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In the Headlines-October 16th, 2015

In The Headlines

Could Troubles in Emerging Markets Bring Recession to the U.S.?

Emerging MarketsAs far as economic expansions go, ours is pretty long in the tooth. Since World War II, the average length of time between recessions is about 58 months. With the current cycle clocking in at 81, it is natural to wonder if the next downturn is imminent. Meanwhile, data from abroad shows that troubles in emerging markets are beginning to affect the developed world. In Germany, Europe’s strongest economy, exports fell 5.2% in August from the previous month, according to the Federal Statistics Office in Wiesbaden. In the U.K., where growth had been outstripping most of the rest of the developed world, recent data shows output in Britain’s construction sector plunged by 4.3% in August, the sharpest monthly drop since 2012. And in Japan, things do not look much better. Serious declines in industrial output over the summer suggest to some that the world’s third largest economy has already fallen back into recession.

Former Treasury Secretary Larry Summers also sees global economic trouble ahead. In a recent op-ed article entitled “The global economy is in serious danger,” he argues that rising economic inequality, slowing population growth, the increased need for financial regulation, and the fact that the innovation taking place is not very labor intensive, all point to a slowdown.

Another analyst asking whether we are headed for, or are already in, a global recession is Willem Buiter, Chief Economist at Citigroup. Buiter relies on a different definition of global recession than what is used to define such an event in a single advanced economy like the United States. While he does not see global growth contracting, he does believe that growth has already fallen below its potential, and that the problem is only going to get worse. In a note to clients, Buiter wrote: “Actual global output growth, although positive, is already below likely potential global output growth, which we estimate at 3%, meaning that the output gap is widening. Another year of sub-potential growth would therefore imply that the world economy would probably be back in recession according to both our criteria.”

Summers thinks the worrying economic data we are seeing is just the beginning of troubling economic times, because none of the factors contributing to what he has called “secular stagnation” are set to dissipate anytime soon. He argues that the only thing propping up the global economy since 2008 has been “the strength of emerging markets.” But investment there is quickly reversing course, finding its way back into developed bond markets, pushing interest rates even lower than they already are. Summers writes: “This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. The latest data suggest growth is slowing in the United States, and it is already slow in Europe and Japan. A global economy near stall speed is one where the primary danger is recession.”

In his op-ed, Summers argues that the wealthy world needs to take the lead in preventing this outcome, first by keeping interest rates near zero until there is a clear sign of inflation. More important, however, is to implement “expansionary fiscal policy,” or borrow at the low rates the global economy is offering governments like the U.S., Germany, and the U.K. to invest in infrastructure.
Unfortunately for those who agree with Summers, more government spending does not appear to be coming anytime soon. For years, Germany has resisted calls to spend more, while the conservative parties in the United States and the U.K. are doing their best to cut budgets, not expand them. Further hurting Summers’ case is the fact that the United States is not seeing the same signs of slowing growth as the rest of the world. Yes, September’s jobs report was disappointing, and the S&P 500 has been moving sideways all year, but job growth in 2015 still sits at just under 200,000 new positions per month, while home sales and housing starts figures have been on the upswing. And auto sales just hit a new 10-year high.

Most economists still see the U.S. avoiding recession for at least another year. Last month, Bloomberg surveyed a group of 31 economists, and eight predicted that a recession would hit the United States before 2018. But as troubles in emerging markets bring economic woes to Japan and Europe, it makes sense to question the conventional wisdom.

Citations

1. http://for.tn/1hwSau7 – Fortune


Canada’s Emerging Tech Industry Draws U.S. Venture Capital

Saddle Dome DowntownCanada’s big tech companies used to be hardware makers, but that era is over. Nortel, once a telecommunications and networking-equipment giant, is a memory, and BlackBerry’s phones are an endangered species. From 2009, when Nortel filed for bankruptcy protection, to 2014, the year almost half of BlackBerry’s 85 million subscribers abandoned its phones, the size of Canada’s hardware industry fell 20% to 72,100 jobs, according to the country’s statistical agency.

During that time, though, Canadian software took off. The industry grew 23%, to 327,400 jobs, from 2009 to 2014. As Canadian software startups have begun to flourish, U.S. venture firms are looking north more often instead of waiting for the companies to come calling on Sand Hill Road. Canadian venture capital has doubled in five years, to $2.4 billion.

“Anybody that hasn’t taken a trip to Canada in the last year or so is probably missing out,” says Pat Grady, a partner at Sequoia Capital who helped lead a $34 million investment earlier this year in VarageSale, a Toronto startup that facilitates swap meets. Katherine Barr, a general partner at Mohr Davidow Ventures, has invested in companies including Vancouver’s BuildDirect, an online marketplace for construction supplies. “The world needs to be paying attention to Canada,” she says.

In May, a successful initial public offering by Ottawa’s Shopify, which makes software to help retailers set up online stores, pushed the company’s value above $2.9 billion. The shares started at $17 and have more than doubled since. In July, Barry Diller’s IAC bought Vancouver-based dating website PlentyOfFish for $575 million. Health-care software startup PointClickCare, based in Mississauga, Ontario, announced IPO plans in September. “A lot of folks are paying serious attention now because of the Shopifys,” says Barr.

When Razor Suleman took venture funding from Sequoia in 2011, he moved to California. “I was convinced, largely by my investors, that you needed to be in the U.S. to be able to grow a global company,” he says. Suleman sold the maker of employee rewards software, Achievers, to Blackhawk Network in July for $110 million. Now, he says, he’ll build his next company back home in Toronto.

To take advantage of the increasing pool of Canadian tech talent, some U.S. companies are opening satellite offices above the border. Amazon.com and Microsoft are adding research hubs and staff in Vancouver and Toronto. Google says by yearend it will have tripled the size of its 300-person office in Waterloo, Ontario, BlackBerry’s hometown. Labor and real estate costs are much lower in Canada, especially given the 16% drop in the Canadian dollar relative to the greenback over the past year.

For the country’s startups, the rapid growth of the software industry has been checked by the lack of executives with experience building big-deal companies, says Jeff Booth, chief executive officer of BuildDirect. “If you don’t have enough people that have seen the movie before, it puts an impediment on the growth,” he says. That will change more quickly as the industry keeps expanding, says Aydin Senkut, founder and managing director of Felicis Ventures in Palo Alto. “The more successful companies come out of Canada, the more great role models you have,” says Senkut, whose firm joined a $7 million funding round for Shopify in 2010. He says he’s investing in six more.

Citations

1. http://bloom.bg/1jT7AuG – BusinessWeek


The Good News Is . . .

Good News• Total mortgage application volume surged 25.5% on a seasonally adjusted basis for the week ending October 2nd compared to the previous week, according to the Mortgage Bankers Association (MBA). Home purchase applications rose 27% with refinance applications up 24%. Lower rates also drove applications higher with the average 30-year fixed loan for conforming mortgages ($417,000 or less) down 9 basis points in the week to 3.99%.

• Constellation Brands, Inc., a leading international producer and marketer of beer, wine, and spirits, reported earnings of $1.56 per share, an increase of 40.5% over year earlier earnings of $1.11 per share. The firm’s earnings topped the consensus estimate of analysts by $0.24. The company reported revenues of $1.7 billion, a 7.8% increase. Management attributed the company’s results to continued sales momentum in its beer business and improved gross margins in its wine and spirits segments.

• The Danish transport and logistics company DSV Group said on Friday that it had agreed to acquire a smaller American rival, UTi Worldwide, in a deal that values the target company at $1.35 billion, including debt. Under the terms of the deal, UTi Worldwide investors would receive $7.10 a share in cash. UTi Worldwide, based in Long Beach, Calif., provides transport, supply chain and logistics services in 58 countries worldwide. It posted revenue of $3.9 billion in the 12 months ended July 31 and employs about 21,000 people.

Citations

1. http://bloom.bg/1Dl6vPO – Bloomberg Economic Calendar
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1hwShWO – Constellation Brands, Inc.
4. http://nyti.ms/1NsLQSS – NY Time Dealbook


Planning Tips

Simple Tips for Saving Money on Your Monthly Utility Bills

Gas BillAfter the mortgage, one of the biggest monthly expenses many American homeowners have is their utility bills. There are many steps you can take to reduce your utility bills. Some of them can involve costly updates to your home. But there are a number of things you can do that are relatively easy and inexpensive. Below are some simple, low cost steps you can take to realize immediate cost savings on your monthly energy and water bills.

Install low-flow water faucets and save up to 60% on your water bill – You probably do not really need a faucet with a high strength flow to do the dishes and other simple chores. By simply replacing your sink faucets with low-flow models, you could cut your water bill by 25% to 60%. Faucet aerators cost around $10 to $20 apiece, which is well worth the investment. If you want to save even more water and money, you can also install low-flow shower heads for about $20.

Seal windows and doorways to save 15% on heating costs – A third of a home’s total heat is lost through drafty windows and doors, and the EPA estimates sealing up cracks and adding proper insulation can save an average of 15% on heating and cooling costs. Try using insulated window shades, weather strips or plastic film kits to seal up openings. Caulk is also a simple way to fill cracks in floors, windows and doorways. For drafty basement or attic windows, try gluing a piece of foam board to 3/8-inch drywall and fitting it snugly into the window frame.

Insulate your hot water heater to save up to 9% on utilities – Insulating your hot water tank (and the pipes around it) is a simple way to save money on utilities, since it keeps heat from escaping and getting wasted in colder months. Buy a $20 insulating blanket and you will be able to trap in up to 40% more heat, saving as much as 9% on your bill.

Invest in a programmable thermostat – If you work long hours or are away from home much of the time during the week, a programmable thermostat that allows you to adjust heat and cooling settings according to a pre-set schedule is a money saving must have. The amount of money you will save can vary drastically—based on your utility costs, the type of heating or cooling system in your home, and the size and average temperature of your home—but on average, a programmable thermostat will cut your utility bills by $130 to $145 a year. You can find a simple model for around $20.

Clean your dryer lint trap to increase efficiency – It seems like a no-brainer but forgetting to clean the lint trap on your dryer makes a huge difference. Depending how much lint builds up and the type of dryer you have, you could see your efficiency reduced by 75%. And a less efficient dryer means two things: Higher energy bills and a shorter lifespan for your appliance.

Citations

1. http://bit.ly/1jGhSxW – Bankrate.com
2. http://bit.ly/1GqaYSg – LegalZoom.com
3. http://bit.ly/1JuOVLv – Nolo.com
4. http://bit.ly/1JMjD1K – AARP
5. http://bit.ly/1hi2UfW – FindLaw.com

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

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