Category Archives: Investing

U.S. recession unlikely before 2020, and then ‘wok’ shaped

NEW YORK (Reuters) – U.S. President Donald Trump may just escape having to grapple with a recession before the U.S. Presidential elections in 2020, with investors saying it is unlikely one will occur before then.

Trump has praised the U.S. economy, which grew at 3.5 percent in the third quarter, following a tax-cut-fueled 4.2 percent gain in the second quarter. And even though economists see increased risks for a recession as the Federal Reserve raises interest rates and a trade war with China threatens the economy, such a scenario is still a few years off.

“We don’t expect another recession until 2021, at the earliest,” Byron Wien, vice chairman of Blackstone Group’s (BX.N) Private Wealth Solutions Group told the Reuters Global Investment 2019 Outlook Summit in New York on Tuesday.

Richard Bernstein, Chief Executive of Richard Bernstein Advisors LLC and former Merrill Lynch Co chief investment strategist, said he did not expect a recession or bear market before the election. “I really don’t think there is a bear market on the horizon. I don’t see anything that changes that.”

However, some investors were less sanguine, saying a recession could still occur in 2020 but that would likely be the earliest.

“It isn’t inevitable we will get it in 2020, and if we see it in 2020 it will probably be made in (Washington) DC,” said Joachim Fels, a managing director and global economic advisor at Pacific Investment Management Co.

Penny Foley, portfolio manager, TCW Group Inc, thinks a recession could occur in either 2020 or 2021 because the United States is nearing the end of the credit cycle, U.S. growth has peaked and stimulus is rolling off.

“Our U.S. guys would feel that it’s probably a 2020 type event,” Foley said.

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Both Wien and Fels pointed to potential risks at a time the economic expansion, now nine years old, is likely to slow, while corporate earnings are also expected to taper.

One stumbling block may occur if the Federal Reserve, led by Chair Jerome Powell, raises interest rates too quickly or aggressively as inflation and employment have both been normalizing. Both Fels and Wien said the Fed will almost certainly announce another rate increase in December and at least two more in 2019.

“The Fed is doing the right thing,” Wien said, adding that President Donald Trump should be boasting about how well the economy is doing instead of criticizing his top central banker for taking care to prevent an overheating by pushing rates up.

Wien and Fels agreed that the Fed’s job will be challenging in preventing an overheating after Trump’s tax cuts helped stimulate the economy while at the same time not tightening too much to choke off growth when the expansion really begins slowing in two to three years.

Meanwhile, trade wars are seen as a danger, both men said, noting that tariffs, including a fresh round on Chinese goods, are bound to hurt U.S. consumers. “At the end of the day the president wants a deal with China. This is what he is all about, making deals,” PIMCO’s Fels said.


If there is a recession on the horizon, both Fels and Wien said it would likely be shallower than the great recession in 2008, in part because excesses have not built up the way they did a decade ago when the housing market overheated.

“The next recession will be not very deep because I don’t see the big imbalances in the real economy that we had in past recessions, but it could be extended because we have less tools to fight it,” Fels said, adding “The last (recession) was V shaped. This one could be more saucer or wok-shaped.” 

Follow Reuters Summits on Twitter @Reuters_Summits

Reporting by Svea Herbst-Bayliss and Megan Davies in New York; editing by Diane Craft

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Boring is ‘amazing’ for steady returns: Epoch’s Van Valen

NEW YORK (Reuters) – The gains of internet-related stocks in recent years have cast a shadow over what a dull but steady income stream from dividends can do for investors.

Fully understanding a company’s ability to generate cash and sustain stock buybacks and payouts to shareholders over time is the bedrock philosophy at Epoch Investment Partners, which oversees about $20.7 billion using this investment strategy.

“Boring is amazing, we take it as a compliment,” Kera Van Valen, a portfolio manager of both the U.S. and global equity shareholder yield portfolios at Epoch, told the Reuters Global Investment 2019 Outlook Summit in New York on Tuesday.

“In our strategy we don’t focus on multiples,” Van Valen said, referring to price-to-earnings ratios that are an investing benchmark on Wall Street. “From our perspective it’s more about the dividend yields that the companies offer.”

The surge of the FANG stocks – Facebook Inc, Inc, Netflix Inc and Google’s parent Alphabet Inc – has captivated Wall Street in recent years, but they don’t pay dividends so Van Valen has not rode that wave.

“You could understand the growth in some of the companies, some it’s harder to understand,” she said.

But Van Valen is very interested in technology as long as she can understand how it is driving cash flows to return to shareholders or reinvested to spur a company’s growth.

“It’s a great thing because we’ll continue to see companies be able to sustain higher dividend payout ratios, be able to return excess cash to shareholders through share repurchases,” she said.

About two-thirds of the 100 companies that each portfolio holds increased their dividends 7.1 percent so far this year, Van Valen said.

That rate was higher than last year, partly due to U.S. tax reform, but Van Valen does not expect the rate to change dramatically for her holdings in the near future even as earnings growth likely slows to single digits.

Van Valen looks for managements that have a well-articulated capital allocation policy so as the company grows, the cash distributions back to shareholders will grow. The average holding period for stocks in the two portfolios is about five years with low turnover.

The shareholder yield portfolios include utilities, staples, telecoms and increasingly financial stocks that profit from traditional loans and not harder-to-understand trading desks.

Van Valen added BBT Corp to the portfolio earlier this year.

Follow Reuters Summits on Twitter @Reuters_Summits

Reporting by Herbert Lash; Editing by Phil Berlowitz

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Amazon announces HQ2 locations in New York and Virginia

Amazon announced Tuesday the locations for its second headquarters, naming Long Island City, New York, and Arlington, Virginia, as the winners of its year-long search.

Amazon’s HQ2 is expected to bring 50,000 jobs with an average salary of $100,000 over the next 15 years, plus more than $5 billion in investment over the span of 17 years.

Amazon also announced it will open an Operations Center of Excellence in Nashville that will create 5,000 jobs.

But while the influx of high-paying jobs and tax revenue could be a boost to the local economies surrounding HQ2, some are critical of the tech giant’s impact on property values and infrastructure. 

The announcement Tuesday put an end to Amazon’s hunt for the ideal location of its second headquarters, which the company said required proximity to a major airport, a suburban or urban locale with more than one million residents and the ability to attract talent in the tech sector.

The company reviewed 238 bids and narrowed the search down to 20 finalists – which included Chicago, Denver, Nashville, Miami and Indianapolis – before announcing that its HQ2 would be split between two locations.

“We are excited to build new headquarters in New York City and Northern Virginia,” said Amazon Founder and CEO Jeff Bezos in a statement. “These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come. The team did a great job selecting these sites, and we look forward to becoming an even bigger part of these communities.”

Housing industry experts have speculated on the effect Amazon will have on the communities surrounding its new locations.

In Seattle, where Amazon is primarily headquartered, the company’s impact has been significant, with Amazon claiming that its investments in the area injected $38 billion into the city’s economy from 2010 to 2016.  

It has also had a sizable effect on Seattle’s housing market, according to, which said that the company’s expansion of its Seattle headquarters raised home prices in the immediate area at twice the rate of the surrounding market during the first year of construction.

“Over a longer term, sales prices are up 83% since 2008 for homes located one to five miles from Amazon’s HQ1, compared with a 67% jump for homes within one mile, and a 56% jump for King County,” said.

Danielle Hale, chief economist for, predicted that areas surrounding Long Island City and Arlington will see similar spikes in value.

“Today’s announcement of HQ2 will likely have a quick impact on home prices and rents in Arlington, Virginia, and New York City. That’s because Amazon’s HQ2 is like nothing we’ve ever seen before,” Hale said. “Not only is it one of the largest company headquarters openings, but the amount of attention it’s received is unparalleled. There’s no doubt that investors and landlords in these areas have been following the news trying to get ahead of the Amazon housing boom.”

Reports from Redfin back this up. The company said its agents are receiving a flood of calls and emails with requests to view properties surrounding the new sites, and that online searches of sales in neighborhoods surrounding both cities has skyrocketed.

But ratings agency Fitch said Amazon’s impact on the housing market will be more subtle than people think.

“We do not expect much change in home prices in either location as healthy economic dynamics are already pushing up prices and supply should be sufficient to absorb the needs,” Fitch said. “The Washington, D.C., area is more likely to benefit than New York City as it has slower growth in rents and home prices.”

Fitch also said Amazon’s effect on employment will be nominal, with the new jobs representing just 1.5% of the labor force in Washington, D.C., and only 0.5% of the force in New York City. But it did acknowledge that residents in the surrounding areas are likely to benefit from increased tax revenues generated by new employees and related businesses.

Predictably, Amazon’s decision has been met with some backlash as community leaders in both areas express concerns about the company’s impact on affordable housing, schools and transportation.

Alex Howe of Metro DC Democratic Socialists of America Northern Virginia Branch called for safeguards to ensure that the H2Q doesn’t displace members of the community or increase inequality.

“Arlington already has an affordable housing crisis due to gentrification and rising rents, which HQ2 will surely exacerbate,” said Howe. “Our schools are already at capacity across the region with no clear solution planned regardless of the impact of HQ2.”

New York also had its naysayers.

“New Yorkers want to know: Why are we giving away taxpayer dollars to the richest man on earth while our communities get sidelined for the funds we need to fix public transit and our growing housing crisis?” said Maritza Silva-Farrell, executive director of ALIGN, an alliance of community and labor united for a just and sustainable New York. “Amazon vaguely touts that it will create thousands of jobs, but we know that unless we demand equitable development and job creation, tech companies like Amazon will continue to leave low-income communities and communities of color out in the cold.”

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