Tag Archives: Economy

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.

Coronavirus Relief Often Pays Workers More Than Work | Wall Street Journal

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When combined with state benefits, weekly government payouts create incentives that employers say complicate efforts to reopen businesses

Roughly half of all U.S. workers stand to earn more in unemployment benefits than they did at their jobs before the coronavirus pandemic shut down wide swaths of the U.S. economy, and employers say the government relief is complicating plans to reopen businesses.

The package of coronavirus stimulus laws Congress passed and President Trump signed in March included a $600 boost to weekly unemployment benefits through July 31. As that support is added to state benefits over the coming weeks, the average weekly payment to a laid-off worker should rise to about $978 from the $377.97 the Labor Department said was paid on average late last year.

Qualified workers will receive the government payout every week through July, and in most cases, the combined $978 weekly payout amounts to better pay than what many workers received before the crisis hit. Labor Department statistics show half of full-time workers earned $957 or less a week in the first quarter of 2020.

Read more: https://www.wsj.com/articles/coronavirus-relief-often-pays-workers-more-than-work-11588066200

Additional information:

  1. https://www.usa.gov/unemployment#item-214601
  2. https://www.wsj.com/articles/the-secret-group-of-scientists-and-billionaires-pushing-trump-on-a-covid-19-plan-11587998993?mod=trending_now_1

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

Economy and Markets will Recover

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“There are ‘tremendous opportunities’ in markets.”  Larry Fink

To build wealth, it is advised that investors should take a long-term view of markets; and that they should take a long-term view in the way they manage their personal finances and investment portfolios.  It is certain that the world will get through; and, the economy and markets will recover once the COVID-19 crisis has abated.

For investors who keep their focus on the long-term horizon, “there are tremendous opportunities to be had in today’s stock markets”, according to Blackrock’s Chairman and CEO Larry Fink. For many of Blackrock’s clients, “the recent sell-off created an attractive opportunity to rebalance into equities,” Fink said.

Take banks as an example, “the damage has already been done” to the industry according to most financial professionals and traders.  Yet, the banks are in better condition financially than they were during the 2007-2009 financial crisis.  Once the virus spread stalls and the economy returns to normal operation, the Fed will still be supporting the banking system.

Positive sign for comeback

“Don’t watch their lips, instead watch their feet.”

Extraordinary monetary stimulus measures by the Federal Reserve and fiscal stimulus measures by Congress and the White House have put a proverbial floor under the market in late March.  As a result, many C-suite executives are buying up their own company’s stocks at a record pace, according to InsiderSource.

“Insiders have a 35+ year track record of buying on the type of extreme weakness experienced in Q1′20,” InsiderScore director of research Ben Silverman said in a note. “A dramatic increase in insider buying volume combined with dampened levels of insider selling has resulted in the generation of industry buy inflections – our strongest, quantitative macro signal – for the entire market.”

In his 2010 newsletter to Berkshire-Hathaway shareholders, Warren Buffett wrote: “When it’s raining gold, reach for a bucket, not a thimble.”  Based on his vast and highly successful investing experience, he states that in period like the present, “Big opportunities come infrequently”.

  1. https://www.cnbc.com/2020/03/30/larry-fink-says-economy-will-recover-from-coronavirus.html?recirc=taboolainternal
  2. https://www.cnbc.com/2020/03/30/coronavirus-stock-market-jpmorgan-top-bank-stock-pick-for-trader.html?__twitter_impression=true&recirc=taboolainternal
  3. https://www.cnbc.com/2020/03/26/executives-are-buying-stock-in-droves-giving-a-strong-signal-that-the-comeback-is-for-real.html?recirc=taboolainternal
  4. https://www.cnbc.com/id/35616702

10 Money Lessons He Wished Heard — or Listened to — When Younger | MarketWatch

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Updated: February 23, 2020

Jonathan Clements, author of “From Here to Financial Happiness” and “How to Think About Money,” and editor of HumbleDollar.com., is the former personal-finance columnist for The Wall Street Journal. He has devoted his entire adult life to learning about money.

That might sound like cruel-and-unusual punishment, but he has mostly enjoyed it. For more than three decades, he has spent his days perusing the business pages, reading finance books, scanning academic studies and talking to countless folks about their finances.

Yet, despite this intense financial education, it took him a decade or more to learn many of life’s most important money lessons and, indeed, some key insights have only come to him in recent years.

Here are 10 things he wished he’d been told in his 20s—or told more loudly, so he actually listened:

— Read on www.marketwatch.com/story/10-money-lessons-i-wish-id-listened-to-when-i-was-younger-2020-02-12

1. A small home is the key to a big portfolio. Financially, it turned out to be one of the smartest things he had ever done, because it allowed him to save great gobs of money. That’s clear to him in retrospect. But he wished he’d known it was a smart move at the time, because he wouldn’t have wasted so many hours wondering whether he should have bought a larger place.

2. Debts are negative bonds. From his first month as a homeowner, he sent in extra money with his mortgage payment, so he could pay off the loan more quickly. But it was only later that he came to view his mortgage as a negative bond—one that was costing him dearly. Indeed, paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds.

3. Watching the market and your portfolio doesn’t improve performance. This has been another huge time waster. It’s a bad habit he belatedly trying to break.

4. Thirty years from now, you’ll wish you’d invested more in stocks. Yes, over five or even 10 years, there’s some chance you’ll lose money in the stock market. But over 30 years? It’s highly likely you’ll notch handsome gains, especially if you’re broadly diversified and regularly adding new money to your portfolio in good times and bad.

5. Nobody knows squat about short-term investment performance. One of the downsides of following the financial news is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that—needless to say—turn out to be hopelessly, pathetically wrong. In his early days as an investor, this was, alas, the sort of garbage that would give him pause.

6. Put retirement first. Buying a house or sending your kids to college shouldn’t be your top goal. Instead, retirement should be. It’s so expensive to retire that, if you don’t save at least a modest sum in your 20s, the math quickly becomes awfully tough—and you’ll need a huge savings rate to amass the nest egg you need.

7. You’ll end up treasuring almost nothing you buy. Over the years, he had had fleeting desires for all kinds of material goods. Most of the stuff he purchased has since been thrown away. This is an area where millennials seem far wiser than us baby boomers. They’re much more focused on experiences than possessions—a wise use of money, says happiness research.

8. Work is so much more enjoyable when you work for yourself. These days, he earn just a fraction of what he made during my six years on Wall Street, but he is having so much more fun. No meetings to attend. No employee reviews. No worries about getting to the office on time or leaving too early. he is working harder today than he ever have. But it doesn’t feel like work—because it’s his choice and it’s work he is passionate about.

9. Will our future self approve? As we make decisions today, he think this is a hugely powerful question to ask—and yet it’s only in recent years that he had learned to ask it.

When we opt not to save today, we’re expecting our future self to make up the shortfall. When we take on debt, we’re expecting our future self to repay the money borrowed. When we buy things today of lasting value, we’re expecting our future self to like what we purchase.

Pondering our future self doesn’t just improve financial decisions. It can also help us to make smarter choices about eating, drinking, exercising and more.

10. Relax, things will work out. As he watch his son, daughter and son-in-law wrestle with early adult life, he glimpse some of the anxiety that he suffered in my 20s and 30s.

When you’re starting out, there’s so much uncertainty — what sort of career you’ll have, how financial markets will perform, what misfortunes will befall you. And there will be misfortunes. he’d had my fair share.

But if you regularly take the right steps—work hard, save part of every paycheck, resist the siren song of get-rich-quick schemes—good things should happen. It isn’t guaranteed. But it’s highly likely. So, for goodness’ sake, fret less about the distant future, and focus more on doing the right things each and every day.

You can follow Jonathan Clements on Twitter @ClementsMoney and on Facebook at Jonathan Clements Money Guide.

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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By Schwab Center for Financial Research

Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We [Charles Schwab] continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy.

The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.

— Read on www.schwab.com/resource-center/insights/content/sector-views

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy. The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.
— Read on www.schwab.com/resource-center/insights/content/sector-views

Uncertain Financial Markets

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“Don’t gamble. Take all your savings and buy some good stock and hold it till it goes up; then sell it. If it don’t go up, don’t buy it.” Will Rogers

Since the financial crisis of 2008-2009, the U.S. stock market has been on a long-term uptrend. In the crisis’ aftermath, a nearly 11-year bull rally emerged from its ruins becoming the longest-ever uptrend in Wall Street history.

And, the American economy is equally robust as consumer spending remains strong and as the unemployment rate (3.5%) remains at the lowest in 50 years. Despite low employment, Federal Fund interest rates still sit near historical lows and the 10-year Treasury yields only 1.8%.

Financial Crisis

Bringing back painful financial memories for investors, the financial crisis of 2008-2009 wreaked havoc on the stock market. During the crisis, the S&P 500 index (SPX) lost 38.5% of its value in 2008, making it the worst year since the nadir of the Great Recession in 1931.

Today, many economists and financial industry pundits conclude that global economies will face an increasingly uncertain and potentially volatile future. Those future concerns range a gambit of political, geopolitical, economic and socio-political issues.

The uncertainties and concerns include the upcoming U.S. presidential elections, potential turmoil in the Middle East, growing fear regarding cross border spread of the Novel Corona virus, and the growth concerns regarding the economies of the rest of the world economies.

Investing in an Uncertain Environment

“Never under estimate the man who over estimates himself…he may not be wrong all the time.” Charlie Munger

When it comes to investing in an uncertain environment, it is difficult to know what actions to take. But, nobody knows with certainty what is going to happen next in the markets or can predict the direction with certainty of the global economy. Despite the many self proclaimed stock picking experts who promote their ability to forecast the markets and abilities to select the next Amazon-like stock, it important to always remember that no one knows what will happen in or can accurately forecast the future.

Recently, Charlie Munger, Vice Chairman of Berkshire Hathaway, shared his thoughts about investing in general and regarding Elon Musk and Tesla, specifically. He commented that Elon is “peculiar and he may overestimate himself, but he may not be wrong all the time…”.

Additionally, Munger commented that he “…would never buy it [Tesla stock], and [he] would never sell it short.” Prudent investors would be wise to heed Munger’s advice and be concerned not only about potential rewards but, more importantly, also concerned about potential risks investing in hot, high flying stocks.

In Munger’s view, there exist too much “wretched excess” in the market and investors are taking on too much unnecessary risk. He worries that that there are dark clouds looming on the horizon. And, he believes markets and investors are ill-prepared to weather the coming market “trouble”.

References:

  1. https://www.marketwatch.com/story/wretched-excess-means-theres-lots-of-troubles-coming-warns-berkshire-hathaways-charlie-munger-2020-02-12

Jobs, Coronavirus, and the Budget | First Trust Economics Blog

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Brian S. Wesbury, Chief Economist

Date: 2/10/2020

In January, US payrolls expanded by 225,000, not only beating the consensus forecast, but also forecasts from every single economics group.  Since January 2019 (12 months ago), both payrolls and civilian employment – an alternative measure of jobs that includes small-business start-ups – are up 2.1 million.  The labor force – those who are either working or looking for work – is up 1.5 million, while the jobless rate fell to 3.6% from the 4.0%.

The labor force participation rate (the share of adults who are either working or looking for work) increased to 63.4% in January, the highest reading since early 2013.  Participation among “prime-age” adults (25 to 54) hit 83.1%, the highest since the Lehman Brothers bankruptcy in 2008.   

Meanwhile initial claims for unemployment insurance hit 202,000 in the last week of January, and initial claims as a percent of all jobs are at the lowest level ever.  In other words, the job market and the economy look strong.

Only a few months ago, some analysts were saying that the inversion of the yield curve – with short-term interest rates above long-term rates – was signaling the front edge of a US recession.  Now a recession seems nowhere in sight.

Lately, financial markets have become very jumpy on any news – good or bad – regarding the coronavirus.  We aren’t immunologists (or doctors) and would never make light of a virus that has killed more than 900 and infected over 40,000, but data released by the World Health Organization (WHO) cautiously suggests a positive turning point has been reached.

— Read on www.ftportfolios.com/retail/blogs/economics/index.aspx

U.S. Markets Overreacting

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Updated:  Monday, 2/3/2020 at 8:25 am

We never want to downplay the threat posed by the Novel Coronavirus in China and globally. The highly contagious coronavirus is a pneumonia-causing illness that infects an individual’s respiratory tract. It is now responsible for a reported 360 deaths in China as of Monday morning and 17,000 infections, according to Chinese officials and official figures from the World Health Organization. Furthermore, it can be confidently assumed that the Chinese Communist government has drastically under reported the magnitude of the spread and the total number of its citizens effected by the virus.

Consequently, the U.S.represents a relative virgin population for the Novel Coronavirus. Americans have little to no immunity to this strain of virus from previous spreads or vaccination.  Thus it does pose a potential temporary risk and impact to the U.S. economy.

Subsequently, the World Health Organization has declared the fast-spreading coronavirus a global health emergency — a rare designation that should help to contain the spread and outbreak.

On Friday, the Federal government decided to quarantine Americans arriving on U.S. soil from Wuhan and the Guangdong province in southern China. Additionally, the U.S. initiated measures to screen passengers arriving from all other regions of China. Those found without symptoms are released and asked to self isolate themselves for the fourteen days, the prescribed incubation period for the Coronavirus.

U.S. Influenza Season

However, most Americans are not aware that the CDC estimates that there has been 25 million cases of seasonal influenza in the U.S., 250K hospitalizations and 20,000 deaths reported. This is not abnormal for influenza season in the U.S. Moreover, influenza has been assessed as widespread in Puerto Rico and in 49 states.

Image if the media chose to report these statistics like the quantity of seasonal influenza cases, hospitalizations and deaths in the U.S. every hour and had quasi-infectious disease experts on-air to pontificate about the potential severity and potential deaths. Additionally, image if they had their reporters stoke fear by wearing a nurse’s mask to cover their respiratory system and displaying concern in their voices while reporting live from a mall in Chicago.

More than likely, the market would have been impacted by the over reporting of news.

Conclusion

Bottom line, the market has been  freaking out over the coronavirus outbreak, which doesn’t pose a threat to any long-term investor, as long as they remain calm and disciplined.  The media’s coverage and reporting of the coronavirus might be best described as over-dramatic. The effect has been the market sell off and market volatility. Additionally, the media appears to be now over hyping the preventive measure U.S. officials have taken to prevent the spread of the highly contagious virus on U.S. soil.

Friday’s U.S. stock market two percent sell off was definitely an overreaction to the over-reporting and over-hyping by the U.S. entertainment media.

References:

  1. https://www.cdc.gov/flu/weekly/index.htm#ILIActivityMap