Economic Outlook Highlights from Neel Kashkari – FPA NorCal Opening Session (Twitter Style!)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

MichaelKitces: Opening session for #FPANorCal starting shortly. Neel Kashkari, managing director at PIMCO & former manager of TARP! Economic outlook.

MichaelKitces: Conference opening remarks from amazing 2-time chair Sabrina Lowell at #FPANorCal

MichaelKitces: Awesome value-add for attending #FPANorCal - every attendee automatically gets conference CD with all (38!!) presentations - no extra cost!

MichaelKitces: Now to the podium - #FPANorCal platinum sponsor AssetDedication's @jbrentburns introducing PIMCO's Neel Kashkari.

jbrentburns: Introducing Neel Kashkari at #FPANorCal. He ran TARP following the '08 crisis. Should be insightful. Stay tuned.

MichaelKitces: Kashkari starts w/ charts of housing to discuss bubble - "nowhere were increasing valuations more apparent" - except to the Fed? #FPANorCal

MichaelKitces: "Look in the mirror folks. We've been adding to GDP by piling on debt for 30 years." -Kashkari #FPANorCal

MichaelKitces: "Our economy got fat. We had a heart attack. Emergency intervention helped, but we're still fat lying on a gurney." -Kashkari #FPANorCal

MichaelKitces: "3-5 year outlook - a bumpy journey and we're driving without a spare." -Kashkari #FPANorCal

MortgageNudge: Easy to drive GDP when you're adding debt; Hard to drive GDP when you're paying it down. Neel Kaskari #FPANorCal

MichaelKitces: Outlook: deleveraging, slower growth, sustained unemployment, reregulation, restrained globalization, more uncertainty. -Kashkari #FPANorCal

MichaelKitces: Developing economies will lead global growth. Get more comfortable invested outside the US. -Kashkari #FPANorCal

MichaelKitces: Invest in high quality as risk management in coming years (high quality companies, fiscally strong countries). -Kashkari #FPANorCal

MichaelKitces: Traditional patterns of indebtedness being reversed - emerging economies healthy & developed countries overleveraged. -Kashkari #FPANorCal

mkcorbin: Usually, developing countries are financial basketcases, now, the reverse is true. -Kashkari #FPANorCal

MichaelKitces: Incredible debt mountain chart - consumers just can't be long-term backbone for growing the economy in coming years. -Kashkari #FPANorCal

CarolynMcC: #FPANorCal Consumers will no longer drive economic growth. I think in the long term that will be a good thing

MichaelKitces: What should policymakers (not) do - don't try to reinflate the bubble, allow deleveraging adjustments to occur. -Kashkari #FPANorCal

MortgageNudge: Is US headed to be Japan? Unlike Japan, our working age population still growing. Kashkari #FPANorCal

MortgageNudge: But as % of total population, US working population is shrinking. Exacerbates entitlement stresses. Kashkari #FPANorCal

MichaelKitces: Policymakers should help expedite the adjustment - e.g., worker retraining programs. -Kashkari #FPANorCal

MichaelKitces: Policymakers should focus on US productive capacity - education, basic research, infrastructure, high skill immigration -Kashkari #FPANorCal

MichaelKitces: We need to give private sector confidence - fundamental tax reform, minimize regulatory uncertainty, control deficits. -Kashkari #FPANorCal

CarolynMcC: #FPANorCal Tax policy needs to change to encourage savings and income production. Totally right.

MichaelKitces: If we want people to spend responsibly and work more, why do we tax income but not consumption? -Kashkari #FPANorCal

MichaelKitces: Social Security is a problem, but health care cost growth even more problematic. -Kashkari #FPANorCal

MichaelKitces: Our political system is much better at fixing problems after they occur, than they are at taking steps to prevent them. -Kashkari #FPANorCal

MichaelKitces: Kashkari notes that passage of TARP in 2 weeks means we can make hard choices when we have to. -Kashkari #FPANorCal

CarolynMcC: Kashkari says that the US political system surprised him with the lightening speed Congress passed TARP. This is a good thing. #FPANorCal

MichaelKitces: CBO estimates 4% increase in Treasury rates is another $500bln in interest. That's 10x homeland security, 5x education. -Kashkari #FPANorCal

MichaelKitces: "I've shown you the data. There's a fiscal crisis coming if we don't act. If it happens, don't say didn't see it coming -Kashkari #FPANorCal

jbrentburns: Means testing, increasing retirement age are a couple of strategies to manage entitlement driven crisis. - Kashkari #FPANorCal

MichaelKitces: Everything has to be on the table (spending, taxes/revenue, etc) to solve the problem. We have to tackle this. -Kashkari #FPANorCal

MichaelKitces: Q&A beginning. #1 - we never act before a crisis. How can you be so optimistic? #FPANorCal

MichaelKitces: President hasn't really been engaged in deficit reduction (ignored his own def commission) but that may be changing. -Kashkari #FPANorCal

MichaelKitces: Q&A - is the debt ceiling fight for show or for real? Won't default on the debt, but turmoil may occur w/ gov shutdown. -Kashkari #FPANorCal

MortgageNudge: US won't default, but gov't must prioritize spending. Gov't shutdowns possibility; may be catalyst for change. Kashkari #FPANorCal

jbrentburns: Managing the debt ceiling is a shell game. Default is untenable, but shutting down the govt could provide will. Kashkari #FPANorCal

MichaelKitces: Soc Sec change will only impact distant future retirees. So basically, we'll make our children pay. -Kashkari #FPANorCal

MichaelKitces: Q&A - still too big to fail? Yes, Congress focusing on resolution authority - only helps 1 failure in stable system. -Kashkari #FPANorCal

jbrentburns: In a crisis, the risk of contagion in financial institutions is real. Kashkari #FPANorCal

MichaelKitces: I'm concerned about systemwide crises & contagion - we can handle a major failure within a stable system. -Kashkari #FPANorCal

MichaelKitces: We don't need massive spending cuts today. We need cuts that result in massive spending changes over time. -Kashkari #FPANorCal

jbrentburns: Politically tenable spending cuts will have to move out into the future. Also won't negatively impact economy now. Kashkari #FPANorCal

MichaelKitces: Was the answer to the equity premium puzzle the fact that we were continuously adding debt to the economy? -Kashkari #FPANorCal

MichaelKitces: QE2 end well telegraphed, but Fed has still been buying 80% of issuance. There will be buyers, but higher yields. -Kashkari #FPANorCal

MichaelKitces: Would be very surprised if QE3 follows QE2 - Washington is hearing message about less gov't interference in economy. -Kashkari #FPANorCal

MichaelKitces: Slack alone not relief from inflation. Deficits, QE2, growing emerging economies are all inflationary. I'm concerned. -Kashkari #FPANorCal

jbrentburns: Q&A are TIPS a successful experiment. Kashkari says yes. #FPANorCal

MichaelKitces: If Greece defaults other peripheral countries will have to restructure too; Ireland/Portugal lenders panic they're next -Kashkari #FPANorCal

MichaelKitces: A Greek default is inevitable. Their economy has more debt than can be outgrown or sustained. -Kashkari #FPANorCal

MichaelKitces: Greece will default. The key is how to do it in a manner that doesn't trigger contagion or Euro crisis. -Kashkari #FPANorCal

CarolynMcC: Implication if Greece defaults? Other countries will have to restructure or fall like dominoes. Kashkari #FPANorCal

MichaelKitces: Our BEST scenario is a muddle through weak scenario while we get our US house in order. -Kashkari #FPANorCal

CarolynMcC: The euro is more important politically than it is financially Kashkari. #FPANorCal

CarolynMcC: It is hard to be one wise person in a country of fools. Kashkari #FPANorCal

MichaelKitces: When you have a nationwide delusion like housing, it's impossible for 1 wise person to stop it. We'd just cast 'em out. -Kashkari #FPANorCal

MichaelKitces: Q to Kashkari - what's the next bubble. His serious response - "look at the valuations of some social media companies." -Kashkari #FPANorCal

MichaelKitces: Don't see commodities bubble coming b/c of economic damage rising comm prices cause. May be some price pain though. -Kashkari #FPANorCal

MichaelKitces: Most of Wall Street has no idea how close they came to losing everything. -Kashkari #FPANorCal

jbrentburns: Kashkari says most Wall Street execs have no idea how close they were to collapse without govt intervention. #FPANorCal

MichaelKitces: "Wall Street would not exist today were it not for the actions of the taxpayers." -Kashkari #FPANorCal //Not everyone thinks that's good?

MichaelKitces: Game isn't rigged in the US. But high skills are increasingly disproportionately rewarded. The solution is education. -Kashkari #FPANorCal

MichaelKitces: Kashkari's Washington experience as TARP chief gives him interesting perspective. #FPANorCal

MichaelKitces: No country can afford to give absolute best health care to every citizen in their country. Must be some allocation. -Kashkari #FPANorCal

MichaelKitces: Until politician can say "sometimes we can't all get everything we want" & not be voted out, change is difficult. -Kashkari #FPANorCal

MichaelKitces: Kashkari believes history will reflect well on Geitner, Bernanke, etc. Some lessons learned, but we averted disaster. -Kashkari #FPANorCal

CarolynMcC: We need to have an honest conversation about healthcare in this county. Kashkari #FPANorCal I address this in my session tomorrow.

jbrentburns: Politicians are too scared to take on health care. - Kashkari #FPANorCal.

MichaelKitces: Kashkari wraps up. First breakout starting in half an hour. #FPANorCal

If you enjoy this kind of content and want more, be sure to follow some of the active Twitter users who are broadcasting conferences, including Tech guru @BillWinterberg and yours truly, @MichaelKitces. Stay tuned for more conference live-Tweeting experiences throughout the year, and some follow-up posts to this one for further highlights of the FPA NorCal conference! And let us know what you think!