How to Prepare for Economic Uncertainty

Published on January 4, 2024 by George Sparks in Wealth Management

We all know a recession is predicted for this year, but there are bigger issues on the horizon, according to leading economists Alan and Brian Beaulieu, President, and CEO & Chief Economist of ITR Economics, In December, the two took a deep-dive into their economic forecast, emphasizing how individuals can prepare for rising inflation, economic uncertainty, and the looming depression of the 2030s – an event they’ve been consistently predicting for over a decade.

Following Alan’s economic forecast for Barnes Dennig, Frost Brown Todd, and Huntington Bank in November, it was insightful to hear how many industry-related elements discussed in that event were relevant to individuals and investors. Throughout the event, Alan and Brian addressed questions from ITR Economics subscribers regarding personal financial goals.

The ‘Great Depression’ still looms ahead

Alan and Brian kicked it off by discussing the upcoming great depression of the 2030s and the five causal factors that will bring about this turbulent economic period. Brian clarified that while this will be the most significant economic depression the United States has faced in a century, it’s not a redux of the 1930s Depression. Different causes and tactics to prepare your company and personal portfolio are necessary to weather the storm.

5 causal factors of the expected depression

1. Demographics: The major economies, including the United States, Europe, and China, have large elderly populations exiting the workforce.
2. Healthcare Costs: The elderly, living longer than ever, demand more healthcare, adding to overall costs.
3. Entitlements: Social Security and Medicare may be paid out at unsustainable levels, potentially reducing payouts by 24%.
4. Inflation: Higher global inflation than pre-COVID levels will make sustainable growth more challenging.
5. National Debt: Increasing government spending and rising interest rates makes meeting interest payments on debt more burdensome.

In summary, the 55+ age group accounts for over 50% of healthcare spending, leading to increased personal and government spending in the category. Policy changes to address this, such as an increase in income taxes or reduced government spending, are unlikely due to the demographic’s outsized influence at the ballot box.

For a deeper understanding of the coming depression and contributing factors, refer to Brian and Alan’s book, Prosperity in the Age of Decline.

Investments and the housing market still provide opportunity

Brian and Alan discussed the challenging housing market fueled by limited supply and elevated interest rates. Despite anticipating a decrease in home values during the great depression, investing in a home in a desirable neighborhood and market with sustained demand is recommended (think a mid-sized or major metropolitan area with an above-average younger demographic and stable, diversified job market).

While we can expect home values to decrease between 13% and 25% in the great depression, they are likely to settle above where they are today, making them an effective hedge against deflation. Although risks of elevated inflation may keep interest rates above historic lows, a small dip in mortgage rates is expected through at least part of 2025.

For investments, solid stock market growth is expected for the remainder of the 2020s. A well-managed portfolio that can outdo inflation is advised, with a gradual shift from stocks to treasury bonds (which may top out at 10% yields by 2030), recommended by Brian and Alan to prepare for the impending depression.

Weathering the storm

The Beaulieus predict the depression will begin near the end of the 2020s, lasting at least six years with periods of negative economic data followed by small rises and deeper drops. It can be incredibly difficult to predict the exact timing (or else there would be many very rich economists) but the underlying models used to predict macroeconomic trends all point to this outcome.

Ahead of the depression, personal investors can take steps to protect themselves:

• Consider moving stocks into stable investments like U.S. Treasury Bonds as well as some targeted Foreign Government Treasury Bonds
• Keep a healthy amount of cash on hand to negate, or even take advantage of turbulence.
• Eliminate as much debt as possible to navigate potential deflation.

Millennials and Gen Z stand to benefit the most as older generations sell off their $21.2 trillion in corporate equities and mutual funds, offering younger generations opportunities at a relative discount. Brian and Alan emphasized that, despite the global impact of the depression, the United States will remain a safe place to do business for the next several decades due to demographic stability, rule of law, and a mature and varied industrial makeup.

Where to go from here

While the prospect of a multi-year global depression may be intimidating, the Beaulieu brothers outlined ways for individuals to prepare and even benefit from these challenging conditions.

The key takeaway is to start preparing now.

With adequate time and strategy, individuals of all age demographics can protect themselves and their families from the worst of the downturn and potentially emerge stronger on the other side. Equity markets are forecasted become more favorable for investors around 2036, and those that prepared well will have a great opportunity for additional wealth accumulation.

If you want to learn more about preparing your business for the years ahead, you can request access to Alan Beaulieu’s Economic Forecast for Barnes Dennig, Frost Brown Todd, and Huntington Bank here.

Interested in discussing your personal investment strategy? Our Wealth Management team can help. Contact a member of the team today to learn more about the strategies covered here and how to position yourself for the predicted coming depression.

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