal situation and history also needs to be considered. A trustee close to you in age may run into problems as he or she ages. A trustee with family, marital or career issues might not have time for your needs. If your children are involved, it gets even more complicated. If you have two children, and they are married, you potentially have four different personalities guiding your trust, and it only takes one of them to create a conflict.
Another option is a corporate or professional trustee. They usually are good at investing prudently, following the trust document, filing taxes and making certain all decisions are well documented. One disadvantage is the trustee might be somewhat removed from your personal situation and slower to respond to your changing needs.
A popular option is a combination of the two. Have a corporate trustee and personal trustee serve as co-trustees. The personal trustee serves to help the corporate trustee understand your needs, especially in the case of discretionary distributions, while the corporate trustee takes care of the investment strategy, tax filings and documentation.
August 15, 2019
Worried about identity theft? Freeze your credit report
If you’re concerned about identity theft, corporate data breaches or someone gaining access to your credit report without your permission, consider freezing your credit report. A credit or security freeze is designed to prevent a credit-reporting company from releasing your credit report without your consent. That makes it difficult for identity thieves to open accounts in your name because most creditors want to see your report before approving new account.
A credit freeze does not affect your credit score or prevent you from getting your free annual credit report. To place a freeze, you need to contact each of the nationwide credit reporting companies: Equifax (800-349-9960); Experian (888.397.3742); and TransUnion (888.909.8872). Fees vary based on where you live, but usually range from $5 to $10.
Usually, a freeze remains in place until you ask the credit-reporting company to temporarily lift it or remove it altogether. There is a fee for that as well. You can ask for the freeze to be lifted for a specific credit application or for a specific time period, from one day to one year.
August 8, 2019
I have a big retirement fund, so why don’t I feel secure?
Retirement can be difficult for productive people who have been saving and investing most of their lives. Taking money out of savings, instead of putting it in, feels irresponsible. It can take several years to get comfortable. Fortunately, planning helps.
The first step is to figure out what’s your life endowment — the amount of money needed for living expenses over the rest of your life. If your life endowment is $5 million and you have $8 million, that’s great news. Not only do you have extra, but the excess is likely to grow over time, and you can plan how to allocate these legacy assets. Will you use the funds to help your family, the community or your alma mater?
The question is harder if you need a $5 million endowment and only have $4 million. How do you make up the deficit? You could work a few years and allow the assets to grow. But if working is not an option, you have more difficult decisions to make. You can cut back expenses, so you need less of a life endowment. But that could leave a significant amount unspent. That might be great news for your heirs, but you may miss out on great life experiences.
Another alternative is to follow a glide path, slowly spending down your assets to a pre-determined floor before you cut expenses. It allows you to live a fuller life while you are able. Having a plan in place and monitoring it provides the courage and comfort that, while the assets may decline, you will never run out.
August 2, 2019
AMG Insights on Iran – Part 3: Global Energy Supply & Iranian Oil
July 31, 2019
AMG Insights on Iran – Part 2: What is the U.S. After Now?
July 29, 2019
AMG Insights on Iran – Part 1: Iran/U.S. Relations
Recently AMG had a conversation with Ambassador Chris Hill to get his insights on the escalating Iranian tensions. In this three-part series we dig deeper into the current nuclear deal with Iran, newly imposed sanctions and their impact, global oil supply and how this issue may be resolved.
July 19, 2019
Fed hints at a non-essential rate cut in late July
The U.S. economy last month set a national record for the length of an economic expansion. Currently, the unemployment rate is a low 3.7%, and the number of job openings exceeds the number of unemployed persons by about 25%. Average wage rates have been gradually moving up, recently at a pace that is about a percentage point faster than consumer-price inflation. A wage-price spiral is not at hand, but various trend measures of annual consumer price inflation are above 2%. Second-quarter real GDP growth will come in below first-quarter growth. However, that will be largely due to a swing in inventories. Second-quarter growth in real final sales to domestic purchasers appears likely to have been in the range of 2.5 to 3%, or nearly double the first quarter’s growth.
At present, the Federal Reserve (Fed) maintains a target range for the federal funds rate of 2.25 to 2.5%. History would suggest that the Fed should continue its recent policy path—gradually tightening monetary conditions by raising its target rate. So what do financial-market participants think the Fed will do at its July 30-31 meeting? Recent interest rate futures prices place an implied probability of about 90% on two or more interest rate cuts before yearend, a 60% probability on 3 or more cuts, and a 20% probability on 4 or more. Judging from the minutes of the Fed’s latest monetary policy meeting and its formal post-meeting statement, Fed policymakers have become considerably more amenable to a rate cut. The icing on the cake came in early July when Fed Chairman Jerome Powell strongly hinted during congressional testimony that a rate cut could be forthcoming shortly.
The Fed’s rationale for a shift toward a more dovish stance is the risk that uncertainties related to foreign growth, international trade, low inflation, and the federal debt ceiling (which could be hit in September) could yet cause a serious impediment to economic growth, and that a near-term easing of monetary conditions could be a form of insurance against that risk. In AMG’s view, however, global growth is already at or near bottom, U.S. economic expansion will sustain a reasonable growth trend (about 2% near term), wage growth will continue to accelerate, and inflation will not stall out below 2%. An easier monetary policy in 2019 is not needed and, if implemented, will probably be reversed in 2020.
July 10, 2019
Innovation’s next wave: software inventing software
“Software is eating the world.” Marc Andreessen, founder of Internet pioneer Netscape, made that prophetic statement in 2011, and it’s even truer today. Seven of the world’s biggest companies today are technology firms, up from three just eight years ago. But sustaining that rapid growth is becoming more difficult as the labor pool shrinks for computer scientists, and software engineers and developers. The unemployment rate for technology workers hit just 1.3% in May. Hiring development talent has become one of the greatest challenges for growing technology companies.
Eric Norlin of SK Ventures, a venture-capital manager with whom AMG works, recently speculated that software itself might offer the solution to the software-developer shortage. He noted that software already is helping invent new software and the trend is bound to accelerate as companies look to alleviate bottlenecks in development. AMG works with venture capital funds owning interests in several companies innovating in this field, including the following:
- InVision – a prototyping and collaboration tool that helps web engineers and designers more efficiently develop interactive mobile and desktop landing pages.
- LaunchDarkly – a computer-coding tool that any business can use to test, manage and improve software features. The platform allows companies to make different features available to select groups without shipping everything to everyone at the same time.
- Torii – a cloud-based management platform that helps IT managers discover, audit and control software-as-a-service apps used by employees.
- Coder – A cloud-based development platform that allows programmers to collaborate on the same code in real time.
June 20, 2019
Storm clouds gather, dissipate, gather again
AMG’s latest Notes on the Economy cited the emergence of a few green shoots in a field of weakening global economic data. However, more recent economic news has been decidedly mixed, and negative factors have attracted headlines, raising the question of whether the green shoots will lead to continued economic growth or be crushed by the hail of unfavorable developments.
June 13, 2019
Outlook for the U.S. Economic Expansion
The recent inversion of the 10-year – 3month U.S. Treasury yield curve—historically a warning of a U.S. economic recession—is a far less reliable indicator today than it was in the past. In a new white paper, Outlook for the U.S. Economic Expansion, AMG explains why we believe this indicator is less reliable today and identifies other key leading indicators that help provide an outlook for the U.S. economy.
June 6, 2019
Why has inflation remained so moderate while unemployment has dropped so low and overall economic output appears to be straining capacity?
One prominent reason is that inflation is extremely dependent on the public’s expectations of what inflation will or should be. Further, expectations are anchored in past experience and generally do not change quickly. Another reason is that labor force growth has outpaced demographic projections. A third explanation is that labor productivity growth has offset some of the increases in labor costs. Nonfarm business labor unit costs have seen a five-year annualized increase of only 1.1%.
May 30, 2019
Impact of China/U.S. Trade Dispute
There are plenty of downside risks to the global outlook. The most recent headline grabber is the ongoing China/U.S. trade dispute. The imposition of additional tariffs would, of course, create a drag on growth for both parties. For example, the maximum threatened additional U.S. tariffs on Chinese products would raise about $105 billion in annual taxes or about 0.5% of U.S. GDP, and that assumes (falsely) that U.S. buyers do not switch to any non-Chinese products. So, the main immediate direct risk to U.S. growth would not be more than a few tenths of a percentage point, and the effect on global growth would hardly be noticed. There are potential secondary impacts of the tariff dispute, such as possible disruptions to global supply chains, postponed investment decisions, deterioration of consumer and business confidence, and adverse impacts on global financial markets. Their effects on growth are harder to ascertain and could be significant, but we do not think the “trade war” will sink the US economy.
May 23, 2019
Can moving to a new state save me from high state taxes?
QUESTION: Now that the federal deduction for state and local taxes is gone, should I consider changing residency from my high income-tax state to one with lower or no state taxes?
ANSWER: It depends on whether you plan to actually move or if you are just switching residency between homes you already own. If you plan on moving, in addition to the social and lifestyle implications, you must take into account all of your taxes and cost-of-living adjustments. Most states with low income taxes make it up with higher property and sales taxes. There are plenty of online calculators to help determine the difference. If you are thinking about switching residency to a second home, be aware that it involves more than just declaring a change on your tax return. Many states are aggressive about pursuing people whom they do not believe have actually left their state.
Here’s some steps to help show you have moved:
• Mature like bonds while offering monthly interest payments.
• Diversification and low cost of an investment fund.
• Ease of trading and daily liquidity. They can be sold at any time.
• Easily laddered with yearly options.
May 16, 2019
Defined-Maturity Funds can help build a bond ladder
Many investors are discovering an innovative way to invest in tax-free municipal bonds. Defined-Maturity Funds (DMFs) focusing on muni bonds are funds that mature at predetermined dates and seek to provide federally tax-exempt monthly income.
The key benefits of DMFs:
• Mature like bonds while offering monthly interest payments.
• Diversification and low cost of an investment fund.
• Ease of trading and daily liquidity. They can be sold at any time.
• Easily laddered with yearly options.
A laddered bond portfolio takes individual bonds maturing in different years to build a portfolio that consistently provides matured proceeds, a helpful feature for many investors. While the principal returned at a DMF’s maturity varies from the original investment because of inflows and outflows into the fund, the difference will generally be lower than potential changes in a typical investment fund without a defined-maturity date.
May 9, 2019
Opportunity Zones offer big benefits, huge challenges
The Opportunity Zone investment program ushered in by the 2017 Tax Cuts and Jobs Act provides an unprecedented ability to reduce capital gains taxes. If an investor realizes and rolls a capital gain into a Qualified Opportunity Fund (QOF) this year and holds the investment for 10 years, he or she gets a step-up in basis on the original gain of 15% and pays no capital-gains tax on the new investment. These benefits could boost after-tax returns 2 to 6%, depending on the investment.
May 2, 2019
China’s “total social financing” influences economies globally
China’s financial influence has grown so fast and vast that its economic oscillations affect not only emerging markets around the globe, but also those in the United States and the rest of the developed world. Over the past 12 years, China has been seeking a more balanced economy, reshaping it away from manufacturing toward a more consumer-driven model in an effort to soften economic highs and lows. It has been a rocky transition at times. So the communist nation’s policymakers have been providing economic stimulus when facing financial crises. They have done so using a tool called “total social financing (TSF),” a broad measure of credit and liquidity in the economy. If economic growth slips too low, the centralized government has infused more cash into the monetary system using TSF.
April 22, 2019
Has the next bubble arrived?
Recently we were asked “Has the next bubble arrived?” prompted after a recent column by Robert J. Samuelson in the Washington Post. The column references the work of Eugene Steuerle of the Urban Institute and his warning “that the economy might be on the edge of a giant ‘wealth bubble’ that will collapse with possibly dire consequences.”
April 11, 2019
Slow but stable economy should churn on after setting economic-expansion record
The United States is on track to set a national record this summer for the length of an economic expansion. How long it may continue after that is anyone’s guess. Nearly a dozen countries in recent history have experienced expansions that have lasted 15 years or more; so it is conceivable that U.S. growth could continue for several more years.
So what will end this expansion? Click here to learn more.
April 1, 2019
Analytics can sometimes blind investors to reality
Common sense and the stock market: Some folks would suggest that’s an oxymoron. But AMG maintains that’s what’s needed to preserve and build a portfolio over time. Years ago, Warren Buffett suggested that measuring his return on equity was a reasonable way to judge his company’s success. His thinking was simple: If he could get a 9 to 10% average return while reinvesting the bulk of the profits, Berkshire Hathaway’s stock price would eventually reflect that and double every seven years. It seemed like a reasonable formula for determining success.
March 21, 2019
Finding help and financial security in the gig economy
Do you have a child, grandchild or other close relative working in the gig economy, the temporary labor market of short-term contracts or freelance work as opposed to permanent jobs? Do they have a plan for financial security? If not, encourage them to develop a relationship with a local banker, preferably one you or another family member already know and trust. The gig worker can benefit from the banker’s experience with known family members when it comes to assessing their financial needs.
March 14, 2019
What’s the biggest mistake investors make?
Buying high and selling low. Investors are plagued by human psychology. As a species, we learned to survive by paying close attention to recent events and assuming those events will be repeated. This strategy worked well for hunter-gatherers who quickly learned to flee from rustling bushes and to avoid eating white berries.
Unfortunately, in investing scenarios, this psychology leads many of us to buy stocks after share prices jump based on the assumption they will rise again. Similarly, we want to sell stocks after a price drop, thinking they will continue falling. This behavior leads to markets going on long runs either up or down based strictly on investor psychology. To make matters worse, many professional short-term traders are aware of this and jump on these trends, extending the movements even farther.
How does an investor cope with markets plagued with irrational decision makers? Any trend that can’t continue forever won’t. Eventually, markets revert to their long-term fundamental values. The key is to work with your advisor and examine every investment’s long-term potential. Then, have the courage to take some profits when stocks are rising and buy when the market is falling. This might cause some heartburn because it’s counter to our instincts, but that’s okay. You’re human after all.
March 7, 2019
Unicorns might run wild in 2019
Ride-sharing competitors, Uber and Lyft, are planning to drive their competition from the roads to the stock market in 2019, as each looks to shift from privately held to publicly traded. These moves could set off a wave of initial public offerings (IPOs) this year for several other high-profile unicorns—private, venture-backed companies with valuations in excess of $1 billion. Unicorns also working toward IPOs this year include Airbnb, Pinterest, Postmates and Slack.
February 26, 2019
Fed Chairman Powell Says Labor Force Participation Rate Key For Widespread Prosperity
In his February 26, 2019 Congressional Testimony, Fed Chairman Jerome Powell cited Labor Force Participation Rate (LFPR) as one of the key factors for increasing widespread prosperity in the United States. The Chairman cited the fact that the United States lags its peer group in LFPR, especially among young, uneducated men, as one of the main mitigating factors to such widespread prosperity. “It is a problem here that stands out relative to other countries.” Powell emphasized the need for legislative efforts to encourage work via retraining and eliminating disincentives for participation saying, “Incentives do matter, and if you go back to work, your pay should only go up.” A recent AMG White Paper, Wanted: GDP Growth at 3% or Higher; Needed: Higher Labor Force Participation Rate, helps to explain the concerns of the Fed Chairman and suggests some policy initiatives that Congress might want to consider to get people back to work.
February 21, 2019
Record junk-debt levels could mean trouble in downturn
Low interest rates since 2009 have driven yield-starved debt investors into riskier assets. The high-yield credit market now totals nearly $3 trillion split between high-yield bonds and leveraged loans. The growth of these markets has been spurred by a plethora of nonfinancial corporate debt, which stands at its highest level in U.S. history.
Click here to learn more, and look for an AMG white paper coming soon.
February 14, 2019
If China stimulates its economy, emerging-market equities might rally
Many emerging-market equities have more or less gone sideways since recovering from the 2008 financial crisis. Much of this price stagnation has been driven by China’s slowing economy, which dominates emerging markets in two ways. First, China’s economy is huge, and its equity market makes up 30% of the MSCI Emerging Market Index, a leading measurement of performance. Second, up until the early 2000s, emerging economies did business mainly with developed economies. But now emerging economies do business primarily with each other, and China is the nexus. Thus, any economic hiccup or government stimulus in China permeates emerging markets.
February 7, 2019
U.S. economy should slow in 2019 but keep on chugging to growth record
The U.S. economy is the little engine that could—it just keeps chugging along uphill. “I think I can. I think I can. I think I can.” And it shows no signs of derailing anytime soon. In fact, Americans this summer are likely to see the longest boom in U.S. history—a decade of continuous GDP growth. AMG National Trust Bank doesn’t anticipate a recession in 2019, although we expect growth to slow down a bit through 2020. It makes one wonder why America has all this sustained growth. Some reasons are obvious and some are not.
January 31, 2019
Sustainable investing allows investors to align their values with their investing.
How do you employ your capital? Do you invest in equities and bonds, or donate to charities and philanthropic endeavors? Many investors do both to achieve two different goals: financial returns and giving back to their communities. For those investors, these two goals represent mutually exclusive uses of their capital. Sustainable investing is a growing type of investing that may offer certain investors the ability to invest with both goals in mind. Similar investing is sometimes called Socially Responsible Investing or ESG (Environmental, Social and Governance) Investing.
January 25, 2019
Government shutdown should have little economic impact, unless…
The U.S. government shutdown—while disruptive to the lives of some 800,000 federal workers and bothersome to
millions of Americans in general—should not materially affect America’s 2019 first-quarter economic growth.
But the longer it continues, the more impact it could have. Click here to learn why:
January 17, 2019
Understanding Blockchain and Cryptocurrencies
Is the end near for Bitcoin and other digital currencies? What about the new technology on which they operate: blockchain? A new AMG Special Report, Understanding Blockchain & Cryptocurrency, delves into the technological, regulatory and market forces impacting blockchain and cryptocurrencies, and tells investors what to expect going forward.
January 10, 2019
Wanted: GDP Growth at 3% or Higher; Needed: Higher Labor Force Participation Rate
The U.S. Labor Force Participation Rate is expected to decline as the baby boomer generation retires, and key groups of workers, including prime-age men, are dropping out at alarming rates, threatening GDP growth. How can the U.S. increase its Labor Force Participation Rate to mitigate these trends? AMG’s white paper, Wanted: GDP Growth at 3% or Higher; Needed: Higher Labor Force Participation Rate, suggests that public policy solutions can help, with significant implications for investors.
January 3, 2019
Finding Value in Active Management
What can investors expect from active management? AMG’s white paper, Finding Value in Active Management, examines historical trends and reviews key items investors should consider when researching active managers.
December 27, 2018
Questions to Ask Yourself About Managing Your Wealth
Now that you have worked hard and have accumulated wealth, worrying about how to manage it and coordinating all the various advisors may have become burdensome. Knowing how all the “pieces fit together” can give comfort that allows you to enjoy what you have and may continue to create. If you are a little uneasy, taking an inventory on your wealth relative to who you are and your goals could help to put your mind at ease. AMG’s wealth management questions are intended to help you confirm your strategy in creating a strong wealth management plan, so you are well positioned for the future.
December 21, 2018
Building a Sound Financial Future
Taking a few moments to assess how you feel about your financial future can lead to a stronger commitment to finding the direction and focus needed to determine your financial goals and ultimately financial success for you and your family. AMG has found that creating a comprehensive financial strategy is one way to meet your goals, and while there are no guarantees about future financial success, you are more apt to meet your financial goals with a strategy. AMG has a simple quiz to help assess how well prepared you are for your financial future.