The Longview: 2015 Outlook
January 21, 2015
Clients of EisnerAmper Personal Wealth Advisors face the challenge and opportunity of both preserving and growing wealth. They weigh the elements of risk against potential for reward, and focus to ensure wealth strategies are built and goals are established – with both being adjusted over time.
Clearly stated goals are the hallmarks of implementing successful wealth strategies. We believe that when setting goals, it is always worthwhile to examine the economic and geopolitical factors which exert significant influence over wealth-related decision making. As we look back at 2014 and ahead into 2015, the following are the primary concerns.
From a macro-economic perspective, a number of events captured share-of-mind in 2014 and will most likely continue to impact planning in 2015: the proxy war in the Ukraine, the wide-ranging impact of the decline in oil prices, the buoyancy and volatility of the equity markets, global interest rates at almost zero over an extended period of time, an improving American economic performance, and a Republican House and Senate.
- 2014 was a year of increased global equity volatility largely arising from changes in U.S. monetary policy, geopolitical events, and election year changes in America’s political and social views regarding the economy. Abroad, uncertainty in Russia and the conflict in Ukraine contributed to a 14.5% fall in the German stock market. Brent crude collapsed nearly 40% in 2014 and at the beginning of the year was hovering around $40 per barrel.
The decrease in the Brent benchmark price could continue into late 2015 Q2. Oil supplies are likely to grow this year, with the US shale oil industry still increasing production. Result – lower energy costs could help grow energy dependent industries and increase profits while significant savings at the pump potentially increases discretionary consumer spending. A further result – destabilization in Latin American and Middle Eastern oil producing nations with all the attendant consequences.
- There is still room for growth in the U.S. labor force which could cause the Federal Reserve to defer an increase in interest rates beyond late Q2 and Q3. The U.K. is witnessing rapid economic growth, however, with a productivity challenge leaving little capacity in the economy. Result – logically, a modest acceleration in U.S. growth in the year ahead, with low interest rates and increasing labor environment, and rising (and still-low) interest rates, should help corporate earnings and resultant equity valuations. The countervailing force, of course, is the possibility of the EU slipping back into recession.
Drilling down further:
- Globally, persistent jobless growth, which refers to the phenomenon in which economies exiting recessions demonstrate economic growth while merely maintaining – or, in some cases, decreasing – their level of employment, remains a real concern.
- Income disparity – In the U.S., in 2013 the top 1% of families received nearly 22.5% of income, while the bottom 90% share was below 50% – a level not seen since 1928. In many developed and developing countries, the poorest half of the population controls less than 10% of wealth.
- Demographics – Are we in the U.S. an aging population? Changing demographics and hiring pool statistics tell the tale: In the U.S., Gen Y (age 17 to 31) comprises 39% of the work force; Gen X (age 32 to 47) represent 23%, while Baby Boomers (age 48 to 66) are at 38%. The fertility rate of the total U.S. population is 1.9 children per woman; the population age 65 and older is expected to more than double between 2012 and 206.
Our Flat World:
- The rise of economic competition among countries is a global trend.
- Striving to increase labor migration is a growing, global concern even while developed, underdeveloped, and emerging economies are integrated on an unprecedented level; where goods, services, knowledge, information and people, naturally flow from one part of the world to another to the other.
- In the Middle East and North Africa, the workforce has grown at the fastest annual rate in the world (2.7% in the past 10 years); however, youth unemployment is also the highest, at around 25% of the population.
• In South Africa, education and skills development is the biggest challenge; projections show that soon the region will be home to 50% of the world’s illiterate population.
- In Latin America, business leaders perceive lack of trust between corporations is biggest threat to growth.
- In Asia, geopolitical tension has been centered upon the South China Sea and on maritime disputes among China and Vietnam and Japan and the Philippines, due to long-standing territorial and border disputes. The North Korean dilemma persists.
The certainty is that U.S. and global economic and geopolitical forces will always create obstacles to growth and open new doors to development. The best response to these enduring realities is sound planning; a resistance to changing one’s wealth strategy in a panic or just for the sake of changing; understanding market fundamentals and being alert to those outliers that can churn even the most placid of waters. The twin goals of wealth preservation and growth depend to a large degree on how well you think through and implement a game plan designed by and for your personal and unique situation.