2019-08-26 Bloomberg Businessweek

(Frankie) #1
◼ FINANCE Bloomberg Businessweek August26, 2019

22


THEBOTTOMLINE Wealthyretirees’reluctancetodrawdown
theirsavingsis trappingmillionsofdollarsthatcouldbestimulating
theeconomy.

● MichaelHasenstabhas amassed
a bigbetagainstTreasuries

The $115 Billion


Bond Con rari n


Treasuries—bettingthatrateswillriseandbond
priceswillfall.Thisputshimattheepicenterofa
debatethat’ssplitglobalmarkets.
If he’sright,theworldeconomyisturninga
corner,centralbankswillfinallybeabletoraise
interestratesbacktotheirprecrisislevels,and
globalbondyieldswillstopgrindingeverlower.
If he’s wrong, it may be because the global econ-
omy is too weak for central banks to stop trying
to pump it up. So far, the scoreboard doesn’t look
good,eitherfortheeconomyorforHasenstab:
Afterincreasingratesforthefirsttimeinalmost
a decadein2015, the U.S. Federal Reserve is back
to cutting, and the Templeton Global Bond Fund
has lost 4.8% in the past month. The damage

for Morningstar Inc.’s Investment Management
Group. “The question now is what comes next.”
Meanwhile, trillions of dollars sit in bank
accounts and conservative investments that strug-
gle to keep up with inflation. Corporations hold
almost $2 trillion in cash and buy back their own
stock instead of making large capital investments.
The rate of new business creation in the U.S. is stag-
nant. Individual giving as a percentage of dispos-
able income has been roughly flat for more than a
decade, according to the Giving USA Foundation,
and it actually dropped 3.4% last year in terms of
inflation-adjusted dollars.
The biggest beneficiaries of the wealth generated
over the past 10 years may be the children of the
rich. The more conservatively their parents spend,
themorethey’llinherit.There’sonecomplication,
though:Thegapinlifeexpectancybetweentheaver-
ageAmericanandthewealthyandwell-educated is
growing. While longevity is flat and even falling for
many in the U.S., the well-off can expect to live well
into their 80s and 90s. In other words, if the next
generation is waiting for an inheritance check, it
could take quite a while to arrive. �Ben Steverman

Fewprominentinvestorshavebeenpunished
harderforbeingonthewrongsideofplummet-
ingbondyieldsthanFranklinTempleton’sMichael
Hasenstab,whomanagesfundswithtotalassetsof
about$115billion, including the Templeton Global
Bond Fund.
The flip side of falling yields and interest rates
has been a rally in the bond markets. As yields drop,
bond prices rise, and in recent months, owning U.S.
Treasuries has been an easy way to make money.
So it’s been a tough time to hold the view that the
long era of low rates—which began with the financial
crisis more than a decade ago—is about to reverse.
Hasenstab’s not only less bullish than
most bond managers, he’s actively shorting

Survey of Consumer Finances, its comprehen-
sive study of household wealth completed every
three years, shows the typical U.S. household was
poorer in 2016 than in 2007, adjusted for inflation.
Onlyoneagegroupsawitsmediannetworthcom-
pletelyrecoverfromtheGreatRecessioninthat
time:families headed by someone 75 or older.
Even as some workers and retirees enjoy health-
ier nest eggs, millions of other Americans are strug-
gling. “Affluent folks who are adequately prepared”
often need to be encouraged to enjoy their retire-
ment, says Marguerita Cheng, a financial planner
at Blue Ocean Global Wealth in Gaithersburg, Md.
Meanwhile, she adds, “there are people who are
woefully ill-prepared for retirement. Perhaps they
didn’tsaveenough,butjobloss,illness,divorce,
andfamilysituationscompoundedanalready
precarious situation.”
While many current retirees can rely on
defined-benefit pensions to produce income that
supplements Social Security and protects against
longevity risks, most future retirees won’t be so
lucky. They’ll end their careers with just a 401(k)
or other retirement account, a pot of money they
need to make last. “Collectively as a country we’re
still saving not enough to accomplish retirement,”
says David Blanchett, head of retirement research

“Collectively
as a country
we’re still
saving not
enough to
accomplish
retirement”
Free download pdf