In The Headlines

Are Millennials Spearheading a New Economic Revolution?

Subprime Mortgages ReturnRick Rieder had an economic epiphany when he was stuck in a traffic jam outside the Lincoln Tunnel. It all started on a seemingly normal drive, which saw Rieder—who is responsible for $1.8 trillion as BlackRock’s chief investment officer of fixed income—fire up his Waze app in an attempt to avoid the usual congestion. Designed to use real-time information to help drivers circumvent such logjams, Waze gave Rieder a new route that bypassed the tunnel traffic, saving him 40 minutes.

Immediately the gears started turning in his head. “That got me thinking about what I could do with that extra 40 minutes,” Rieder said in a recent interview. “I thought about how powerful it is when you multiply that by millions of people every day. It’s creating this extraordinary productivity that you wouldn’t have otherwise gotten.” And with that, Rieder suddenly had a compelling new analogy for his economic outlook. He now believes we’re firmly in a so-called “Waze phase,” characterized by fewer costs and inefficiencies. And that, in turn, should challenge everything we think we know about the economy.

It all starts with millennials. Millennials are frequently blamed for killing a wide range of industries, but Rieder says the much-maligned group is actually responsible for the economic sea change that is already underway. At the root of their influence is a willingness to adopt cutting-edge technologies, whether that means mobile payments, cryptocurrencies, peer-to-peer lending, or mapping services like Waze. This open-mindedness has led to innovations that have enabled further advances, dragging costs of data storage and transmission lower, according to Rieder. “It’s millennials’ receptivity to using this technology and being big consumers that are changing the fabric of economic consumption in such a big way,” he said. “They’re changing the whole way that commerce works.”

The sheer number of millennials also adds to the group’s influence. Rieder notes they’re now the largest cohort in history and are entering a phase where they are going to be the biggest-spending segment of the economy. And given how they are already conditioned to expect rock-bottom prices and peak efficiency, their influence will only be increasingly felt over time. With this in mind, Rieder’s Waze analogy is once again appropriate. Just as millennials are spearheading a reduction in economic inefficiencies—or “friction,” as Rieder often refers to it—Waze is also helping users avoid obstacles. And that, in turn, leads to lower costs and travel times.

“Productivity is going up extraordinarily because you’ve just taken an amazing amount of time and cost—and a lot of friction—out of the system,” said Rieder. “And you can consume more quantity because you’re taking all of that wasted friction out of the economy. I think economists are grossly underestimating how powerful that is today.” This last comment above introduces another aspect of his “Waze phase” thesis—the idea that economists are failing to fully appreciate the impact of technological adoption, and the degree to which it relieves friction in the economy.

But it does not end there. He also argues that millennial-driven innovation is wringing inflation out of the economy, which is a big deal when you consider that many Wall Street experts have cited overheating inflation as their biggest market fear. Put simply, Rieder thinks it is going to be difficult for inflation to rise because the economy’s most influential demographic does not want to pay any more than it absolutely has to—and it knows how to discover the lowest possible price. “This is historic, and it’s part of why I think traditional economic models don’t work,” said Rieder. “With all the inefficiencies being eliminated and all the time being created, it allows for more consumption and quantity, and the cost of those goods and services is going to continue coming down. You create this self-calibrating loop of growth, rising costs, and then working to push that back down.”

Given this new economic paradigm, Rieder also sees an enormous shift coming among corporations as they scramble to stay competitive. If they are hamstrung in terms of being able to raise prices, their future success may well hinge on their ability to lower their costs. In the end, Rieder expects new technologies and their use by millennials to eventually shape the entire global landscape, leading to huge changes in the broader economy, industries, specific companies, and consumers. “So much of how people think about monetary policy and economy comes from traditional ideas that don’t work anymore,” said Rieder. “This is a technology revolution that’s going to challenge the entire way we think about things.”



  1. – Business Insider
  2. – USA Online Journal

Extreme Weather Events are Impacting Real Estate Values in Vulnerable Areas

Walmart and HumanaNew research shows that real estate properties in areas affected by extreme weather and sea level rise are losing value relative to less exposed properties. The effects are already substantial, but they may point to a looming collapse as climate change makes coastal communities untenable.

Work by Harvard researchers published last week and highlighted by the Wall Street Journal finds that, after accounting for an array of other factors, home prices have appreciated more slowly in lower-lying areas of Miami-Dade County, particularly Miami Beach. A broader study using data from Zillow, still under peer review, found that properties exposed to rising sea levels sell at a 7% discount to comparable properties not subject to climate-related risk.

As many as 13% of Americans are still convinced climate change is not happening at all, and 30% are confident that humans play no role in it. But real estate prices now seem to confirm the maxim attributed to author Philip K. Dick: “Reality is that which, when you stop believing in it, doesn’t go away.” Even those who do not believe in climate change, or have never been hit by a hurricane, are nonetheless seeing an impact on their property values. That foretells inevitable and large economic impacts in vulnerable areas, but could have the broader positive effect of discouraging risky investment in those areas.

These impacts are unfolding even despite large taxpayer-funded outlays that effectively subsidize flood-prone real estate markets by providing artificially cheap flood insurance. The National Flood Insurance Program (NFIP), the only flood insurance available in many such markets, sets rates and risk measures using outdated flood maps, and does not incorporate projections for climate change. The resulting actuarial imbalances have forced the program to run up more than $30 billion in Treasury borrowing as major weather events accelerate.

The administration recently signed a disaster relief bill that included forgiveness for over half that debt, a move interpreted by some to be a tacit admission that budget spending is required to prop up the NFIP’s broken model. Florida’s Sun Sentinel recently reported that, even after reforms in 2012 and 2014 aimed at making the NFIP more solvent, most homeowners are still seeing annual premium increases below 5%.

And there may be other potential impacts for property owners in vulnerable areas. Property insurance rates could climb as damage caused by more frequent extreme weather events expands into what were once considered flood-safe zones by government agencies like FEMA and that have now been re-zoned. Property taxes could climb significantly in areas that experience population loss due to more frequent flooding.  This would be propelled by a smaller tax base and increased infrastructure expenses.


  1. – Fortune
  2. US New & World Report

The Good News Is . . .

Good NewsThe Conference Board’s measure of consumer confidence increased to 128.7 this month, up from 127 in March. Consumer assessment of current conditions improved somewhat, with consumers rating both business and labor market conditions quite favorably according to the Conference Board’s Director of Economic Indicators. Consumers’ short-term expectations for their incomes also improved. The index takes into account Americans’ views of current economic conditions and their expectations for the next six months.

PulteGroup Inc., one of the nation’s largest homebuilders, reported earnings of $0.59 per share, an increase of 110.7% over year-earlier earnings of $0.28 per share. The firm’s earnings topped the consensus estimate of analysts by $0.15. The company reported revenues of $ 91 billion, an increase of 20.6%. Management attributed the results to strong buyer demand for homes, even in the face of mortgage rate increases and financial market volatility.

U.S. gas and electric utility Centerpoint Energy said it would buy rival Vectren for about $6 billion to diversify its customer base and give it more scale. Vectren shareholders will receive $72 in cash for each share held. The deal is the latest in a string of mergers in the U.S. power utility sector as consumption in many parts of the country flattens. The deal will take CenterPoint’s reach beyond Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas to Vectren’s core markets of Indiana and Ohio. CenterPoint Energy will also assume all outstanding Vectren net debt.


  1. – Conference Board
  2. – NASDAQ
  3. – PulteGroup Inc.
  4. – CNBC

Planning Tips

Guide to Reverse Mortgage Alternatives

Asset Allocation StrategiesIf you are 62 or older, you may be able to convert the equity in your home into cash with a reverse mortgage. This loan lets you borrow against the equity in your home to get a fixed monthly payment or line of credit (or some combination of the two). Repayment is deferred until you move out, sell the home, become delinquent on property taxes and/or insurance, the home falls into disrepair or you die. Then the house is sold and any excess after repayment goes to you or your heirs. Reverse mortgages can be problematic if not done correctly and require careful attention to the rights of the surviving spouse if you are married. There are other ways to tap into your home’s equity that are worth considering, as well. Below are some alternatives to reverse mortgages. Be sure to consult with your financial advisor to determine if these strategies are appropriate for your situation.

Refinance Your Existing Mortgage – If you have an existing home loan, you may be able to refinance your mortgage to lower your monthly payments and free up some cash. One of the best reasons to refinance is to lower the interest rate on your mortgage, which can save you money over the life of the loan, decrease the size of your monthly payments and help you build equity in your home faster. Another perk: If you refinance instead of getting a reverse mortgage, your home remains an asset for you and your heirs.

Take Out a Home-Equity Loan – Essentially a second mortgage, a home-equity loan lets you borrow money by leveraging the equity you have in your home. It works the same way your primary mortgage does: You receive the loan as a single lump-sum payment, and you cannot draw any additional funds from the house. For tax years up to and including 2017, interest on a home-equity loan for amounts up to $100,000 is generally deductible regardless of how you used the loan, be it for credit card debt or student loans. And if you use the loan for what are called qualified purposes–which are to “buy, build or substantially improve the residence that secures the loan”–you could take tax deductions on up to $1 million (including any first-mortgage debt you have). However, the new Tax Cuts and Jobs Act narrowed the eligibility for a home-equity loan deduction. For tax years 2018 through 2025, you will not be able to deduct home-equity loan interest unless the loan is used specifically for the qualified purposes described above. It also dropped the level at which interest is deductible to loans of $750,000 or less.

Take Out a Home Equity Line of Credit – A home equity line of credit, or HELOC, gives you the option to borrow up to your approved credit limit on an as-needed basis. Unlike a home-equity loan, where you pay interest on the entire loan amount whether you are using the money or not, with a HELOC you pay interest only on the amount of money you actually withdraw. HELOCs are adjustable loans; your monthly payment will change with fluctuating interest rates. The rules about deductibility and qualified purposes are the same as for a home-equity loan.  As with a home-equity loan, your home acts as collateral and could be foreclosed if you default.

Sell Your Home (and Maybe Downsize) – The above options keep you in your existing home. If you are willing and able to move, however, selling your home gives you access to the equity you have built. This option may be especially appealing if your residence is larger than you currently need, too difficult or costly to maintain, or has prohibitively expensive property taxes. The proceeds can be used to buy a smaller, more affordable home or to rent, and you will have extra money to save, invest or spend as needed.

Sell Your Home to Your Children – Another alternative to a reverse mortgage is to sell your home to your children. One approach is a sale-leaseback agreement, in which you sell the house, then rent it back using the cash from the sale. As landlords, your children get rental income and will be able to take deductions for depreciation, real estate taxes, and maintenance. Another approach is a private reverse mortgage, which works like a reverse mortgage except the interest and fees stay in the family. Your children make regular payments to you, and when it is time to sell the house, they recoup their contributions (and interest). Although it is not free to set up this type of arrangement, it is typically much cheaper than getting a reverse mortgage through a bank, and the home remains an asset for you and your children. Selling to your children has tax and estate-planning ramifications, so it is important to work with a qualified tax specialist or attorney.


  1. – AARP
  3. – Investopedia
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