Category Archives: Economy

Wells Fargo Cuts Its Dividend | THE STREET

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After the Fed’s stress tests on banks, buybacks are halted through at least the end of September, and common-stock dividends are capped at an average of the past four quarters’ earnings

Wells Fargo  announced it will cut its dividend, breaking rank with all of Wall Street’s other big banks, following the Federal Reserve’s move to set new restrictions on dividend payouts to shareholders.

The fourth-biggest U.S. bank by assets announced it plans to cut its dividend from the 51 cents it paid in each of the four most-recent quarters. The bank said it would announce its payout when it reports second-quarter earnings on July 14.

The move marks the first time since the financial crisis that a major U.S. bank has slashed its quarterly reward to shareholders, though it also comes as the Fed literally backstops banks and other lenders with almost free money to keep cash flowing through the economy amid the coronavirus pandemic and ensuing economic collapse.

Read more:  https://www.thestreet.com/investing/wells-fargo-wfc-dividend-cut-wall-street-banks

Understanding the Black Experience | Psychology Today

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“Can a White Person Understand the Black Experience? Layers of pain, mistrust, and taboos keep people divided along racial lines.”

Having frank discussions about or asking questions about racism and injustice is challenging for many well-meaning people. They simply don’t know how to approach or “connect to our fellow human beings who are from different ethnic/racial groups and cultural traditions”.

This is particularly difficult when there are over 200 years of racism, injustice and oppression between groups; and, it is difficult while significant social, health and economic inequities remain.

Without an American and world history lesson, it’s safe to say that there are many reasons for discomfort on both sides. This is the major reason why most White people do not understand the African American experience in America.

“Yet, making an authentic connection with another person means understanding, empathizing, and being able to see the world through their eyes.” And, it is hard to imagine that people of color are living a completely different experience in America simply by virtue of their race, ethnicity or gender.

Racism hurts. 

As much as people of color adopt a stoic attitude and pretend that racism does not impact their psyche, repeated and persistent racism can be traumatic. And it hurts doubly so when those around refuse to acknowledge the experience and its potential impact. Well meaning people tend to view an experience as only a single racist occurrence, rather than understand that the incident adds to a lifetime of accumulated experiences and frustrations.

People of color do not want other people to discount their experiences or tell them that they’re being overly sensitive. So if you are a White person patiently waiting for a “Black person to spontaneously share their experience, you may be waiting a long time.” 

Read more: https://www.psychologytoday.com/us/blog/culturally-speaking/201408/can-white-person-understand-the-black-experience

References:

  1. https://www.psychologytoday.com/us/blog/culturally-speaking/201408/can-white-person-understand-the-black-experience
  2. Carter, R. T. (2007). Racism and Psychological and Emotional Injury: Recognizing and Assessing Race-Based Traumatic Stress. The Counseling Psychologist, 35(1), 13-105.
  3. https://www.msn.com/en-us/news/us/being-black-in-america-shouldnt-feel-like-a-overwhelming-burden-opinion/ar-BB15jkne
  4. https://www.nytimes.com/interactive/2018/03/19/upshot/race-class-white-and-black-men.html

Nonfarm Payrolls Rose 2,509,000 in May 2020 | Brian Wesbury

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By Brian Wesbury, Chief Economist at First Trust Advisors L.P

The US economy is healing much faster than anyone expected, justifying recent optimism in the stock market and showing the benefits of easing lock downs around the country. 

Non-farm payrolls rose 2.5 million in May, easily beating the consensus expected decline of 7.5 million.  The private sector did even better, adding 3.1 million jobs.  Civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 3.8 million.

 

The gains in payrolls and civilian employment are both the largest on record for any single month, although, obviously, they both come immediately after the worst month for jobs in history.  The largest gains in jobs in May were at restaurants & bars, while construction, health care & social assistance, retail, and manufacturing all did very well, too.

The other piece of surprising news was that the unemployment rate, which the consensus expected to rise to 19.0%, and which every economist thought would rise to at least 16.0%, instead fell to 13.3%.  That is still extremely high, but at least it’s moving in the right direction sooner than anyone thought.  The labor force (people working or looking for work) increased by 1.7 million in May, although it’s still down substantially from earlier this year.

The worst headline of the report was that average hourly earnings fell 1% in May after rising 4.7% in April.  However, just like April’s wage gains weren’t really good news, May’s decline isn’t really bad news.  Job losses in April were concentrated among lower-paid workers, so average hourly earnings rose because those still working typically made more money.  Now, as lower-paid workers are rehired, their pay levels reduce average earnings.

We like to track what the report means for workers’ earnings, and today’s news was good.  Total hours worked increased 4.3% in May. Multiplying hours by earnings shows that total earnings rose 3.3%.  That said, total earnings are still down 6.1% versus a year ago, which means workers have less purchasing power generated by actual production, versus purchasing power coming from government benefits.

The unemployment rate is going to remain at unusually high levels for at least the next few months, but today’s report is a testament to the entrepreneurial spirit and how quickly businesses have been able to adapt to a global pandemic and unprecedented shutdowns of the US economy.  A full recovery is still a long way off, but there should no doubt at this point that the recovery has started.

https://www.ftportfolios.com/blogs/EconBlog/2020/6/5/nonfarm-payrolls-rose–2,509,000-in-may

Most explosive stock market rally in history

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We’re witnessing the most explosive stock market in history. We’re seeing a spectacular stock market rally.

We’ve witnessed the greatest 50-day rally in the history of the S&P 500. The S&P 500 has increased 37% over the past 50-days.

Ten weeks ago, March 23, 2020, the Dow dropped all the way to 18,591 points. The biggest gain ever in such a short timeframe. Today, June 4, 2020, the Dow Jones index has peaked above 26,274 points.

Why…T.I.N.A. (There is no alternative to stocks)

There are fewer publicly traded companies to invest in today than thirty years ago. In the 1990’s, there were about 8,000 companies listed on American stock exchanges. Today, there are about 4,000 publicly traded companies on American stock exchanges which represents a fifty percent cut.

Furthermore, there are fewer shares of company stocks available to be traded. Share buy-backs by U.S. companies have taken 20% of companies’ shares off the market.

Essentially, the number of available shares have been dramatically cut, yet the demand for share have been vastly increased the demand for shares. The market is awash in cash from the Federal Reserve loose monetary policy and trillions of dollars from 401K plans.

Economics 101 reveals that cutting the supply of stocks while increasing the demand for stocks cause the price of stocks to go up.

And don’t forget about investor psychology, the economy has entered the return to work phase and the economy is on the move again. Animal Spirits are on the rise again.

Regarding the S&P 500 index, 159 stocks in the index are up for the year an average of 13% / 350 are down year-to-date an average of 20%. And, there are $4 trillion still sitting on the sidelines in money market accounts.

FOMO (Fear of missing out)

Fear of missing out can be extremely expensive. When the equity market has explosive moves where it goes up this high and this fast, an investor can feel that they’re “being left out and left behind”. As a result, they start paying top dollar for expensive and overbought stocks. That is no longer investing…investors are buying high hoping for higher.

Sources: CNBC and Fox Business News

Miscalculating Risk: Confusing Scary With Dangerous | Brian Wesbury, First Trust Economics Blog

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“Coronavirus…is the first social media pandemic.”

The coronavirus kills, everyone knows it. But this isn’t the first deadly virus the world has seen, so what happened? Why did we react the way we did? One answer is that this is the first social media pandemic. News and narratives travel in real-time right into our hands.

Brian Wesbury, Chief Economist

This spreads fear in a way we have never experienced. Drastic and historically unprecedented lockdowns of the economy happened and seemed to be accepted with little question.

We think the world is confusing “scary” with “dangerous.” They are not the same thing. It seems many have accepted as fact that coronavirus is one of the scariest things the human race has ever dealt with. But is it the most dangerous? Or even close?

There are four ways to categorize any given reality. It can be scary but not dangerous, scary and dangerous, dangerous but not scary, or not dangerous and not scary.

Clearly, COVID-19 ranks high on the scary scale. A Google news search on the virus brings up over 1.5 billion news results. To date, the virus has tragically killed nearly 100,000 people in the United States, and more lives will be lost. But on a scale of harmless to extremely dangerous, it would still fall into the category of slightly to mildly dangerous for most people, excluding the elderly and those with preexisting medical conditions.

In comparison, many have no idea that heart disease is the leading cause of death in the United States, killing around 650,000 people every year, 54,000 per month, or approximately 200,000 people between February and mid-May of this year. This qualifies as extremely dangerous. But most people are not very frightened of it. A Google news search for heart disease brings up around 100 million results, under one-fifteenth the results of the COVID-19 search.

Read more: https://www.ftportfolios.com//blogs/EconBlog/2020/5/26/miscalculating-risk-confusing-scary-with-dangerous

Brian Wesbury is Chief Economist at First Trust Advisors L.P.

Don’t Panic

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Here’s the most important piece of advice for long-term investors: Don’t panic.

Both the current pandemic driven economic environment and equity market environment are incredibly uncertain. Likewise, the future is equally uncertain and unpredictable.

Unprecedented unemployment, declining oil prices, liquidity concerns in financial markets, and expanding federal debt represent a clear and present risk to future U.S. economic prosperity.

Moreover, the current uncertainty has had a negative impact on global economies and equity markets. The impact has created fear and caused investors to panic sell their positions and seek safe havens by moving into less riskier assets.

Yet, it is important to understand that market corrections happen on a regular basis. A stock market correction is a sudden drop in the value of stocks, usually by more than 10% from their most recent high.

Bottomline, it’s going to be okay. This too shall pass. Investors are advised to ‘stay the course’, follow your financial plan and focus on your long-term goals.

3 tips to avoid locking in losses | Mass Mutual

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By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Apr 13, 2020

After a huge market downturn and a major loss of value in your investment portfolio, the temptation to do something — anything — may be hard to resist.

But in many ways, the best action may be to take no action. Why? An investment plan is a long-term project and making changes to it based on short-term considerations is often ill-advised. That’s why financial professionals encourage people to stay calm during market sell-offs and think about long-term objectives.

“It is a tough and scary time, and not locking in losses by panic selling is critical,” said J. Todd Gentry, a financial professional with Synergy Wealth Solutions in Chesterfield, Missouri.

But even if you did resist the initial impulse to flee during a market retreat, you still need to keep some discipline about your portfolio as you wait for a market recovery. Here are some traps to avoid….Read more: Avoid Locking in Losses

Markets, as a whole, have historically bounced back from downturns with time, as the following chart illustrates.

Source: Bloomberg. The S&P 500 is an equity index that consists of the stocks of 500 large U.S. companies measured by market capitalization. The results here include the effect of reinvested dividends. You cannot invest directly in an index.

Guidelines for States to Reopen their Economies

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Several states, including Ohio, Texas and Florida, have said they aim to reopen parts of their economies, perhaps by May 1 or even sooner.

Trump Administration’s guidelines to reopen the economy recommend a state record 14 days of declining case numbers before gradually lifting restrictions.

The guidelines call for a phased-in, science-based strategy in keeping with the advice of leading health experts. Moreover, the plan hinges on widespread testing to gauge the scope of infections and how many people might have developed immunity to the virus.

Health experts say that to avoid a second wave of infections as people return to work, extensive testing must be available to track infections, as well as contact tracing and antibody testing to learn who had been previously infected and might have some immunity.

The governors of Michigan and Ohio have said they could double or triple their testing capacity if the federal government helped them acquire more swabs and reagents, chemicals needed as part of the testing process.

Facing economic collapse

Stay-at-home orders and the closure of non-essential businesses have strangled U.S. commerce, triggering millions of layoffs and forecasts that America is headed for its deepest recession since the economic collapse of the 1930s. The result has been mounting pressure to ease the shutdowns.

Partisan bickering is escalating between President Trump, who had touted the strength of the U.S. economy, and governors in hard-hit states who warned against lifting restrictions too quickly.

At a White House briefing on Friday, Trump’s coronavirus task force members, through statements and graphics, pushed back against criticism from some governors and lawmakers that limited testing ability is impeding the country’s return to normalcy.

  1. https://www.reuters.com/article/us-health-coronavirus-usa/u-s-coronavirus-crisis-takes-a-sharp-political-turn-idUSKBN21Z2HN

It’s best to be invested.

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The global financial crisis of 2008 proved no one can consistently predict how the market will perform. Thus, it is best for investors to stay invested in the markets.

“You always have to remember the markets are forward-looking, and you don’t know when they’re going to take off—just like you don’t know when they’re going to tumble. So it’s best to be invested than to try to time it, because it’s close to impossible.” Tim Buckley, CEO, Vanguard Investments

If you’re confident in your financial life plan and investment strategy, leaving your investments alone during short-term market corrections and Bear markets could help you accumulate wealth over the long-term and help ensure your retirement nest egg. 

Chinese Stocks are Risky

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Recently Luckin Coffee (LK) issued a press release admitting that their chief operating officer had fabricated a significant amount of sales from the second quarter through the fourth quarter of 2019.  This caused Luckin Coffee share price to fall 82% in U.S. trading and leaving investor with little recourse.

Luckin, a rival of Starbucks in China, happen to be a fairly new public company that opened its initial public offering (IPO) in May 2019.  In the case of Luckin, investors needed to exercise caution when a company goes from zero to a $3 billion market capitalization valuation in less than two years.  Furthermore, it is important to understand that what occurred with Luckin Coffee can occur with other Chinese companies with stocks listed on U.S. equity market exchanges since they are not required to comply with Security and Exchange Commission’s (SEC) strict disclosure and transparency requirements.

Chinese stocks and emerging-markets stocks

China is the world’s second-largest economy and is still growing as an emerging market. Investing in young Chinese companies can be extremely risky.  Although the growth available in China is clearly appealing, there are a number of inherent risks for investors.  The risks include currency manipulation, ineffectual securities reporting standards, the draconian influence of China’s communist government, and the potential for financial fraud.

Recent economic and equity market history are rife with financial frauds and illegal activity related to Chinese companies listed on U.S. equity exchanges.  Many seasoned U.S. investors advise that Americans should avoid investing in Chinese stocks. They even recommend avoiding the few larger Chinese companies with established histories and strong management track records.

Delisting Chinese Stocks

To avoid future Luckin Coffee frauds perpetrated on unsuspecting American investors, “Chinese companies should be delisted from American exchanges if they don’t follow U.S. securities laws”, according to Senator Marco Rubio.  Senator Rubio believes that increase oversight is vitally required for Chinese and other foreign companies listed on American stock exchanges. In fact, he and colleagues have offered legislation that calls for delisting firms that are out of compliance with U.S. regulators for a period of three years.

Bottomline, it is difficult to trust the financial statements coming out of some high-flying companies based there. Fundamentals don’t matter if you can’t be sure the numbers are real and it is difficult to invest in Chinese companies that might be trying to deceive investors.

References:

  1. https://finance.yahoo.com/news/luckin-coffee-chairman-defaults-loan-152735017.html
  2. https://www.msn.com/en-us/finance/topstocks/investing-lessons-from-the-luckin-coffee-accounting-fraud-debacle/ar-BB12eas4
  3. https://www.cnbc.com/2019/10/08/marco-rubio-chinese-firms-should-be-delisted-in-us-if-they-dont-follow-laws.html