Skip to main content

Sound Advice: June 3, 2020

Economists

 “The First Law of Economists:  For every economist, there exists an equal and opposite economist. The Second Law of Economists: They're both wrong.”
Only a few short months ago, during an online seminar for financial professionals, Joe Davis, Vanguard’s Chief Global Economist and head of Vanguard’s Global Investment Strategy Group, said there would be no recession in 2020.  
Back in January, Jeremy Siegel, the well-known finance professor from the University of Pennsylvania’s Wharton School, waxed enthusiastic about valuations of stocks in the 20 times earnings range and he looked for even more annual gains ahead.
They were both wrong.
Approaching midyear, we are in a marked recession that is not going away anytime soon, despite the hefty, albeit temporary, rebound in market averages in April and May.  Five weeks or so from now, earnings reports for the second calendar quarter will start to be released.  The comparisons will be dreadful.  
Despite relaxation of social distancing rules in some parts of the country, there is every reason to expect more bad news from Corporate America for at least the remainder of this year . . . and possibly beyond.
The damage will not be universal.  Due to extended periods of social isolation, digital communication and the technology that supports it will prosper.  Brick-and-mortar retail stores will be hammered, but e-commerce sales will continue to soar, as they have already.  Wherever there is demand for interaction, whether social or commercial, the cyber world will benefit.
What will separate the fortunate businesses from those that are struggling will be the degree of risk associated with each and the prospect of an imminent treatment and/or vaccine.  No doubt there will be one, but the question is when.  My guess is that it will be early-to-mid 2021, but even that is based on an acceleration of medical research and testing requiring considerable optimism.
Our economic rebound will begin when people regain the confidence needed to resume activities that had been the mainstays of their lives.  It is not confidence that prompts us now to go to supermarkets, pharmacies, and gas stations.  It is basic need for which there are few, if any, options.
In some parts of the country, restaurants are opening (with sharply defined spacing between tables) and public areas are beckoning as warm weather returns.  This is good news and bad news.  The risk of infection is as high as ever and the reality is that nothing has changed other than the season.
As colder weather sets in this coming fall, the situation will not be much different from what we have just gone through.  The current period of opening up may well lead to an accelerated rate of new infection by autumn along with no near-term progress on treatments.
Unfortunately, the latest news is that the mid-May announcement by Moderna of early progress on initial testing of a new vaccine, which was accompanied by a major offering of Moderna stock, is now under investigation by federal securities regulators.
Let’s not forget the huge number of unemployed people, over 40 million as of last week.  Although the majority of them expect that their layoffs will be temporary, we have seen estimates that suggest 40% will be permanently out of work.  When you read the news about nationwide rioting, keep in mind the probability that this undercurrent is a driving force behind unrest and will continue into the future.

N. Russell Wayne, CFP®
nrwayne@soundasset.com
www.soundasset.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...
Post a Comment
Read more