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The Stark Reality of Social Security: Someone Has to Take a Pay Cut

My Comments: As a financial planner focused on retirement, I counsel people about where the money is going to come from when they’re 85 and still have bills to pay. And 85 is simply a symbolic number.

A critical source for most of us is Social Security. And it’s under attack by those we’ve elected to represent us in Congress. These words appeared some 20 months ago and since then the pressure has grown stronger.

We need to take a hard look at those we vote for and make sure we’re not shooting ourselves in the foot.

By Sean Williams Published January 22, 2017

According to the November update from the Social Security Administration, nearly 61 million people are receiving monthly Social Security benefit checks, roughly two-thirds of whom are retired workers. For these retirees, more than 60% rely on their Social Security check to account for at least half of their monthly income. In other words, without Social Security there would likely be widespread poverty among the elderly.

The stark reality of Social Security: Someone’s going to lose

Unfortunately, the program that so many seniors have come to rely on is on the decline, so to speak. Two major demographic shifts — the ongoing retirement of baby boomers and lengthening life expectancies — are expected to turn the program’s cash inflow into an outflow by the year 2020, according to the Social Security Board of Trustees 2016 report. By 2034, it’s estimated that the more than $2.8 trillion currently held in special issue bonds and certificates of indebtedness will have been completely exhausted, at which point an across-the-board cut in benefits of up to 21% may be needed to sustain the program for future generations.

The silver lining throughout Social Security’s imminent decline is that there are a bounty of possible fixes — more than a dozen, to be precise. Some of the Social Security solutions tackle the problem by boosting revenue into the program, while others examine the possibility of cutting benefits in a variety of ways. Thus far, an agreeable solution to fix Social Security has eluded lawmakers on Capitol Hill.

However, there’s a stark reality that these lawmakers, Social Security recipients, and working Americans need to understand: There is no “perfect” fix. If Social Security does have a “best solution,” it’s going to mean that someone has to take a pay cut. In order for the program to serve future generations of retirees, there’s going to have to be some give somewhere. The big question is where it’ll come from.

Should all workers take a pay cut?

One solution that offers a presumed-to-be-bonafide fix is an immediate, across-the-board payroll tax increase on all working Americans. According to the aforementioned Trustees report from 2016, the researchers estimated a 75-year actuarial deficit of 2.66%, down two basis points from the previous year. In English, this means enacting a 2.66% increase in the payroll tax should allow the program to generate enough revenue that no benefit cuts would be needed until the year 2090.

As a refresher, the payroll tax for Social Security is 12.4%, and responsibility for this tax is often split down the middle between you and your employer, 6.2% each. If you’re self-employed, you pay the entire 12.4%. In 2017, the payroll tax applies to every dollar earned between $1 and $127,200. However, wages earned above and beyond $127,200 are free and clear of the payroll tax.

Lifting the payroll tax by 2.66% would mean an aggregate tax of 15.06% on the income of self-employed individuals and a cumulative tax of 7.53% of employees and employers. Workers would have to do with less in their take-home pay, but seniors would more than likely not have to worry about a cut to their Social Security benefits.

Do the rich need to fork over more?

Another solution (and this one is by far the most popular among the public) would be to focus on wealthier Americans and have them pay a larger portion of their income into Social Security. This would be done by tinkering with the payroll tax earnings cap — the aforementioned $127,200 cap at which wages no longer become taxable by the payroll tax.

During her campaign, Hillary Clinton had suggested raising the payroll tax earnings cap to $250,000. By doing so, there would be a payroll tax moratorium on wages between $127,200 and $250,000, but any wages over $250,000 would be subject to the 12.4% tax. The reason lifting the payroll tax earnings cap is so popular is that it would only affect about one in 10 Americans. Since most working Americans are paying into Social Security with every dollar they earn, it would only make sense to most Americans to see the wealthy have to do the same. It would also wind up eliminating a good portion but not all of the budgetary shortfall in Social Security through 2090.

The downside? Other than the fact that the well-to-do would be taking home less income, they also wouldn’t see commensurate benefits from Social Security when they retire, despite paying so much extra into the system.

Do future retirees need to make do with less?

The other side of the equation is to leave the revenue aspect of Social Security alone and tinker with the benefits being paid. Most lawmakers wouldn’t dare suggest reducing the benefits of current retirees, but the idea of adjusting the payouts to future retirees is very much on the table, especially for Republican lawmakers.

The most effective way to reduce benefits for a future generation of retirees without using the words “reduce benefits” would be to raise the full retirement age. Your full retirement age is determined by your birth year (you can find yours with this SSA table), and it marks the age at which the SSA determines you’re eligible to receive 100% of your monthly benefit. File for benefits before reaching your full retirement age, and you’ll take a cut in pay from your full retirement benefit. Wait until after your full retirement age and your benefit will grow beyond 100%.

Raising the full retirement age to 68, 69, or 70 would mean that all brand-new and future retirees would either have to wait longer to receive 100% of their benefit, or they’d have to accept an even bigger reduction in their monthly payout if they claim benefits before reaching their full retirement age. Raising the retirement age could encourage healthy seniors to stay in the workforce longer, thus adding to payroll tax revenue in the process. On the flip side, seniors in poor health or those who can’t get a job could be forced to file for benefits at age 62, taking a big cut in lifetime benefits in the process.

Should current retirees deal with reduced income?

It’s certainly not a popular solution, but cutting benefits for current retirees is another possible answer to fixing Social Security.

One such example was recently touted in the Social Security Reform Act of 2016, introduced by Rep. Sam Johnson (R-Texas), the chairman of the Ways and Means Social Security subcommittee. Among the many fixes offered by Johnson, one involved switching from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Chained CPI when it comes to calculating cost-of-living adjustments (COLA).

The difference between the two is that the Chained CPI factors in “substitution,” which is the perception that consumers will trade down to lesser expensive goods and services if the price of another good or service rises too much, while the CPI-W does not. Because the Chained CPI factors in substitution, it grows at a slower pace than the CPI-W. The implication being that going with a Chained CPI will result in lower COLAs for retirees.

Which solution is best is really up to interpretation, but one thing is very clear: If Social Security is going to be fixed for the generations to come, someone is going to take a pay cut.

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Behold the ‘scariest chart’ for the stock market

My Comments: By now you’ll perhaps realize that whatever I say about what is likely to happen in the markets is wrong, and that you’d be better off doing just the opposite.

That’s OK. And if you are young and retirement is a few decades away, it’s OK to ride it out. But if you’re no longer young and foolish, then articles like this one from Sue Chang need to be read. What you do about it is up to you.

by Sue Chang, August 9, 2018

A lot has changed since the stock market crash of 2000. Apple Inc. has gone from being just another computer brand to becoming the most valuable company in the world, Amazon.com Inc. went from being an e-book retailer to a byword for online shopping and Tesla’s Elon Musk has risen from obscurity to Twitter stardom.

Yet some things never change and Doug Ramsey, chief investment officer at Leuthold Group, has been on a mini-campaign highlighting the parallels between 2000 and 2018.

Among the numerous similarities is the elevated valuation of the S&P 500 then and now, which Ramsey illustrates in a chart that he has dubbed as the “scariest chart in our database.”
“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,” he said in a recent blog post.

Price-to-sales ratio is one measure of a stock’s value. It isn’t as popular as the price-to-earnings ratio, or P/E, but is viewed as less susceptible to manipulation since it is based on revenue.

He also shared a chart which he claims is “unfit for a family-friendly publication” that shows how in terms of median price to sales ratio, the S&P 500 is twice as expensive as it was in 2000.
“Overvaluation in 2000 was highly concentrated; today it is pervasive, with the median S&P 500 Price/Sales ratio of 2.63 times more than double the 1.23 times prevailing in February 2000.

In a follow-up post, he then reiterates how 2018 is starting to increasingly look like 2000.

“The statistical similarities between the two bulls are on the rise, and the wonderment surrounding the disruptive technology of today’s market leaders seems to have swelled to maybe 1998-ish levels,” he writes.

That upward trajectory of the market isn’t sustainable, he warns. Ramsey admits that history isn’t the best guide for the future but the S&P 500’s performance since it touched its peak on Jan. 26 is closely mirroring what happened 18 years ago.

“In the earlier case, a volatile five-month upswing that began in mid-April ultimately fell just a half-percent short of the March 24th high by early September. This year, a similarly choppy, six-month rebound has taken the S&P 500 to within 1% of its January 26th high,” Ramsey said.

(At this point, if you are still interested in this idea, I’m going to send you to the article as it first appeared. Here’s the link: https://www.marketwatch.com/story/behold-the-scariest-chart-for-the-stock-market-2018-08-08 )

7 Myths About Variable Annuities: Exposing Their Dark Side

My Comments: Anyone now retired or thinking about retirement spends time and energy coming to terms with how to manage their money.

Increasingly, fees charged by advisors and/or their companies are perceived as a threat somewhere along the way. However, unless you have the skills to do it all yourself, you are necessarily going to have to pay fees to gain the peace of mind you crave.

But there are fees and there are fees. My experience with variable annuities suggests they are generally excessive and you can gain the same positive outcome at a lower cost using a different approach.

These comments from Craig Kirsner are not definitive. But if you have variable annuities in your portfolio or are being encourage to buy one, I advise you to think again.

by Craig Kirsner, July 31, 2018

One of the most misunderstood investment strategies I’ve come across over the past 25 years is the variable annuity. When I audit existing variable annuities, I get the facts about them by calling the insurance company directly rather than the broker who sold them. Why? Because I believe you should trust but verify, and I like to get my information directly from the horse’s mouth.

When I call the insurance company, among other questions, I ask: What are all the fees? What is the risk? What are the features? After going through that drill numerous times, I’ve pretty much seen it all. Based on my experiences over the past 25 years, the following are the seven most common myths I’ve learned about variable annuities and the facts dispelling those myths:

Myth #1: A variable annuity is a suitable investment for a retiree

I typically work with high-net worth clients, but regardless of your means, your investing goals and strategies evolve as you grow older.

Early in life, you were probably happy to ride with the ebb and flow of the market, waiting and hoping to hit that investment “home run.” And why not? Suffering a loss now and then didn’t bother you because you were certain of a rebound, and you knew you had plenty of time to recover, long before retirement.

But years pass and investing approaches change. Entering retirement, most people start thinking about protecting and preserving what they have, not making a big splash in the market.
You may have heard it said that these days the return OF your principal is more important than the return ON your principal, and that is definitely true for most of our clients. That’s why the variable annuities some retirees count on for a regular income may not be the best route to take. Which brings us directly to Myth #2.

Myth #2: Your money is safe

People are often led to believe by their brokers that with variable annuities their money is safe, which couldn’t be further from the truth. Your money is invested in mutual funds with no real protection of your principal.

The name of the annuity pretty much sums it up: “Variable,” as in the principal varies, unlike a fixed annuity, where the principal is guaranteed by the insurance company.

Continue reading HERE: https://www.kiplinger.com/article/retirement/T003-C032-S014-7-myths-about-variable-annuities.html

3 Myths About Your Social Security Filing Age

My Comments: Social Security benefit payments are critical for millions of Americans. When you apply and the amount of money you are entitled to is a decision fraught with uncertainty.

Since none of know how our life is going to play out, all we can do is develop an understanding of our choices so that we can at least make an informed decision, even if life ultimately throws us a curve ball. Just know that you are going to get about the same amount of money regardless of when you apply.

That’s because payments will end when you die. In the meantime, you can opt for a smaller check for a longer period of time or wait and get a larger check for a shorter period of time.

Know too that if you are the higher earner of the two, and you die first, then you are providing your survivor with more money per month if you wait. There is no real way to know the best answer.

July 30, 2018 by Jim Blankenship, CFP, EA

Figuring out when to claim your Social Security benefits is a tricky question, and people wrestling with the decision often rely on several widely followed rules of thumb. Unfortunately, doing that can potentially lead you astray, because these are generalities, not rules, and they aren’t as clear-cut as you might think.

Let’s take a long, hard look at three “facts” about Social Security filing age and the real math behind them. All three are only true to a point — and as you’re planning your Social Security filing age, you should understand the truth behind these three principles.

First, let’s look at the concept of delaying benefits.

1. You Should Always Delay Your Social Security Filing Age to 70

This one is the easiest to understand why it’s wrong — but the component of truth in it can be important, because it could work in your favor to delay. Of course, an absolute like this is going to be proven incorrect in some circumstances.

Most people know that if you start taking benefits early — as young as age 62 — your Social Security check will be lower than if you had waited until your full retirement age (FRA). And once you pass your FRA, your benefit grows each year beyond that until age 70, when it tops out. So, if you happen to be able to delay your Social Security filing age and you live a long time after age 70, over your lifetime you may receive more from Social Security than if you filed early. However, if you need the cash flow earlier due to lack of other sources of income or expect a shortened life span, filing early may be your only choice.

Filing earlier can provide income earlier, but depending on your circumstances you may be short-changing your family. When you file early, you are permanently reducing the amount of benefit that can be paid based on your earnings record. Your surviving spouse’s benefits will be tied to the amount that you receive when you file, and so if you delay to maximize your own benefit and your spouse survives you, you’re also maximizing the benefit available to him or her. This is assuming that your surviving spouse’s own benefit is something less than your own.

To see how this all works, consider this example. John, who is 62, will have a benefit of $1,500 available to him if he files for Social Security at age 66, his full retirement age. His wife, Sadie, will have a benefit of $500 available at her FRA. If John files at age 62, his benefit would be reduced permanently to $1,125 per month. When John dies, assuming Sadie is at least at FRA at the time, Sadie’s benefit would be stepped up to $1,237 (the minimum survivor benefit is 82.5% of the decedent’s FRA benefit amount).

On the other hand, if John could delay his benefit to age 68, he would receive $1,740 per month, because he would have accrued delayed retirement credits of 16%. Upon John’s death, Sadie would receive $1,740 in survivor benefits. By delaying his benefit six years, John would have improved his surviving spouse’s lot in life by over $500 per month. Of course, this would require him to come up with the funds to get by in life in the meantime, and so if he did have the funds available this would make a lot of sense. If he didn’t have other funds available, one thing that can help matters is if Sadie filed for her own benefit at age 62 — that would provide them with $375 per month while John delayed his benefits.

What to remember: The key here is that it’s often wise for the member of a couple who has the larger benefit to delay benefits for the longest period of time that they can afford, in order to increase the survivor benefit available to the surviving spouse. But it’s also often necessary to file earlier due to household cash flow shortages. As we’ll see a bit later, only the question of surviving benefits makes the idea of delaying benefits to age 70 a truism. Otherwise, it could be more beneficial to file earlier.

2. Increase Your Benefits by 8% Every Year You Delay Filing

This one again comes from a partial truth: For every year after FRA that you delay your Social Security filing, you will add 8% to your benefit. But the year-over-year benefit differences are not always 8%, and often the difference is much less.

It is true that if you compare the benefit you’d receive at age 66 to the benefit you’d receive at age 67, it will have increased by 8%. However, if you compare your age 67 benefit to your age 68 benefit, it will have increased by 7.41%. This age 68 benefit is 16% more than the age 66 benefit, but only 7.41% more than the age 67 benefit. This is because the benefit increase is based on your FRA benefit amount (age 66 in this example), not the amount you could have received at age 67.

What to remember: Don’t be distracted by the differing percentage changes over the years. The bottom line is, Social Security benefit amounts themselves do increase by approximately 8% per year overall every year you wait – but often the year-over-year percentage increase is less. An increase of 8% is an approximation, but in reality, your increase will often be less.

3. The Break-Even Point is 80 Years of Age

I’ve often quoted this as a generality — rarely pinning it down to a specific year but giving the range of around 80 years old. It’s not that simple, though, when you consider all the different ages that an individual can file. The break-even point is the age at which your lifetime payment amount would be equal, whether you claim Social Security early or late, and if you live beyond that, you would come out ahead by waiting. And if you don’t live to the break-even age, it’s better to claim earlier.

For example, when deciding between a Social Security filing age of 62 versus filing at age 63, your break-even point occurs at age 76 (when your FRA is age 66). But when deciding between age 63 and age 64 (with FRA at 66), the break-even occurs at age 78.

On the other end of the spectrum, when choosing between filing at age 69 versus filing at age 70 (FRA of 66), the break-even occurs at age 84 — considerably later than age 80. The break-even for the decision to file at age 68 versus age 69 occurs at age 82.

What to remember: The year-over-year break-even point varies, depending on which Social Security filing age you’re considering. If the two options are earlier (before FRA) the break-even point occurs before age 80. If they are both at or around FRA, then the break-even occurs right around age 80. But if the Social Security filing age you’re considering is near age 70, count on the break-even point being much later, as late as age 85.

Vanguard’s Chairman Sees Muted Decade for Stocks After Long Rally

My Comments: Little is said these days about those who are investing for the future and are still working vs those investing for the future who are no longer working. Think of it as being defined as the accumulation phase of your life vs the distribution phase of your life.

Different rules apply. Vanguard Funds founder John Bogle famously suggested that the bond part of your portfolio, presumably the ‘safe’ part, should be equal in percentage terms to your age. If you were 70, for example, 70% of your portfolio should be in bonds.

Demographics, interest rates, and the profusion of new financial products has largely put Bogle’s dictum to bed. But it does illustrate the continued confusion caused by those who fail to recognize the difference between someone in their 50’s working hard to accumulate a sufficient pile of money for retirement from someone in their 70’s trying to make sure they don’t run out of money before they run out of life.

We are currently conditioned to positive returns from the markets, except for 2015, that started as we emerged from the Great Recession of 2008-2009. Those of you in the distribution phase of your life need to heed the warning expressed here.

By Nico Grant | January 17, 2018

F. William McNabb, Vanguard Group’s chairman, cautioned investors to consider reducing their stock exposure before the nearly 9-year-old rally ends.

“We would expect the next decade to actually be very modest on the equities side in the U.S., a little less so in Europe and a little less so in Asia,” McNabb said in a Bloomberg Television interview that aired Thursday. “But it’s still overall lower than long-term historical averages.”

Stock markets reached a fever pitch in 2017 as the S&P 500 Index hit record highs and the rally has continued this year. The advance, buoyed by low interest rates around the world, economic growth and the U.S. tax overhaul, has sparked concerns that valuations have gotten stretched, spurring some investors to brace for a decline.

McNabb, whose firm oversees about $5 trillion, said long-term investors may benefit by holding balanced portfolios with bonds as well as stocks.

“No one can predict what’s going to happen in the next 12 months,” he said. “Having just said that, I’m sure the equity market will continue to skyrocket for the next few months.”

McNabb, who ceded the role of chief executive officer of the Valley Forge, Pennsylvania-based firm to Tim Buckley this month, spoke to Bloomberg in Beijing, where Vanguard is eager to take advantage of China’s opening to foreign financial-services companies. The country’s government said it plans to remove ownership limits on banks and allow overseas firms to take majority stakes in local ventures.

“With some of the changes, it looks like there may be a path to doing retail mutual funds, depending on how things get interpreted,” McNabb said.

China’s assets under management are poised to climb more than fivefold by 2030 as the world’s second-biggest economy grows, according to estimates from Casey Quirk by Deloitte.

The Bull Market Could Be Speeding Right Into a Brick Wall

My Comments: I’ll admit to having done poorly as an investment advisor these past few years. My history was and has been shaped by our collective experience following what became known as Black Monday on October 10, 1987. On that day, we were glued to the radio or TV as the DOW dropped over 22% and fear gripped the country.

For the past three years, I’ve been expecting and counseling clients to expect another, and as a result, I’ve not been positioned correctly as the markets have defied my expectations and largely continued to rise. I’m reminded of how a broken clock is right twice every 24 hours.

But over the past few weeks, in meetings with clients and prospective clients, each time someone other than I have brought up the question of another dramatic price drop. And each time I’m reminded of my inability to offer anything other than caution.

Some of that advice includes the understanding that a recession and a stock market crash, while related, are not synonymous. But it can be argued that either can trigger the other.

It’s also colored by the fact that I’m now in my 70’s and those I’m talking with are either in or are approaching retirement. A mistake now will be far more painful that it would have been 30 years ago. Then we had time to wait for a recovery. Today, not so much.

The so called tax cut passed by Congress and signed by Trump will likely make the next crash worse. That’s because so much of the impetus for the current gains is driven by corporations buying back stock from the general public with their tax savings. This extra demand pressure is driving stock prices up. The story we got was it would be spent on employee raises, new hiring, or benefits. The con job continues.

by Brian Sozzi – July 30, 2018

Too much hot money is concentrated in surging FAANG stocks (Facebook, Apple, Amazon, Netflix and Alphabet’s Google), and it may be about to end badly for investors.

Facebook’s (FB) post-second quarter earnings meltdown has shed light on increasingly narrow market breadth — an often negative development for stocks — explains Goldman Sachs strategist David Kostin. Narrowing breadth has been masked by the out-sized appetite for tech stocks such as Facebook and Netflix (NFLX) . The top 10 contributors in the S&P 500 have accounted for 62% of the S&P 500’s 7% year to date return. Of these 10 stocks, nine are tech or internet firms.

The tech sector alone accounts for 56% of the S&P 500’s year to date return, or 76% including Amazon (AMZN) and Netflix.

Stock Spotlight

Nvidia shares have trailed the Nasdaq Composite since late June as investors book profits ahead of second quarter earnings on August 16. Remember, Nvidia saw a mixed response to its strong first quarter results back in May. At the time, investors called out some weakness in the auto chip business and in chips used in cryptocurrency mining to head for the hills. But given the company’s widening competitive advantages in the chip space, it will be hard for investors to stay away from Nvidia for too long.

“We see many reasons to maintain our 2-year-old bullish thesis on Nvidia,” says Arthur Wood analyst Jeff Johnston. “They are the leader in some of the fastest growing areas in tech and should continue to be so for the next several quarters. Additionally, they are well positioned to maintain/grow their dominant market share position in their legacy markets.”

The call from yours truly: Softbank will buy Nvidia within the next three years (It has a 5% stake in the company that it took in 2017).

We’re nearly at zero: The US just passed another flashing-red indicator on the way to recession

My Comments: Anyone of you who has money invested or is dependent on cash flow from your investments to pay your bills needs to be concerned. What follows is a very good explanation for anyone who whose time horizon for retirement is less than 10 years.

Uncertainty is the biggest driver of global pullbacks in interest rates and growth numbers. Right now, not only from a normal cyclical ebb and flow of economic activity but from the uncertainty generated by the confusion promoted by Trump, we are on the cusp of a significant pull back.

Me, I’m moving my money into cash over the next few weeks. If not sooner… One reason is that people tend to anticipate what will happen to their money before it becomes obvious. Which means that a market crash will precede the economic downturn.

By Jim Edwards, July 16, 2018

The yield on 10-year US Treasury notes declined for a fifth consecutive week, taking the US economy yet another step toward recession. A contraction in America would hurt growth across the planet.

Treasury yields don’t automatically trigger recessions, of course.

But there has been a worrying historical correlation between the moment that the percentage yield on the two-year Treasury becomes greater than the yield on the 10-year note. That phenomenon is called a “yield curve inversion,” and it means that investors are so worried that they’re much less likely than normal to bet on short-term assets.

In layman’s terms: Bonds are about safety for investors. If you buy a two-year note, you can be reasonably sure that you’ll get your money back in two years’ time. Two years isn’t very far away, after all. The near-term is easier to predict than the long-term. So yields (the amount you get back) are lower for short-term notes, because the risk is lower, and thus the reward is lower too.

Ten-year notes represent the opposite bet. They are riskier because who knows what will happen in 10 years’ time? So yields on long-term notes are higher because there is more uncertainty until you get your money back.

When the opposite happens — and investors signal that the short-term feels riskier than the long-term — something must be wrong. If investors say they have less idea of what’s going to happen in two years than 10 years, then they must be very worried about the near-term — and that is a pretty good signal of an impending recession.

When the two-year exceeds the 10-year, recessions tend to follow in short order.

This chart from FRED shows it best. We’re closer to an inverted yield curve than at any time since 2005-2007, which was right before the great financial crisis of 2008:

At the moment, we’re still above the zero-percent-difference line. But only just. The yield curve is flattening, not inverted. We’re trading at 25 basis points on Monday, the flattest since 2007.

There is one reason not to panic. The yield curve doesn’t say that a recession will come imminently. Just … sometime soon. Macquarie analyst Ric Deverell and his team told clients recently that even if the curve was inverted, a recession might not show up until 2019, based on the historic record:

“Historically, the term spread has been one of the best indicators of a forthcoming recession … Indeed, each of the five most recent recessions were preceded within two years by an ‘inverted’ yield curve, with only one false signal (the yield curve very briefly dipped into negative territory in mid-1998, during the Russia crisis and the collapse of Long Term Capital Management, around 33 months before the cyclical peak).”

“On average, the lag between yield curve inversion and the onset of a recession is around 15 months. … Even if the current trend pace of flattening since 2014 were to persist, the curve would not invert until the middle of 2019.”

The global economy doesn’t look like it’s facing a recession — there is widespread GDP growth in the US, Europe, Asia and China. Nonetheless, the current expansion is one of the longest on record, and the economy tends to move in boom-bust cycles. We’re due for a bust, frankly.

There is another big difference between today and 2005: Central banks the world over have been buying bonds like crazy for nearly 10 years to keep interest rates down and to fuel the economy via so-called “quantitative easing.” That has artificially depressed bond yields, and it means that this time around the yield curve is not the reliable predictor of recession it used to be. That’s the position of UBS economist Paul Donovan, for instance.

Of course, when smart people start saying a recession won’t happen because “this time it’s different” — that’s also an indicator of impending recession.