Economic Update

Rough Sailing on the Red Sea

On January 8, a drone attack killed three U.S. soldiers further exacerbating tensions that have been rising in the Middle East since October 7, 2023. Since November, Houthi-fired missiles have struck multiple commercial vessels in the Red Sea, the U.S. launched Operation Prosperity Guardian to protect ships there, and many major shipping companies have rerouted vessels around the Cape of Good Hope rather than through the Suez Canal.

By The Numbers

• 12% to 15% of global trade and 24% to 30% of container traffic passes through the Suez Canal.
• In the two months since the Houthi attacks began, freight tonnage going through the Suez Canal declined by 45%.
• Compared to early December, container shipments through the Canal during the week of January 19 were down 82%.
• On December 19, Maersk (the largest shipping company in the world) diverted vessels “around the Cape of Good Hope to mitigate the ongoing risks of sailing through the region” and will recover the additional costs of doing so by imposing “additional freight and costs of carriage” and imposing a Peak Season Surcharge that it may increase or eliminate based on “the impact of the situation.”

Ripple Effects

With trade routes already affected by low water levels in the Panama Canal and conflict in the area of the Black Sea, the United Nations Conference on Trade and Development warns that any prolonged disruptions to shipping through the Red Sea will:

• Increase shipping rates.
• Threaten global supply chains by delaying deliveries and increasing costs.
• Increase greenhouse gas emissions.
• Increase energy prices, especially gas and particularly in Europe.
• Increase global food prices.

Mitigating Factors

How will the conflict in the Red Sea affect us in the United States? Here are some facts to consider.

• During the first half of 2023, the United States:
  • Became the world’s largest exporter of liquified natural gas.
  • Reached a record high level of crude oil exports, though it remains a net crude oil importer—primarily from Mexico and Canada.
• The U.S. remains one of the world’s major wheat exporters (forecasted to be around 9% of the world total for the 2023-2024 trade year), while the grain we do import comes primarily from Canada.
• According to multiple analysts (including the International Monetary Fund), the most the most significant threats to food prices are 1) extremely high temperatures that affect harvests; (2) oil prices; and 3) U.S. interest-rate hikes.

We’ll be keeping an eye on all these factors as the situation in the Middle East and beyond continue to evolve. As always, if you have any concerns, please don’t hesitate to give us a call.

Lifestyle

Happy (Lunar) New Year!

Today is the first day of the Lunar New Year (or Spring Festival as it’s known in China), a multi-day celebration that lasts until the arrival of the full moon. The zodiac animal for 2024 is the dragon, an animal that is believed to bring good luck and ward off evil spirits.

Outside of Asia, Sydney, Australia is home to the largest Lunar New Year celebration. In the U.S., San Francisco, New York, and Boston host large parades and multiple events to mark the holiday. Closer to home, The Walters Art Museum hosts a Lunar New Year celebration today, and the D.C. parade is tomorrow (February 11). The DAR Museum has a few tickets left to its drop-in, free event featuring games, food, and performances on February 17 between 10:00 a.m. and 2:00 p.m. 

How We Help

Using Real Estate to Build and Preserve

Generational Wealth

When we’re asked how best to preserve and build generational wealth, our answer almost always includes investing in real estate. Why?

1. Real estate has the potential to increase in value and almost always produces income that continues to rise.
2. Because real estate is a physical asset (unlike a stock or bond), and if it is a building, it can provide shelter even if it decreases in value.
3. Unlike liquid assets (like stocks and bonds), heirs are less likely to liquidate real estate and subsequently spend the proceeds.
4. Real estate is relatively easy to transfer via an estate plan.
5. You and your heirs can use the equity in one property to invest in additional properties.
6. When you die, your heirs receive a step-up in basis to the current market value of the real estate.

We work with individuals and families to protect real estate using a variety a techniques, including limited liability companies and trusts. Both can give members of the first generation control of the assets during their lifetimes. Trusts can protect assets from an inheritor’s ex-spouse and provide inheritors a secure retirement. For example, some of our clients give their children access only to a set withdrawal rate on the income generated by the real estate until their children retire. At that point, we often see members of the second generation keep real estate assets in trust (or in limited liability companies) for their children.

If building and preserving wealth over generations is one of your goals, please give us a call, and let’s talk.

Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member FINRA/SIPC. Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.