Are Millennials Spearheading a New Economic Revolution?

Rick 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’s 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

New 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 News

  • The 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 $ 1.91 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. – Celanese Corp.
    4. – CNBC

Planning Tips

Guide to Foreign Savings Accounts

There are a number of reasons why an American might be interested in having a foreign savings account. Those living abroad may find that opening an account in their country of residence makes it easier to access their funds and saves them money on bank and transaction fees. For people who live in the United States, a foreign savings account is more like an investment account than a traditional savings account since foreign exchange rates come into play. Below is a brief guide to foreign savings accounts. Be sure to consult with your financial advisor to determine if this appropriate for your situation.

Understanding foreign savings accounts – Foreign savings accounts allow you to invest your money in a currency other than the dollar so you are betting that the foreign currency will have a favorable exchange rate when you want to withdraw your savings and convert them back to dollars. You can open these accounts when you are in a foreign country or by contacting a foreign bank online, if it opens accounts that way. Foreign savings accounts may have higher interest rates than in the U.S., which may make them appealing for savers willing to take the risk that the exchange rate will work in their favor. However, if the high interest rate is coupled with the devaluation of the currency (as often happens with inflation) any gains in interest will be lost in currency exchange.

Currency Exchange Fees – Many foreign savings accounts have higher minimum deposits than traditional savings accounts. This means more of your money is at risk. There are almost always currency exchange fees associated with changing between currencies. Opening a foreign account means you may have to pay them twice: once for converting from the dollar into a foreign currency, and once to convert your money back to dollars. These fees are generally priced as a percentage of the total amount being converted, which means they can take a big cut out of the interest you earned. Be sure to factor in these fees when comparing what the foreign account would yield compared to a domestic account.
Special Tax Reporting Requirements – People with foreign savings accounts, those located outside of the United States, are required to file the IRS form known as the FBAR. This is true whether you opened the account at a local bank in that country or at a local branch of a U.S. bank, say the Hong Kong branch of Citibank. If you have foreign accounts and are unsure about your tax status or which forms to file, it is worth hiring an accountant to protect your assets. You will be required to pay ordinary income tax on any income you earn through interest or currency exchange, the same way that you pay income tax on earnings from an American savings account.

Potential Risks and Benefits – Saving in another currency works best for those with a high tolerance for risk and the willingness to track exchange rates and move fast if necessary. Currency markets are extremely volatile, with values changing between 1% and 3% on average each day. There is the potential for large gains in a foreign savings account, but there is also the potential for large losses.

Alternatives to Foreign Savings Accounts – While there may be some appealing reasons to entrust your savings to a foreign account, the U.S. stock market also offers investments that earn more than a domestic savings account, but without currency exchange fees. Additionally, you would only pay taxes at the capital gains rate, rather than at the ordinary income tax rate. If you are looking for a safer place to save your money and earn interest, consider investing in a CD at a U.S. bank. CDs have a guaranteed return on investment at a higher interest rate than a traditional savings account and are FDIC-insured up to $250,000 per depositor.


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    2. – IRS
    3. – Investopedia
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