NAVIGATION

February 22, 2018
Investing outlook in 2016

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Economic Backbone - Wealth Management

Investing outlook in 2016

Teresa Burney | 3/28/2016

Scott J. Brown
Senior Vice President/ Chief Economist
Raymond James
St. Petersburg

Disregard Geo-Politics

Scott J. Brown thinks the global economy this year will be similar to 2015, with the U.S. showing strength while other parts of the world, including China and Europe, face challenges.

"We see some very strong job growth, and we are starting to see wage growth up as well," he says.

Also, he says, stronger housing demand is promising for the economy. And the outlook for smaller businesses has improved with credit getting relatively easier toget for entrepreneurs.

"The consumer side looks very strong," he says. "The foundations are a lot better. They are not pulling money out of their homes to buy cars."

One thing he worries about is talk about a recession because the uncertainty can cause unjustified panic in the markets, he explains. "There is no reason to believe we are in recession, and it's a mixed message whether we are heading into one," he says.

Jeff Korzenik
Chief Investment Strategist
Fifth Third Bank
Chicago

Bank on Millennials

Jeff Korzenik has faith that demographics will goose economic growth for the United States as the giant cohort of millennials moves into their 30s and 40s. The economy will have to contend with a lag factor, however: As Baby Boomers retire and begin spending less, members of the millennial generation won't have reached their peak spending years yet.

Right now the bulk of the millennial generation is about 26, he says. "When you think of 26-year-olds, they are moving out of the house, buying a car, starting to acquire. Those are all positives," Korzenik says.

That spending is good, but not as good as it will be when millennials reach their 30s and 40s and are making more money, raising kids and buying homes. "We are still a few years away from the big millennial impact,"

Korzenik says. Korzenik is not overly worried about China. "China has a lot of structural problems to work through, but we don't believe they will result in a major global problem," he says.

Korzenik advises patience. "There is one sure fire way to be unsuccessful, in our opinion — succumb to short-term thinking and abandon discipline," he says. "We advocate a diverse selection of productive assets that can be modified over time. But mostly give it time."

Michelle Meyer
Deputy Head of U.S. Economics
Bank of America Merrill Lynch
New York

No Financial Bubbles

Michelle Meyer believes the market has already factored in higher interest rates because the Fed has been signaling its intention to raise rates for a while.

While manufacturing, mining and the oil industry have taken hits, they are just 15% of the economy. The other 85%, including construction, services and government, has picked up, she says in a recent research report titled

"The Long and Winding Road." The currently strong dollar has hindered U. S. industrial and export sectors. Meanwhile, the consumer has been benefiting from lower gas prices and a strong labor market, and the services sector has remained resilient.

Meyer sees no noteworthy financial bubbles on the near horizon. Wage and price inflation pressures are building, and she doesn't think the housing sector is overheated.

What about recession?

"There will be a recession again at some point," she says. "But it does not appear imminent to us."

Mark Vitner
Managing Director/Senior Economist
Wells Fargo
Charlotte, N.C.

Reduced Volatility Down the Road

Mark Vitner thinks the market will remain volatile for a while yet. "The message I have is to expect more volatility in the early part of the year," he says. "Primarily, it's driven by uncertainty about the global economy, primarily what China's economic slowdown means for U. S. companies."

When investors get a clearer picture of what is happening globally and how it impacts the U.S., the volatility should subside, he says.

Vitner says it's always a good time to buy good quality stocks, as long as investors remain patient and don't worry about timing their purchases to a stock's precise bottom price. "The financial market can remain irrational for longer than you can stay solvent," he says.

Despite the rocky start to the year, Vitner does not think 2016 will be a repeat of 2008, when the economy was tumbling into recession. "The economy is in much better shape," he says.

But there are still excesses in the economy that need to be worked out. Specifically, he thinks the tech sector, long a favorite of investors, may be overpriced.

Vitner sees some positives in the U. S. economy. The global unrest has strengthened the U.S. dollar, which is good for the U.S. because the U.S. imports more than it exports, and the strong dollar increases purchasing power and the standard of living.

Hedge Fund Haven

Palm Beach County draws money managers with a quality of life pitch.

Last March, SkyBridge Capital, a 10-year-old investment fund with about $12.5 billion under management, joined a flock of other financial services firms that have set up offices in Palm Beach County. Sky- Bridge, which has headquarters in New York and a branch in Zurich, Switzerland, opened an office in Palm Beach Gardens.

One factor prompting the move: Sky Bridge already was doing a lot of business in Florida and other southern states. Another tipping point came when Florida's population overtook New York's, says Ray Nolte, Sky Bridge's comanaging partner. The lack of a state income tax in Florida, of course, "was certainly in the math and calculations," he says.

There were personal considerations as well. "We have a home down here in Palm Beach County, and with all of our kids out of the house, my wife is spending more and more time down here," Nolte says. Not to mention the weather and quality of life being incredibly good. It just made sense to put sales out of this office."

In addition to the lures of population, taxes and familiarity with the area, the firm also had received plenty of encouragement from Palm Beach County's Business Development Board, which took advantage of some research to intensify its sales pitch to the financial firms.

A few years ago, Kelly Smallridge, the BDB's president and CEO, analyzed who owned the biggest and most expensive homes along 42 miles of Palm Beach oceanfront.

Smallridge found that "the vast majority are owned by executives from the Northeast from financial services firms that did not have a business presence in south Florida."

Rather than having to travel to New York City to court the firms, Smallridge realized she and her team could make frequent recruitment trips by simply driving across the bridge to Palm Beach.

The approach paid off: "Give or take a few, 50-plus firms have moved into the area over the last three years," including about 15 private equity, hedge fund and finance companies, she says.

Equipment Deductions

» Congress made permanent a provision that allows businesses to deduct the full purchase price of qualifying equipment and software they buy during the year — up to $500,000 worth — from their gross income. "You don't have to wait to buy that big piece of equipment," says Rayanne M. Buchianico, owner of ABC Solutions in Dunedin.

Income and Obamacare

» If you're insured through Obamacare, make sure you pay the proper premiums based on your income and circumstances. Under the law, families estimate their earnings for the year and pay premiums based on the estimate. They can receive subsidies if their incomes fall in a certain range, but if the actual income ends up being greater than predicted, they must pay back the difference, plus a penalty. "Last year was the first year the penalties started happening," says Buchianico. "Almost everyone had to pay something back." The penalties for 2016 are increasing, she says. She suggests that families whose income changes during the year notify the IRS and adjust their payments.

Fines for the Uninsured

» Taxpayers who can afford health insurance but don't have it will be required to pay a fine this year. The fee for not having health insurance in 2016 (the "individual shared responsibility payment") is calculated two ways, as a percentage of income and per person. You pay whichever is higher, according to Healthcare.gov. This year, the provision requires taxpayers who did not have insurance to pay 2.5% of their incomes, up to a sum equal to the yearly premium for a bronze plan through the marketplace. Or they may be required to pay a per-person fee of $695 per adult and $347.50 per child under 18. The maximum is $2,085.

Penalty Payments

» Afraid to file your tax form because you haven't reported earnings in a while and you fear the penalties? Relax, says Buchianico. The IRS only seeks payment and penalties for the past six years, and it offers to work out payment plans.

Inherit an IRA?

» If a relative dies, leaving you with his or her retirement account, seek help. If you cash out the account, you could face tax liabilities, since no taxes were paid on the contributions to the account. The rules governing inherited retirement accounts vary depending on who ends up with the account. If it's a surviving spouse, he or she can inherit the funds without much liability and with more flexibility. "It's become one of those areas that has really become very complex," warns CPA Brelon Hill of St. Petersburg.

A Tax Break for Startups

» Congress passed a provision that allows small businesses to take a tax credit for research and development costs against their payroll taxes. The provision, says Dean Zerbe, national managing director of the alliantgroup, allows small businesses to take R&D tax credits up to $250,000 a year against their payroll tax bill for five years. A small business is defined as a business with gross receipts of less than $5 million a year.

Family Farms

» Those worried about losing the family farm to taxes may be able to cut their tax bills and save the farm for the next generation by putting a conservation easement on it that keeps the land from being used for anything else but farming. The easement devalues the property, lowering the tax bill.

Wealth management companies that call Palm Beach County home, either full time or part time:

» Govic Capital, which describes itself as a boutique wealth management firm and hedge fund, leased office space on Worth Avenue in Palm Beach in 2015. It planned to hire eight employees with an average wage of $85,000. It also maintains a small presence in New York and Sarasota. "We chose Palm Beach County because of the infrastructure and convenient location," says Mario Govic, the company's founder and president.

» Wexford Capital, an investment adviser formed in 1994 with about $1.5 billion of assets under management, added a West Palm Beach office in 2014. It leased 7,400 square feet in Phillips Point in a $4.5-million deal the trade press reported at the time. Wexford said it planned to relocate most of its staff from Greenwich, Conn., to Florida.

» SkyBridge Capital

» Paul Tudor Jones, billionaire hedge fund mogul, opened a branch in Palm Beach in 2015.

» Affiliated Managers Group

» SandPointe

» Voloridge Investment Management

» III Capital Management

» Kayne Anderson, a real estate private equity company that leased 13,000 square feet in Boca Raton, moving 15 employees to the county.

Tags: Banking & Finance, Economic Backbone

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