Incredibly Fascinating Notes From The Schwab Conference
I recently attended the annual Schwab conference for financial advisors. The top-notch speakers included former Federal Reserve Chair Janet Yellen and historian Niall Ferguson as well as a variety of investment and industry experts. The summary below highlights some of the more interesting ideas presented. Please read to the end to find out which topic was not mentioned, even though it was the darling of last year's event.
The Pitfalls of Social Media
Ferguson explained how the (Utopian?) goal of Facebook -- beyond making tons of money -- was to create a global community. The dream of a flat world with a multiplicity of equal voices didn't pan out. Instead, a few powerful platforms have dominated the scene, using algorithms that push people to clusters of like-minded folks. The polarization continues to reinforce itself. We're suffering the consequences.
Global Economic Growth
While global economic growth has been decent for a number of years, and relatively strong in the United States as of late, the expectation is that it will slow down going forward. As Yellen and others pointed out, the U.S. economy is constrained, among other things, by a tight labor market with the unemployment rate reaching historic lows. You need more workers (and increased productivity) to keep the economy growing. Further risks include expanding trade wars.
The rate of economic growth may be decelerating, but that but doesn't mean a recession is imminent. A recession is when there are two successive quarters of declining GDP (gross domestic product). The near term projection is continued growth, albeit at a slower pace.
Inflation and Interest Rates
According to Yellen, inflation will be relatively benign (around 2%) in the near-term, although a tightening labor market may lead to inflation pressure. She believes the Federal Reserve will be vigilant in this regard. Other speakers concurred.
Although interest rates have risen recently, there seems to be a sense that they are peaking for now, especially if inflation remains tame. Rates in the United States are constrained by the lower interest rates around the world as foreign central banks keep them low to spur growth. If rates remain low, then the after-inflation, real return on short-term investments will stay modest.
Cryptocurrencies and Blockchain
These topics were all the rage at the conference in 2017, but I heard no mention of them this year. It may have something to do with cryptocurrencies plummeting in value. I love the opening sentence in an article on ThinkAdvisor.com, quoting NYU economics professor Nouriel Roubini: "Cryptocurrencies are the 'mother of all scams' and blockchain is 'the most over-hyped -- and least useful -- technology in human history: In practice it is nothing better than a glorified spreadsheet or database." Click on the link to read more scathing comments.
With the release of "Bohemian Rhapsody," the new movie about Queen, I thought I'd highlight one of my favorite songs by the band: "Keep Yourself Alive."