On the latest episode of Giving Ventures, Peter talks with two donors: David Thayer and Tom Beach. They share their expert insights into the markets and offer thoughts on how donors and organizations might respond to economic and political uncertainty.
Recession ‘Likely to Get Worse’
The episode, taken from a conversation originally aired as a webinar for nonprofit leaders, starts on a pessimistic note. Thayer explains why we are likely in a recession and unlikely to see a great reduction in the inflationary environment.
“My personal view is that we are likely in a recession now and that it’s also likely to get worse, unfortunately, later this year,” he says. “I think 2% [inflation], as the Fed is striving to achieve, is unlikely to be in our, at least, near future — perhaps even in our far future.”
A graduate of the London School of Economics, David is an executive advisor to Blackstone, which bills itself as the world’s ‘largest alternative asset manager,’ with $991 billion in assets. He previously served as chief financial advisor for Blackstone affiliate Harvest Fund Advisors.
An expert in market-based economics, Thayer says we’re experiencing a “stagflationary” environment and that the apparently rosy employment numbers don’t reflect the many Americans that have stopped looking for unemployment altogether.
“Unfortunately, I think we’re perhaps falsely encouraged by the unemployment numbers because a lot of folks are not in the workforce — they’re not being captured in these low unemployment numbers,” he says, adding he expects more layoffs this year and perhaps rate cuts as a result.
Market Experiencing ‘A Weak’ Economic Environment
Tom, unlike David, hesitates to say we’re experiencing a recession but says he believes all the historical indicators are present to suggest our country will experience one in the near future, as high inflation and low growth is the recipe for a disastrous economic climate.
“I don’t know if we’re in a recession right now but it’s definitely a weak and weakening environment. It’s worth keeping in mind that, in all past periods such as this, we’ve had some major accidents,” he says, noting major threatened bank closures of the last 50 years.
Tom is the managing director of Beach Investment Council, Inc, a Securities and Exchange Commission-registered financial-advising firm, and a graduate of Harvard Business School. He serves on the board of multiple nonprofits, including Reason Foundation, Atlas and DonorsTrust.
Donors ‘Very Cautious and Very Worried, Concerned’
While some companies have already started to lay off employees, what are donors doing, if anything, in light of the shakier market? Tom notes that everyone he talks to is worried about the economy. What he hasn’t seen is organizations changing their budgets or reacting in any way, even though we may be approaching a point where that will have to change.
“Everybody I talk to is very cautious and very worried, concerned and quite possibly for good reasons, as I outlined,” he says. “I haven’t seen any organizations changing their budgets yet — reacting to these concerns in a real way but I think we’re in position where now that may begin to change.”
He also notes the boards in which he is involved have continued to be consistent in their giving, but where he is seeing donors fall away is at that lower and mid-tier level.
Tax-Rate Hikes Possible In Near Future
In trying to predict what effect uncertainty might have on donors, David mentioned another one: It’s possible we may see tax rates go up in response to some of this, which may cause high-net-worth individuals to delay gifts to a point when the offset is higher for them.
When it comes to the political situation, David notes the disappointment many donors had with the mid-term elections. He remains cautiously optimistic thanks to the emergence of some candidates that there may be a broader selection of topics discussed during the upcoming election.
Tom notes that we may be approaching the sum of all fears on the political side, with a potential presidential showdown that will not excite people or get them engaged. He piggybacked on a point that David made regarding the importance of regulatory issues, which could be a path to improving the economic situation if that regulatory burden comes down.
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