Thank you for your recent questions and for engaging with the research we are doing on your behalf. Here are four key economic updates we are watching closely.
1. 50-Year Mortgages and Global Housing Models
Many clients have asked what I think about the suggestion of 50-year mortgages. In the U.S., we often assume our way is the only way, but other countries have operated with alternative mortgage structures for decades.
- In parts of Europe, governments subsidize portions of home purchases and even participate in price appreciation.
- Japan offers subsidized mortgages that extend to 50 years, with the government participating in the appreciation.
- Switzerland uses a split-mortgage structure: the first portion of the home’s value is amortized over a set period, while the remaining portion is an interest-only loan held in perpetuity.
As the U.S. deals with a hyper-expensive housing market, policymakers are asking whether elements of these systems could make entry-level housing more affordable. Some studies show these tools help in the short run, even if they may not improve long-term affordability. We would not advocate a wholesale shift, but selective integration may help first-time buyers.
2. Bond Market Stress
I continue to be very concerned about the bond market. Economic downturns rarely begin in the stock market—they start in the bond market. We are seeing rising defaults in multiple areas:
- Consumer loans
- Commercial mortgage-backed securities (malls, office buildings)
- Credit cards
- Used car loans
- Student loans
We are monitoring these trends closely because pressure in credit markets often precedes broader economic weakness.
3. Gold as a Tier One Asset
In the past year, gold was reclassified under Basel III banking regulations as a tier one asset, placing it alongside the world’s most stable reserves. As global banks work to reduce dependency on U.S. Treasuries as their primary tier one holding, demand for gold has increased. That demand has contributed to gold’s strength over the last year.
Our expectation:
Gold may experience a pullback or “exhale” before resuming its longer-term trend higher. This could create an opportunity to add a small allocation to portfolios sometime in 2026.
4. Market Valuations and Forward Returns
There is strong historical evidence linking the stock market’s price-to-earnings (P/E) ratio at the time of purchase with returns over the following decade.
- In the late 1990s, P/E ratios reached ~35, followed by a decade (2000–2010) with a negative return for the S&P 500.
- Today, the S&P 500 trades around 27 times earnings—high by historical standards.
Tech and AI complicate the picture:
- Tech + AI account for 60% of U.S. market cap
- U.S. Tech Index trades at ~37x earnings
- U.S. AI Index trades at ~41x earnings
When you strip those out, the rest of the market trades closer to 20–21x earnings, which is more reasonable. What this means for us:
- Stay diversified.
- Favor companies paying or growing dividends.
If we want long-term returns in the 6–8% range, dividends reduce our dependence on pure price appreciation. A 2–4% dividend helps us reach the same outcome with less reliance on rising valuations.
We are continuing to refine our portfolio construction—“the sausage-making”—with support from partners like JP Morgan and WisdomTree. You may see adjustments in holdings as we improve our formulas and processes behind the scenes.
Final Thoughts
These four areas—50-year mortgages, bond market stress, gold’s new tier one status, and elevated market valuations—are the key developments we are tracking for you right now.
As always, at Vizionary Wealth Management, we are here to help you Envizion More. You are never an impediment or an inconvenience. If you have questions about your finances or any upcoming decisions, please reach out anytime.
Thank you again.