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3 Ways to Recession-Proof Your Company & Why Right Now Is the Best Time to Do It

David Barrett survived the Great Recession by making his business as boring as possible.In 2007, the founder and CEO of Expensify was trying to launch a prepaid debit card that would enable–and hopefully encourage–charitable giving to panhandlers in San Francisco. But, as forecasts of economic turmoil mounted, investors were interested only in ideas that sounded “sane and reasonable,” he says. So Barrett started pitching the safest related product he could imagine: an automated expense-report management system.

That worked; Barrett secured enough money to quit his full-time job in April 2008. He still intended to pursue the card idea, but soon hit a production snag–and with the economy in free fall, Barrett recalls thinking, “Shit, I really need to make a business out of this right now.” So he doubled down on business-expense management.

Almost 1.4 million small businesses with employees closed from 2008 through 2010, according to the U.S. Small Business Administration. Expensify, now with five offices and a staff of 120, wasn’t one of them–a feat Barrett attributes to those pre-recession pivots. They taught him to “build a product that is needed in a downturn,” he says. “Sell aspirin, not vitamins.”

Recession war stories may seem out of place during this prolonged period of economic growth, but there are signs that a slowdown is on the way. A June 2019 survey from the National Association for Business Economics put the risks of a recession beginning before the end of 2020 at 60 percent. A third of the 2019 Inc. 5000 CEOs expect a recession to begin this or next year, with another third bracing for one in 2021. Whenever the downturn hits, these steps can help your business weather it.

Fundraise.

Build your cash reserves while you can. Serial entrepreneur Mitch Grasso had a potential downturn in the back of his mind while raising capital for his latest venture, Beautiful.ai. The presentation software company raised $11 million in Series B funding in March 2018, just 17 months after a $5.25 million Series A round. “I chose to raise money earlier than I would have otherwise, even though it cost me probably a little more” in terms of valuation, says Grasso. “If there’s money on the table, take it sooner rather than later. You’ll always find a way to spend it.”

Conduct consumer research.

You might not be able to pivot your entire business model, so figure out what products and services your customers will need even in poor conditions, says Carlos Castelán, managing director of the Navio Group, a retail business consulting firm.

Ryan Iwamoto, co-founder of caregiving service 24 Hour Home Care, started asking his customers for their input when the federal government introduced sweeping rules for home health care agencies in 2016. He wanted to be “the first in market to educate them on all the regulations coming down in our industry,” Iwamoto says. “It allowed us to build better relationships”–and has helped boost his company’s revenue by more than 68 percent since the law changed, he reports.

Ink multiyear contracts with clients, not vendors.

Earlier this year, during a regular assessment of her company’s revenue targets, Sandi Lin considered the potential impact of an economic slowdown. The co-founder and CEO of Skilljar was happy to discover half of the customer training platform’s revenue was on multiyear contracts, meaning “at least theoretically, that even if all of our other customers went bankrupt,” Skilljar would have some runway–and less pressure to scramble for new business.

Lin applies the opposite approach for vendor contracts; while Skilljar is sponsoring a major customer conference this fall, she negotiated a minimal commitment on room nights and seats with the hotel and venue. Which is a smart business practice in good times, too; as Lin says, “the most important job of an entrepreneur is to survive.”

By: Jeanine Skowronski

Source: 3 Ways to Recession-Proof Your Company–and Why Right Now Is the Best Time to Do It

WATCH MY PREVIOUS VIDEO ► https://youtu.be/SCCMp_PVxz8 WATCH MY NEXT VIDEO ► https://youtu.be/9Pa7mAcKmXo ———————————————————– FINANCIAL STEWARDSHIP ACADEMY (USE DISCOUNT CODE: “FREEDOM” FOR 30% OFF) ► http://bit.ly/Buy-FSA-Webinar ———————————————————– ▼ 30 DAY GUIDE TO REDUCING STRESS AT WORK▼ ============== EBOOK FOR MOMS (30% OFF DISCOUNT CODE: STRESSFREE30) ► http://bit.ly/Reduce-Stress-eBook PAPERBACK (AMAZON) ► http://amzn.to/2yvaQaS KINDLE (AMAZON) ► http://amzn.to/2lUZ57W AUDIO (AUDIBLE) ► http://amzn.to/2oEp3sJ iBOOK (APPLE) ► http://bit.ly/StressiBook ———————————————————– FREE DETOX SYSTEM FOR MOMS ► http://bit.ly/10DayMBDS SMART MOM’S TRANSFORMATION SYSTEM ($100 OFF DISCOUNT CODE “TRANSFORM”) ► http://bit.ly/Buy-SMTS ———————————————————– Brief Overview: Small and Large businesses can get hit pretty hard during recessions so it’s important to choose a business that can withstand the ups and downs that come with the economy. There’s lots of different options and ideas to choose from if you are new to small business, but there’s also some ideas that you can choose to diversify your income streams if you already own a business or multiple businesses. The key is to pick a person, product, and/or company that you know, like, and trust to make sure you have the best chance of success during the ups and downs. ———————————————————– ▼ NEXT STEPS▼ ============== SUBSCRIBE ► http://bit.ly/LanceMcGowanYT SHARE ► This video with someone that would benefit from it COMMENT ► On what you liked most about this video! ———————————————————– ▼ SEARCH ▼ =========== #lancemcgowan #fsa #financial #financialstewardshipacademy #finances #finance #stewardship #biblical #bible youtube for more videos! ———————————————————– ▼ BUSINESS INQUIRIES▼ ===================== Email Lance at support@lancemcgowan.com with questions OR Email Tanner at frigaardtanner@gmail.com ———————————————————– ▼ SEND ME MAIL▼ ===================== Lance McGowan 11700 W Charleston Blvd #170-415 Las Vegas, NV 89135 ———————————————————– Disclaimer: The information contained on the Lance McGowan YouTube channel and videos are provided for general and educational purposes only and do not constitute any legal, medical or other professional advice on any subject matter. These statements have not been evaluated by the FDA and are not intended to diagnose, treat or cure any disease. Always seek the advice of your physician or other qualified health professional prior to starting any new diet or treatment and with any questions you may have regarding a medical condition. If you have or suspect that you have a medical problem, promptly contact your health care provider.

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Wall Street Wants You To Sell Now. Buy This 7% Dividend Instead

The most reliable recession indicator in the world just flashed red—and it’s actually setting us up for 33%+ gains in the next two years.

A contradiction? Sure sounds like it.

But history tells us we can expect a fast return like this when the economy and stock market look exactly like they do right now.

I’ve got two ways for you to grab a piece of the action, one of which even hands us a growing 7% cash dividend.

And when I say “growing,” I mean it: this already-huge cash stream has grown 96% in the last 15 years, and it’s backed by the strongest stocks in America (I’m talking about the 30 names on the Dow Jones Industrial Average), so there’s plenty more to come.

More on this cash-rich fund shortly. First, we need to talk about the “recession signal” everyone’s panicking about.

Recession Alert: Red

That would be the yield curve, which just “inverted” for the first time since 2007. This means the 2-year Treasury was briefly yielding more than the 10-year Treasury.

That shift grabbed a lot of headlines because every time the 2-year has yielded more than the 10-year, a recession has followed (though there’s typically a long time lag).

However, there’s a hugely important detail the mainstream crowd is forgetting—and that’s where the 33% gain I mentioned off the top comes in. I’m talking about what happened in 1998, when, like today, the yield curve briefly inverted, then “uninverted.”

What happened then?

Stocks exploded 33% post-inversion before a recession did eventually arrive.

Why the big jump? Because 1998 was unlike most periods of an inverted yield curve: shortly after the yields flipped, the Federal Reserve started cutting interest rates—and that’s exactly the situation we’re in today.

This is the opposite of what happened when the yield curve inverted in 1989, 2000 and again in 2006. During those periods, the Fed kept raising rates, and economists say those hikes made recessions worse—or even started them in the first place.

Only in 1998 did the Fed respond to the inverted yield curve by starting to cut rates—and then, when the central bank went back to raising rates two years later, the recession followed in about a year.

Funny thing is, no one is talking about this right now, and it’s critical, because it tells us that the chances of a recession in the near term largely depend on what the Fed does. And with the Fed now cutting rates, a recession could be delayed for over two years. And that means letting fear get the better of you and moving to the sidelines now could cause you to miss out on a double-digit gain.

Here’s something else that tells us a recession is nowhere near: earnings blew out expectations in the second quarter, and analysts now expect profits to grow in the third quarter of 2019. Sales are still up about 4% across the board for S&P 500 companies, and US GDP growth is slated to come in above 2% this year.

This is where the two funds I want to show you today come in—they position you to profit if it’s 1998 all over again, but, just in case things do take a sudden downward turn, they build in a bit of protection, too.

The first (but not my favorite) fund is a plain-vanilla ETF, the Dow Jones Industrial Average ETF (DIA), which, as the name says, holds the 30 companies in the Dow Jones Industrial Average. Because of its large-cap focus, the Dow largely tends to track the SPDR S&P 500 ETF (SPY) when stocks rise, and it falls less in a declining market.

However, you’re missing a far more important piece of downside protection when you go with DIA: a strong income stream (DIA yields just 2.1% as I write this). And a serious dividend is critical when the next downturn hits, especially if you’re counting on your portfolio to fund your lifestyle. That’ s because a strong dividend reduces the need to sell your holdings in a crash—at fire-sale prices—to access cash.

This is where a closed-end fund (CEF) like the Nuveen Dow 30 Dynamic Overwrite Fund (DIAX) really shines. DIAX also holds the “Dow 30”: household names like Home Depot (HD), McDonald’s (MCD) and Apple (AAPL), but with a big difference from DIA: a 7% dividend yield—over three times bigger than DIA’s payout.

Plus, it offers something few high-yield stocks and funds do: a dividend that’s growing.

Holding DIAX will get you exposure to stocks, no matter what happens, and an income stream you can depend on. That’s a lot better than letting yield-curve fears force you to the sidelines—where you’ll miss out on solid returns.

Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Safe 8.5% Dividends.”

Disclosure: none

I have worked as an equity analyst for a decade, focusing on fundamental analysis of businesses and portfolio allocation strategies. My reports are widely read by analysts and portfolio managers at some of the largest hedge funds and investment banks in the world, with trillions of dollars in assets under management. Michael has been traveling the world since 1999 and has no plans to stop. So far, he’s lived in NYC, Hong Kong, London, Los Angeles, Seoul, Bangkok, Tokyo, and Kuala Lumpur. He received his Ph.D. in 2008 and continues to offer consulting services to institutional investors and ultra high net worth individuals.

Source: Wall Street Wants You To Sell Now. Buy This 7% Dividend Instead

A Recession Won’t Wreck Your Retirement…But This Will

Here is what matters if you’ve made it and want to keep it.Do the financial markets have your attention? I assume so. After all, Wednesday’s 800-point drop in the Dow was the worst day in the U.S. stock market this year. And while many investors missed it, the December 2018 plunge in stock prices capped off a 20% decline which started in October. That could have put a big divot in the plans of folks recently retired or in the late stages of their careers.

Stumbling at the finish line?

Demographics tell us that there is massive group of people who are between 55 and 70 years old. They are the majority of the “Baby Boomer” generation. Many of them have built very nice nest eggs, thanks to a robust U.S. economy over the last 40 years. That period of technological innovation and globalization of the economy also produced four decades of generally falling interest rates. That’s provided a historic opportunity to build wealth, if you saved well and invested patiently.

But now here we are, with a stock market near all-time highs and interest rates crashing toward zero. The tailwind that lifted Baby Boomers in their “accumulation” years may flip to a headwind, just in time for them to start using the money.

Focus on what matters

At this stage of their investment life, Baby Boomers are tempted from all directions. They are told to bank on index funds, 60/40 portfolios, structured products and private partnerships. And, while there are merits to each, I am telling you what I see as someone who has been hanging around investment markets since this Baby Boomer was a Wall Street rookie in the beloved World Trade Center in NYC: much of it is bunk. It’s a distraction. It’s a sales pitch.

Take these over-hyped attempts by wealth management firms to boost their bottom line and scale their businesses, and bring your attention to your own priorities. Today, as much as any time in the past 10 years, your focus should be on true risk-management.

That does not necessarily mean running to cash. That is an outright timing move, and it borders on speculation. But it does mean that the intended use of your accumulated assets (when you need it, how much you need, and how you will navigate the markets of the future) should be

inward-looking. It should not be based on trying to guess what the stock market is going to do.

Rate cut? Check. Inversion? Check. Giant stock market drop? We’ll see.

uncaptioned
Source: ycharts.com

The big news on Wednesday was the “inversion” of a closely-watched part of the U.S. Treasury yield curve. Translated to English, that means for the first time since 2007, U.S. Bonds maturing in 10 years yielded less than those due in 2 years. This is far from the first inversion we have seen between different areas of the Treasury market. However, it is the one that is most widely-followed as a recession warning signal.

The chart above shows 3 things that were essentially in sync around the time the last 2 stock bear markets began. The 10-2 spread inverted, but then quickly reverted to normal. The Fed cut interest rates for the first time in a while. And, the S&P 500 peaked in value, and fell over 40% from that peak.

Let that sink in, given what we have witnessed in just the past 2 weeks. Then, fast-forward to today, where we find ourselves in a very similar situation regarding inversion and the Fed. See this chart below:

uncaptioned
Source:ycharts.com

What stands out the most to me in that chart is how the spread between the 10-year and 2-year yields is almost perfectly opposite that of the S&P 500’s price movement. That is, when the 10-2 spread is dropping, the S&P 500 is usually moving higher. But when that spread starts to rise, at it is likely to soon, the S&P 500 falls…hard. As a career chartist, I just can’t ignore that.

I have been writing about the threat of an eventual “10-2 inversion” in Forbes.com since April, 2017. It finally happened this week, 19 months into what increasingly looks like a period of muted returns for investors. That is, if they follow rules identical to those they followed for the past 10 years.

Recessions are bad, but this is worse

We saw on display this week what I have been talking about since early last year: that it will not take the declaration of a recession to tip the global stock market into a panic-driven selloff that rips through retirement efforts. All that is needed is for stock prices to follow through to the downside is to actually see the market react to the preponderance of evidence that has been building for a while now.

In other words, it is the market’s fear of the future (recession) and not the actual event that is most important. By the time a recession is officially declared, you won’t need to react. The damage will already be done.

Specifically, a slowing global economy, excessive “easy money” policies by the Fed and its global counterparts, and a frenzied U.S. political environment. This has shaken investor confidence, and now the only thing that ultimately matters in your retirement portfolio: the prices/values of the securities you own, is under pressure.

What to do about it

First, don’t fall prey to the hoards of market commentators whose livelihood depends on progressively higher stock prices. Corrections are not always healthy, diversification is often a ruse, and long-term investing is for 25 year-olds!

For those who have “fought the good fight” to get to the precipice of a retirement they have darn well earned, the last thing they want is to have this inanimate object (the financial markets) knock them back toward a more compromised retirement plan.

The best news about today’s investment climate is that the tools we have to navigate through them are as plentiful as ever. Even in a period of discouragingly low interest rates for folks who figured on 4-6% CDs paying their bills in retirement, bear markets in stocks and bonds can be dealt with, and even exploited for your benefit.

Bull or bear? You should not care!

Maybe this is not “the big one” that bearish pundit have been warning about. Perhaps it is just another bump in the road of a historically long bull market for both stocks and bonds. But again, market timing and headline events like 10-2 spreads, recessions and the like are not your priority.

What your priority is, if you want to improve your chances of success toward and through retirement, is something different. Namely, to get away from the jargon and hype of financial media, simplify your approach, and take a straightforward path toward preserving capital in a time of uncommon threats to your wealth. I look forward to sharing insight on that in the coming days.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors

To read more, click HERE

Follow me on Twitter or LinkedIn. Check out my website.

I am an investment strategist and portfolio manager for high net worth families with over 30 years of industry experience. A thought-leader, book author and founder of a boutique investment advisory firm in South Florida. My work for Forbes.com aims to break investment myths and bring common sense analysis to my audience. Connect with me on Linked In, follow me on Twitter @robisbitts. Visit our website at www.SungardenInvestment.com

Source: A Recession Won’t Wreck Your Retirement…But This Will

Creative Planning President and Founder Peter Mallouk discusses why he thinks the economy is in good shape, who should look to alternative investing and how to invest for retirement. He also discusses why he is not a fan of crypto.

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Is This Really A Currency War Or Just A Tantrum?

Since the People’s Bank of China (PBOC) allowed the yuan to surpass the dreaded level of 7 to the dollar on August 11, rivers of ink have flowed citing a new matter of contention between the U.S. and China, namely using currencies to gain competitiveness or, more simply, a “currency war.”

To describe the events as a currency war may seem logical because another type of “war” between the U.S. and China, namely the trade war, has been on everybody’s mind for the past year and a half. Moreover, the Trump administration itself has continued this game by classifying China as a “manipulator” of its currency immediately after this latest devaluation.

In the same way as the U.S. Treasury is not following its own script when classifying China as a currency manipulator, neither should we think of the yuan mini-devaluation as China initiating a currency war with the U.S. The reason is simple: the yuan–which is not convertible–cannot afford a war with the dollar, nor can the U.S. Federal Reserve control its currency so as to use it as a weapon against China.

In other words, neither of the two rivals have the instruments to successfully engage in a currency war against each other. Starting with the dollar, there is no doubt that its value is determined by the market, as it could not be otherwise being the reserve currency of a world still governed by flexible exchange regimes for major currencies.

The Fed can influence the dollar with expansive or restrictive monetary policies, but there are many other factors that it and the Treasury simply cannot control. One important factor is risk aversion: the more the Trump administration tightens the screws on China and, thereby increases the risk of recession globally, the more the dollar appreciates, contrary to what Trump wants.

Moving to the yuan, the PBOC is much closer to determining its value than the Fed can for the dollar, as it retains control on capital flows and does not need to intervene in a highly liquid forex market like that of the dollar. Nevertheless, the reality is that capital is ubiquitous, so capital controls will never be completely effective.

In other words, the value of the yuan is not exempt from the forces of demand and supply, nor is its value in the medium term, no matter what the PBOC may opt to do on a specific date or period. Considering the yuan’s mini-devaluation, the beginning of a currency war is a mistake for one more very important reason. The PBOC has accommodated market pressure by devaluing while central banks tend to move against the market during currency wars.

It’s true, though, that the timing of the devaluation could mislead us towards the idea of a China-initiated currency war because it happened right after the U.S. announcement of additional import tariffs on Chinese products.

More than a war, we should see this reaction as a tantrum of Chinese policy makers facing additional pressure from the U.S. Besides, as happens for every tantrum, its consequences may not be the desired ones as such mini-devaluation will only prompt more capital outflows from China, undoing part of the monetary stimulus that the Chinese central bank has been carrying out for more than a year to sustain economic growth. In other words, it will not help China to grow, but rather the opposite.

Thus, it is important to distinguish between a war and a tantrum. In the former you control your weapons, in the latter you do not.

I’m the chief economist for Asia Pacific at Natixis. I also serve as a senior fellow at European think-tank BRUEGEL and am a non-resident research fellow at Madrid-based political think tank Real Instituto Elcano. I am also is an adjunct professor at the Hong Kong University of Science and Technology and member of the advisory board of Berlin-based China think-tank MERICS, an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR) and the Asian Development Bank (ADB) as well as a member of the board of the Hong Kong Forum and cofounder of Bright Hong Kong. I hold a Ph.D. in economics from George Washington University and have published extensively in refereed journals and books. I’m also very active in international media as well as social media. As recognition of my leadership thoughts, I was recently nominated TOP Voices in Economy and Finance by LinkedIn.

Source: Is This Really A Currency War Or Just A Tantrum?

China allowed its currency to fall below the key 7 yuan-per-dollar level for the first time in more than a decade. CNBC’s Eunice Yoon joins “Squawk Box” with the details.

The Week Recession Talk Grew Very Loud

Topline: Recession fears—which have gone up and down and back up just in the past nine months—suddenly seem here to stay for the foreseeable future, as global growth slows to a crawl amid trade war fears. Here’s what happened this week, along with key reactions:

  • Goldman Sachs issued a note Monday saying a trade deal between the U.S. and China is not expected to be made before the 2020 presidential election.
  • On Tuesday, Trump walked back planned tariffs on China, delaying some until after holiday shopping, his first acknowledgment that tariffs impact U.S. shoppers.
  • On Wednesday, Germany’s economy was reported to have shrunk as it contends with Trump’s tariffs and trade war with China.
  • Trump also blasted the Federal Reserve Wednesday on Twitter, as he blamed the central bank for dragging down the U.S. economy and returns on government bonds.
  • Then Wednesday’s close registered the worst stock performance of 2019, as investors were spooked by Germany, China and the much-discussed inverted yield curve.
  • China responded on Thursday by promising a retaliation, threatening “necessary countermeasures.”
  • Global markets responded, with the Nikkei and FTSE 100 closing down over 1% Thursday.
  • By Friday, the Dow rebounded 300 points before closing bell, while the S&P recovered 40 points and the tech-heavy NASDAQ bounced almost 130. But the Dow still lost 1.5% for the week, while the S&P edged slightly down at 0.3%.
  • Globally, the FTSE 100 regained 50 points, while the Nikkei recovered 13 Friday, but both indexes ended the week lower than where they started.
  • Analysts pegged the stock market’s slight Friday recovery to an increase in government bond yields.

Key background: The yield curve is the difference in interest rates (or returns) between short-term and long-term bonds. Usually, investors get more money when they invest in 10-year bonds over three-month short-term bonds. The yield curve is also a pretty accurate historical predictor of recessions, so when it happens, economists and investors alike get worried. This year, the yield curve inverted in March and May, and it happened again Wednesday, contributing to the stock market’s tumble.

Further reading:

Why Trade War Plus Yield Curve Equals Recession (John T. Harvey)

Markets Panic For The Second Week In A Row (Milton Ezrati)

Fed Poised To React Swiftly To Persistent Yield Curve Inversion, With More Rate Cuts (Pedro Nicolaci da Costa)

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I’m a New York-based journalist covering breaking news at Forbes. I hold a master’s degree from Columbia University’s Graduate School of Journalism. Previous bylines: Gotham Gazette, Bklyner, Thrillist, Task & Purpose, and xoJane.

Source: The Week Recession Talk Grew Very Loud

 

Three Reasons Recession Fears Have Suddenly Increased

Topline: Falling stocks, trade wars and an inverted Treasury yield curve are three signs that analysts say are predicting a U.S. recession—the only problem, however, is that no one can definitively tell when (or if) one will actually happen.

  • The White House announced Tuesday it would delay some China tariffs from September 1 until December 15, causing the Dow Jones Industrial Average to zoom up nearly 500 points by mid-morning.
  • Stocks fell Monday and were predicted to decline Tuesday, as uncertainty mounts for a China trade deal and global economic health.
  • After Trump surprised the world with more tariffs on Chinese goods, Goldman Sachs analysts estimate a new trade deal will not materialize before the 2020 election.
  • In the bond market, an inverted Treasury yield curve—long used by economists as a recession predictor—is nearing the same level it had reached before the 2007 recession.
  • Bank of America analysts said the odds of a recession happening in the next year are greater than 30%.
  • And Morgan Stanley analysts predict a recession in the next nine months if the trade war between the U.S. and China continues to escalate.
  • Overall, economists cannot accurately forecast recessions, but they suggest de-escalating the trade war with China could soothe fears—and help Trump’s reelection chances.

Surprising fact: Analysis by the New York Times found that recent economic downturns occur in late summer. August of 1989, 1998, 2007, 2011 and 2015 all saw slowdowns.

Key background: One of the Trump’s key platforms is a strong economy, and the stock market has reached historic highs since he assumed office. The President has often used Twitter to demand economic changes, like interest rate cuts and trade deals, and the markets tend to respond to the president’s Twitter proclamations, but it remains to be seen if the economy will continue to grow.

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I’m a New York-based journalist covering breaking news at Forbes. I hold a master’s degree from Columbia University’s Graduate School of Journalism. Previous bylines: Gotham Gazette, Bklyner, Thrillist, Task & Purpose, and xoJane

Source: Three Reasons Recession Fears Have Suddenly Increased

 

Russians Pulling Out Credit Cards & Consumer Debt Spirals

MOSCOW — Yekaterina V. Bulgakova gushed about the cozy one-room apartment that she and her boyfriend share, and particularly about the way they could always cover the rent: by charging it on credit card.

“Our salaries don’t go far enough” to pay for housing, food and other necessities every month, Ms. Bulgakova, a tattoo artist, said.

She earns about 35,000 rubles, or $560, a month, which she considers a good paycheck for a young person. Her boyfriend, a naval cadet, receives a monthly military stipend of $480. Together, their income is above the average monthly wage in Russia of about $735, and it usually covers their expenses. But every few months, Ms. Bulgakova has a drop in business. That’s when she relies on her credit card from Tinkoff, a large private bank.

“Nobody wants to go into debt,” Ms. Bulgakova, 21, said. Yet millions of Russians like her are doing just that, spurring a boom in consumer lending.

The growth in such lending has alarmed some economic policy officials, who note that a growing number of Russians are using a quick swipe of plastic or relying on payday lenders to cope with hard times brought on by Western sanctions and slumping prices for oil, one of the country’s major export commodities. The spending has lifted the economy but with ballooning consumer debt that could help start a recession.

Since the onset of Russia’s military interventions in Ukraine and the ensuing sanctions, total outstanding personal debt among Russians has roughly doubled, according to the country’s central bank. Outstanding average debt per person has reached about $3,300, according to the National Association of Professional Collection Agencies, a trade group whose membership has grown by a third since the crisis began in 2014.

Some independent and government economists say that the personal credit industry has found a mother lode in a population that was wholly debt-free when it entered the capitalist era a generation ago. Others warn that the industry’s expansion is unsustainable.

A pawnshop in Moscow. Many first-time credit card users have little experience managing debt. And with Russia facing other economic woes, these spenders are also seeing their inflation-adjusted salaries decline.
CreditMax Avdeev for The New York Times

Many first-time credit card users have little experience managing debt. And with Russia facing other economic woes, these spenders are also seeing their inflation-adjusted salaries decline.

Elvira S. Nabiullina, the central bank’s chairwoman, has played down the problem while also imposing some regulatory restrictions to slow consumer lending. “It’s absolutely wrong to think that already now we have risks to financial stability or a risk of a bubble,” Ms. Nabiullina said at an economic conference in St. Petersburg last month.

The central bank has tried to cool the market by raising so-called provisioning requirements that dictate how much money banks must set aside to insure against defaults and by capping the amount of interest that payday lenders can charge at 1 percent per day, still a steep 30 percent a month.

Debt payments are taking a bite out of some slim paychecks: Low-income households spend an average of 8 percent of their monthly incomes on debt payment, according to the central bank. Surveys show that most borrowers are 25 to 35 and that they are taking more than three loans from different sources, according to Vladimir Tikhomirov, the chief economist at BCS Global Markets.

There were warnings from others at the St. Petersburg conference, where Russian officials laid out their economic priorities for the year. Andrey R. Belousov, an economic adviser to President Vladimir V. Putin, said the debt market was “overheating.” Maksim S. Oreshkin, the minister of economy, warned that the surge in short-maturity consumer debt could bring on a recession within two years.

“You had a similar story in the United States,” with debt rising faster than salaries before the recession in 2008, Mr. Tikhomirov said.

In the first quarter of 2019, real incomes fell 2.3 percent from the same period a year earlier. Over the same three months, the amount of newly issued unsecured consumer debt rose 22 percent.

Consumer lending in Russia, as elsewhere, benefits the economy by sustaining consumer demand. The lending boom may have prevented a recession in the first quarter, according to a central bank report published in June. State-owned banks issued the bulk of this credit, about 70 percent, the report said, suggesting that the Kremlin has at least partly endorsed the rise in consumer lending.

CreditMax Avdeev for The New York Times

For some Russians, personal debt is akin to the garden plots of their parents’ generation. In that era of post-Soviet economic depression, many families short on money grew their own food, transforming their kitchens into storerooms of pickled vegetables, dried mushrooms and sacks of homegrown potatoes.

Despite the wretched poverty of those years, Russians entered the country’s capitalist era with some advantages. Families had no debt, and virtually every adult wound up owning the property where they lived. But they were also unschooled in matters of lending or in calculating reasonable levels of debt. And they were unprepared for a rush of predatory lenders offering quick loans burdened with high rates.

At the end of 2018, there were 2,002 payday lending companies in Russia, with many operating from storefronts in provincial towns and offering one-month loans with interest rates compounded daily. Established banks joined in, offering loans and credit cards with quick approvals.

Igor Kostikov, chairman of the Union for Protecting Financial Consumers, an advocacy group for debtors, said that poor Russians were accumulating payday-lending debt. “They are getting deeper and deeper in trouble,” he said. “The poorest will not be able to repay.”

On Vkontakte, a social media site, Russians swap stories of debt and bankruptcy, revealing the naïveté of their experience with debt.

One user, who identified herself as Helga, wrote seeking free legal advice. “Respected lawyers! I have an opportunity to take a loan of three to five million” rubles, or $48,000 to $80,000. “If I take it out, pay a few times, and then declare bankruptcy, what problems might arise?” She mused about possibly using the money for a down payment on a home.

Helga’s optimism might be crushed if she considered the realities of debt collection. Russian debt collectors are notoriously violent. The state allows court bailiffs with minimal oversight to enter homes to confiscate televisions or other valuables to offset debts. Scofflaws face harsh punishment, including a ban on foreign travel.

Ms. Bulgakova knows credit can cause trouble, but she and her boyfriend believe that they can stay afloat. She likened their experiment with debt to her approach to tattoos. “We are trying this out on our own skin,” she said. Credit has helped them afford their St. Petersburg apartment, and comfort is important in these uncertain times. So far, she has paid off her debts promptly.

“I want to say thanks that I can at least keep up this lifestyle” by using credit, she said. “But it would be better if I didn’t have to.”

By

 

Source: Russians Pulling Out Credit Cards, and Consumer Debt Spirals

 

Can Davao City Become The Philippines’ Next Investment Destination?

Perhaps the Philippines’ most underrated investment destination is its largest city in terms of area. Davao City has long attracted adventurous entrepreneurs and businesses for its rich natural resources and opportunities for economic growth, and yet, security issues in the southern region of Mindanao continue to deter many investors.

Drive through Davao City and you’ll see the tell-tale signs of a growing metropolis–high-end condos and malls, construction sites and traffic congestion. Philippine President Rodrigo Duterte is credited with bringing progress to the hometown he led as mayor

for more than two decades before moving to Malacañang Palace. Today, his children are following in his footsteps: daughter Sara Duterte-Carpio is the current mayor and his son Paolo is a congressman and other son Sebastian is city vice mayor.

In the private sector, wealth and power remain mostly in the hands of the homegrown elite: pioneer families unfazed by global stigma who invested in the city’s agribusiness, real estate, logistics and infrastructure thought too risky by their counterparts in the north. Meantime, bold foreign investors saw profit potential in this “Wild West” and blazed a trail–like Lars Wittig, country manager of Regus & SPACES by IWG Philippines.

Wittig began seeking new markets in Mindanao some 30 years ago, first for tobacco giant Philip Morris, then Dole’s plantation empire, and now for a leading operator of flexible workspaces. He says one of the biggest indicators that Davao was the place for Regus to invest was the number of gas stations, McDonalds and even the Starbucks he saw in 2012.

“This is really becoming a ground zero for all types of industries to venture into,” Wittig explained, noting the need to alleviate the burden on Metro Manila and shift operations to tier two cities like Davao. “We all know how difficult it is to maintain productivity [in Manila] and meanwhile down here, there’s less competition for a very young and IT-savvy population.”

Last month, local government and business leaders sought to sell an image of openness and security at the 5th biennial investment conference Davao ICON with the theme “Davao: Your Southeast Asian Investment Destination.” It was the first to be co-organized with the Joint Foreign Chambers of Mindanao, with a third of 600+ delegates coming from China, Japan, Singapore, South Korea, Malaysia, Indonesia, Russia, Mexico, and European Union countries, including the Netherlands, Sweden, France, Belgium, Romania, Hungary and Austria, many of which sent their official ambassadors based in Manila.

“We hope they will find investment opportunities here to present to their business councils and business groups,” Mayor Duterte-Carpio said after meeting the ambassadors, reassuring them that she would ask the city council to draft a resolution requesting President Duterte to consider localizing martial law to help ease foreign investors’ concerns. She admitted that martial law may not be needed for the entire region.

Leaders in the private sector say that while foreign nationals view a militarized presence in Mindanao as negative, residents and business owners welcome soldiers as support for local law enforcement, considering the region’s history and culture.

The real challenge will be taking the positive messaging and translating it into actual business deals. Aside from the long-time presence of Japanese and Chinese investors, international investment from western countries is relatively small, ranging from Swedish company Transcom Holdings’ acquisition of local BPO firm Awesome OS to Dutch experts’ work in supporting the local cacao industry.

Philippine President Rodrigo Duterte speaks to the media after arriving in Davao on May 16, 2017, from a working visit to China.

Philippine President Rodrigo Duterte speaks to the media after arriving in Davao on May 16, 2017, from a working visit to China.

MANMAN DEJETO/AFP/Getty Image

With President Duterte’s “Mindanao First” policy, more countries are exploring the region’s potential as an economic partner, rather than a beneficiary of funding for conflict resolution. Davao’s business community touted the region’s strong economic growth of 8.6% in 2018, outpacing that of the country’s GDP, which came in at 6.2%.

Mayor Duterte-Carpio pointed to efforts to improve international connections, including direct flights to/from Hong Kong, Jinjiang and Doha, and incentives for investors to inject money into rural communities. City officials touted deals with Austrian companies and Chinese firms like China Telecom and Alibaba, as well as increased official development assistance from entities like the Japan International Cooperation Agency and the Asian Development Bank. The new Bangsamoro Autonomous Region in Muslim Mindanao, or BARMM, is also focusing on economic development to support the peace process.

The message? Davao City is an attractive alternative to overcrowded Manila and Cebu, and hungry for investment partners, particularly in tourism, infrastructure, real estate, information and communication technology, and halal trade and tourism.

“You have to come and see,” says Regus’ Wittig. “You don’t know the Philippines before you have experienced the hospitality, the people, the culture, not least the nature here in Mindanao and

specifically in Davao.”

I’m an international news anchor, Asia correspondent and freelance content creator based in Manila, with 20 years of experience in news, business and lifestyle reporting, producing and anchoring across Asia and the United States, including Singapore, New York City, Washington, D.C., and Los Angeles. In 2017, I launched ABS-CBN News Channel’s morning newscasts Early Edition and News Now as lead anchor and managing editor and hosted the popular “Food Diplomacy” segment. From 2013-2016, I was an anchor/correspondent for Channel NewsAsia and hosted “What’s Cooking,” a weekly food and travel show. Before moving to Asia, I worked in New York as an anchor, reporter and editor for several major media companies, including Forbes, CNBC, HGTV, Yahoo and Bloomberg. Born in Los Angeles, I graduated from UCLA and Columbia University’s Graduate School of Journalism.

 

Source: Can Davao City Become The Philippines’ Next Investment Destination?

Trade War Is Hiding China’s Big Problems

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Getty

The ongoing US-China trade war is a distraction from China’s big problems: the blowing of multiple bubbles and the country’s soaring debt, which will eventually kill economic growth.

It happened in Japan in the 1980s. And it’s happening in China nowadays.
The trade war is one of China’s problem that dominates social media these days. It’s blamed for the slow-down in the country’s economic growth, since its economy continues to rely on exports. And it has crippled the ability of its technology companies to compete in global markets.
But it isn’t China’s only problem. The country’s manufacturers have come up with ways to minimize its impact, as evidenced by recent export data. And it will be solved once the US and China find a formula to save face and appease nationalist sentiment on both ends.
One of China’s other big problems , however, is the multiple bubbles that are still blowing in all directions. Like the property bubble—the soaring home prices that makes landlords rich, while it shatters young people’s dreams of starting a family, as discussed in a previous piece here.

New Home Prices 2015-19

New Home Prices 2015-19

Koyfin

Unlike the trade war, that’s a long-term problem. Low marriage rates are followed by low birth rates and a shrinking labor force, as the country strives to compete with labor-rich countries like Vietnam, Sri Lanka, the Philippines and Bangladesh—to mention but a few.
Then there’s the unfavorable “dependency rates” — too few workers, who will have to support too many retirees.
And there’s the impact on consumer spending, which could hurt the country’s bet to shift from an investment driven to a consumption driven economy.
Japan encountered these problems over three lost decades, even after it settled its trade disputes with the US back in the 1980s. China experience many more.
Meanwhile, there’s the infrastructure investment bubble at home and abroad, as discussed in a previous piece here. At home infrastructure investments have provided fuel for China’s robust growth. Abroad infrastructure investments have served its ambition to control the South China Sea and secure a waterway all the way to the Middle East oil and Africa’s riches.

City overpass in the morning

City overpass in the morning

Getty

While some of these projects are well designed to serve the needs of the local community, others serve no need other than the ambitions of local bureaucrats to foster economic growth.
The trouble is that these projects aren’t economically viable. They generate incomes and jobs while they last (multiplier effect), but nothing beyond that—no accelerator effect, as economists would say.
That’s why this sort of growth isn’t sustainable. The former Soviet Union tried that in the 1950s, and it didn’t work. Nigeria tried that in the 1960s ;Japan tried that in the 1990s, and it didn’t work in either of those cases.
That’s why bubbles burst – and leave behind tons of debt.
Which is another of China’s other big problem s.
How much is China’s debt? Officially, it is a small number: 47.60%. Unofficially, it’s hard to figure it out. Because banks are owned by the government, and give loans to government-owned contractors, and the government owned mining operations and steel manufacturers. The government is both the lender and the borrower – one branch of the government lends money to another branch of government, as described in a previous piece here.
But there are some unofficial estimates. Like one from the Institute of International Finance (IIF) last year, which placed China’s debt to GDP at 300%!
Worse, the government’s role as both lender and borrower concentrates rather than disperses credit risks. And that creates the potential of a systemic collapse.
Like the Greek crisis so explicitly demonstrated.
Meanwhile, the dual role of government conflicts and contradicts with a third role — that of a regulator, setting rules for lenders and borrowers. And it complicates creditor bailouts in the case of financial crisis, as the Greek crisis has demonstrated in the current decade.

Follow me on Twitter.

I’m Professor and Chair of the Department of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. I’ve have also published several books, including Collective Entrepreneurship, The Ten Golden Rules, WOM and Buzz Marketing, Business Strategy in a Semiglobal Economy, China’s Challenge: Imitation or Innovation in International Business, and New Emerging Japanese Economy: Opportunity and Strategy for World Business. I’ve traveled extensively throughout the world giving lectures and seminars for private and government organizations, including Beijing Academy of Social Science, Nagoya University, Tokyo Science University, Keimung University, University of Adelaide, Saint Gallen University, Duisburg University, University of Edinburgh, and Athens University of Economics and Business. Interests: Global markets, business, investment strategy, personal success.

Source: Trade War Is Hiding China’s Big Problems

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Private Sector GDP Growth is Kind of Anemic

Today’s GDP report got me curious about something: how does private sector GDP compare to total GDP? That is, if you pull out government contributions to GDP growth, what does purely private-sector growth look like? Here it is:

Private sector growth has been declining since the start of the expansion, and that decline has picked up speed over the past two years. It’s no wonder President Trump was so eager to agree to sizeable increases in the federal budget this week. He knows perfectly well that his tax cut has worn off and he needs all the help he can get from government spending to prop up an increasingly anemic private sector. For the next year, anyway.

Personal consumption was up a healthy 4.3 percent, but business investment plummeted -5.5 percent. Exports were down and imports were flat. Federal government spending added more than usual to GDP by about 0.4 percentage points. State government spending was also higher than average, by about 0.2 percentage points. If government spending had been at normal levels, GDP would have increased 1.5 percent instead of 2.1 percent. Inflation was higher than last quarter.

Overall, this is an OK but not great GDP report for the private sector, saved only by higher government spending.

The most remarkable thing about Donald Trump is how eerily stable his approval rating is. Here is 538’s chart over the past year:

After the Republican tax cut passed in late 2017, Trump’s approval rating rose to 41 percent and it’s stayed within two points of that ever since. I don’t know if this is good or bad—bad for Trump, I suppose, since that’s a tough re-elect number—or if there’s much Trump can do to improve it. But it’s definitely unusual. It sure looks like nearly everyone has their mind made up about Trump and isn’t likely to change it.

 

Source: Private sector GDP growth is kind of anemic

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