December 30, 2012
Pros: Unlucky ’13
The new year is shaping up as a bad one, no matter what happens on Capitol Hill, a veteran financial planner warns.
Ronald Rogé is warning his clients to prepare for rocky times on both Wall Street and Main Street. Rogé believes they are inevitable.
The Long Island financial pro sees failed tax and monetary-creation policies, as well as too much spending from Washington, which have been building for years, as a well-traveled road to ruin.
“There’s a very good probability that we are going to have a recession next year,” according to Rogé, whose practice caters to professionals with upper-middle class incomes.
Rogé is not the lone pessimistic voice out there. A recent Morgan Stanley macroeconomic report said, “More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks.”
The report from the financial services company’s economics team sees a full-blown recession in which global gross domestic product (GDP) will likely plunge 2 percent, which could mean negative growth for the US.
The International Monetary Fund (IMF) warned recently when it cut its growth forecasts that the global economy will remain “very fragile” in the immediate future and notes it will take time to fix the Eurozone issues.
For the United States, it says “urgent policy priorities” should be averting a fall over the fiscal cliff, which the fund says could trim more than 4 percent off GDP in 2013, stalling economic growth.
Even if the US avoids the fiscal cliff and raises the debt ceiling, Europe’s problems will still have an impact on the economy, it said.
“Falling off the cliff will mean a 4 to 5 percent reduction in GDP in 2013, and a recession,” says Rogé, citing figures compiled by PIMCO, a large mutual-fund company.
Rogé’s second scenario, which seems unlikely at this point, is that the Democrats and Republicans compromise, and the nation doesn’t go off the cliff.
But that, Rogé says, would mean no substantial reform in the problem of entitlement overspending. This too would result in recession, Rogé predicts, as GDP would decline in 2013 by 2 percent to 3 percent.
Finally, Rogé’s most optimistic scenario: Settling the tax and spending crisis with “a grand bargain” both on short-term spending and long-term entitlements. It is a scenario that seems unlikely today.
But even in that best-case scenario, we are left “with a no-growth economy, with possibly a 1 percent to 2 percent decline in GDP,” Rogé says.
So Rogé thinks we are likely headed back into recession. What is his advice for the average investor?
Cash is trash. It is no protection for bad times, he argues. That’s because the investor earns almost nothing, thanks to the Federal Reserve’s commitment to low interest rates for at least the next several years.
Rogé counsels that investors should think about bonds to survive bad times. His recommended allocation for a moderate investor is 50 percent stocks, 40 percent bonds and 10 percent cash.
Investors, he adds, don’t have to shun stocks. But they should look for stocks that emphasize growth through consistent dividends.