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Dow Rockets Higher On Plan For $1 Trillion in Economic Stimulus

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Dow Rockets Higher On Plan For $1 Trillion in Economic Stimulus

The Dow Jones Industrial Average rallied more than 1,000 points yesterday after it was announced that President Trump was looking into a plan to implement a $1 trillion stimulus plan to help the economy battle back against the coronavirus.

The Dow closed up 5.2% and the S&P 500 and Nasdaq closed 6% and 6.23% higher.

This comes just one day after the third-worst day ever in Dow history, with the index falling a staggering 2,997 points, or 12.9%.

According to reports, the Trump administration is considering a plan that includes payments being sent directly to Americans.

This lines up with an earlier comment from Treasury Secretary Steve Mnuchin, when he told reporters that the government is considering sending checks directly to Americans in the next two weeks. 

“Americans need cash now” he added.

Mnuchin also said that the plan would allow corporations to defer tax payments up to $10 million and individuals can defer up to $1 million in tax payments to the IRS, and that President Trump has approved the deferral of $300 billion in tax payments to the IRS.

This new plan would replace the previously discussed idea of eliminating payroll taxes for both employers and employees as a way to get money into American’s hands via larger paychecks.

At least one former Federal Reserve employee says the $1 trillion proposal simply isn’t enough.

Claudia Sahm, who was the principal economist at the Fed from 2015-17, puts it bluntly:

“They need to go big, and they need to go now. I don’t want to see anything less than $1.5 trillion,” she said Tuesday.

She also says the recession started this month, and it “looks like a very serious one,” that could be “twice as deep” as the Great Recession.

“We can’t stop this recession, but we can buffer as much as possible and what we really gain is on the other side of the recession — the recovery,” she added.

Whatever the final dollar amount of the stimulus plan ends up being, it’s clear that the money will help millions of Americans who are struggling financially during the coronavirus outbreak. 

With bars, restaurants, movie theaters and other businesses closing for the indefinite future, tens of millions of workers are out of a job and simply can’t earn an income to pay their living expenses, car payment, student loans, etc.

The very real fear is that an extended closure could mean many of those businesses never reopen, and those workers become unemployed.

Treasury Secretary Mnuchin alluded to this, warning Republican senators that without proactive measures like the $1 trillion stimulus plan to help the economy, we could soon see unemployment rates of 20% and “economic ramifications that are worse than the 2008 financial crisis.” 

To put that into perspective, a 20% unemployment rate would be double what the country experienced during the Great Recession and the highest since the Great Depression. It would mean roughly 32 million Americans would be out of a job.

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Dalio: Capitalism Needs Fixing, US Dollar Upended In Next 5 Years

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Dalio: Capitalism Needs Fixing, US Dollar Upended In Next 5 Years

In a recent interview with MarketWatch, Ray Dalio, the billionaire founder of Bridgewater Associates, covered a wide range of topics. These include his thoughts on capitalism, China, the US dollar as the world reserve currency, and much more.

Three Problems

Dalio says the US is facing three distinct problems and is losing ground to China in many ways.

“There are three problems that are coming together,” said Dalio. “So it’s important to understand them individually and how they collectively make a bigger problem,” said Dalio.

“There is a money and credit cycle problem, a wealth and values gap problem, and an emerging great power challenging the existing dominant power problem. What’s going on is an economic downturn together with a large wealth gap and the rising power of China challenging the existing power of the United States.”

“It’s a fact that there has been a weakening of the competitive advantages of the United States over the last couple of decades. For example, the United States lost a lot of the education advantage relative to other countries, our share of world GDP is reduced, the wealth gap has increased which has contributed to our political and social polarization.”

Challenges the U.S. Face

To illustrate the challenges that the US faces as it attempts to stay ahead of China and remain a world power, Dalio says we need to look at Britain and how they eventually lost their position as the world’s reserve currency.

“If you look at British history, the development of rival countries led them to lose their competitive advantages. Their finances were bad because they had accumulated a lot of debt. So, after World War II those trends went against them. Then they had the Suez Canal incident and they were no longer a world power and the British pound is no longer a reserve currency. These diseases almost always play out the same way.”

“The United States’ relative position in the world, which was dominant in almost all these categories at the beginning of this world order in 1945, has declined and is exhibiting real signs that should raise worries. There’s a lot of baggage. The U.S. has a lot of debt, which is adding to the hurdles that typically drag an economy down, so in order to succeed, you have to do a pretty big debt restructuring. History shows what kind of a challenge that is.”

“The United States is a 75-year-old empire and it is exhibiting signs of decline. If you want to extend your life, there are clear things you can do, but it means doing things that you don’t want to do.”

Capitalism Needs Improvements

Dalio is a capitalist (he didn’t become a billionaire through handouts). However, he does acknowledge that the system needs to be improved so that everyone has a chance at financial freedom.

“What has been shown is that capitalism is a fabulous way of creating incentives and innovation and of allocating resources to create productivity. All successful countries have uses for it. For example, communist China has chosen capitalism, which has been essential to its growth.

“But capitalism also produces large wealth gaps that produce opportunity gaps, which threaten the system in the ways we are seeing now.

“We have to be in this together. The system needs to be reengineered to do this. But if we don’t do this engineering well, we’re going to spend in an unlimited way and deal with that by creating debt that won’t ever be paid back, and we will risk losing the reserve currency status of the dollar. If we get into that position — and we’re very close — things will get much worse because we are living on borrowed money that’s financing our consumption.”

On Dollar as the World Reserve Currency

Dalio says we could see the US lose reserve currency status as soon as the next five years.

“Within the next five years you could see a situation in which foreigners who have been lending money to the United States won’t want to, and the dollar would not be as readily accepted for making purchases in the world as it is now.”

“The United States doesn’t have a good income statement and balance sheet in dealing with the rest of the world. It is running a deficit to the rest of the world that is financed by borrowing money so that we are producing liabilities.”

There is uncertainty in the markets ahead of the November election. With this, Dalio says there are two steps investors can take to protect their wealth.

“First, worry as much about the value of your money as you worry about the value of your investments. The printing of money and the debt should make you aware of that. That’s why financial asset prices have gone up — stocks, gold — because of the debt and money creation. You don’t want to own the thing you think is safest — cash.”

“Second, know how to diversify well. That includes diversification of countries, currencies and assets, because wealth is not so much destroyed as it shifts. When something goes down, something else is going up so you have to look at all things on a relative basis. Diversify well and worry about the value of cash.”

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President Trump’s Executive Orders A ‘Real Game-Changer’ For The Country

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President Trump’s Executive Orders A ‘Real Game-Changer’ For The Country

President Trump was busy over the weekend, signing four executive orders to provide the financial stimulus that America needs. Trump said the Democrats, including House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, held the “vital assistance hostage” as negotiations stalled.

“We’re doing that without the Democrats,” Trump said. “We should have been able to do it very easily with them, but they want all these additional things that have nothing to do with helping people.”

“Through these four actions, my administration will provide immediate relief to Americans struggling in this difficult time,” he said. “The beautiful thing about this difficult time is we’re coming back and setting records.”

Stephen Moore is a member of President Trump’s economic recovery task force. He said the orders were “a real game-changer” for the president.

“All of a sudden Trump has flipped the table on Nancy Pelosi. Those negotiations were going nowhere.” said Moore, an economist at FreedomWorks, during an interview yesterday on “Fox & Friends Weekend.”

The Goals of Trump’s Executive Orders

The executive orders by the President aim to help directly address the damage the coronavirus pandemic. It also aims to ensure that millions of Americans have the resources they need.

Among the executive orders signed by Trump were $400 per week in unemployment benefits. This will replace the $600 per week that expired at the end of July.

Moore said during his “Fox and Friends Weekend” interview that he isn’t a fan of extending the benefits, and believes “we should go back to the old unemployment insurance system.”

He did acknowledge, however, that “$400 is a lot better than $600.”

“We have a situation right now where about two out of three workers who are unemployed are getting paid more money than the people who are working,” Moore said on Sunday, following his article for Fox Business where has said he believes the extra unemployment benefits are “a disincentive to work, but provides an immediate safety net for the 25 million Americans who are still unemployed.”

In addition to the unemployment insurance benefits, Trump also signed measures to halt evictions. He also approved measures to eliminate the payroll tax through the end of the year and defer student loan payments.

The Potential of the Actions

“Through these four actions, my administration will provide immediate relief to Americans struggling in this difficult time,” he said. “The beautiful thing about this difficult time is we’re coming back and setting records.”

By eliminating the payroll tax, Moore says “every single worker in America,” including “the real heroes of this economy,” like the first responders and truckers, will get “a much deserved 7.5% pay raise starting immediately.”

“That is a very, very positive thing,” Moore then added.

White House economic adviser Larry Kudlow said the average person would save about $1,200 over four months beginning in September.

“With respect to the payroll tax, basically we’re giving 140-some-odd million people who worked through this pandemic, they’re heroes, we’re giving them about a $1,200 wage increase after tax,” Kudlow said.

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Get In On The Hottest Investment Trend Today: SPACs

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Get In On The Hottest Investment Trend Today: SPACs

The hottest new investment trend right now are SPACs, or special purpose acquisition company. It’s how Nikola Motor Company, which plans on making both electric and hydrogen-powered trucks, went public virtually overnight.

With the IPO market cooling, it has become an appealing alternative for private companies looking for a quicker and easier path to being publicly traded.

Now billionaires are tripping over themselves to create SPACs as quickly as possible. They need to do so if they want to get in on the gold rush.

What are SPACs?

SPACs are commonly referred to as a “blank check” company and with good reason: they are created to go around gathering a bunch of money from investors with the only goal to buy an existing business within a specific time frame, usually 18 to 24 months.

The management team essentially has a blank check to go out and buy any business it sees fit. Some are created with a specific acquisition in mind. Others are created simply to have the money in place and ready to go when the opportunity arises.

The structure is very similar to private equity deals or leveraged buyouts. Also, private equity firms, hedge funds, and other “smart money” investors sponsored the creation of many SPACs.

Many of these SPACs are publicly traded. So, if the idea of having “smart money” go around hunting for the best deals on your behalf sounds appealing, you can typically invest in them through your normal brokerage account.

Here’s a short list of SPACs that you can either buy today or can buy very shortly once they go public. Be aware, many of these SPACs are just a few weeks old. So, there isn’t much history to judge their performance by.

Pershing Square Tontine Holdings (PSTH.U)

Fresh off a billion-dollar payday in March, Pershing Square Capital Management’s Bill Ackman just launched a $4 billion SPAC, the largest in history after overwhelming interest from investors.

Ackman has the right to put in another billion, giving the company access to a total of $5 billion to hunt for what Ackman calls a “unicorn” with “significant long-term growth potential that will be likely candidates for inclusion in the S&P 500 index.”

“Our thesis is by having a $5 billion cash pile in a public company; it’s our own version of a unicorn. It’s a one-of-a-kind entity,” Ackman said during an interview with Yahoo Finance. “So, we’re looking to marry a unicorn. So we’re prettying ourselves up for the most attractive possible partner.”

Churchill Capital IV (CCIV.U)

While not publicly traded yet, this will be founder Michael Klein’s fourth SPAC. Two of them have acquired companies and one has yet to find an acquisition target. To highlight investor demand for SPACs, Klein raised $1.8 billion for his fourth SPAC. This figure stands at 80% more than what he originally planned.

With his latest SPAC, Klein is looking for a company with excellent long-term growth prospects, a strong competitive advantage, recurring revenue, attractive free cash flow. He is also looking for a company that is in an industry where consolidation opportunities exist.

Dragoneer Growth Opportunities (DGNR.U)

Like Churchill Capital, this SPAC is not yet publicly traded. The company is lead by CEO Marc Stad, who appeared multiple times on Fortune magazines “40 Under 40” list. Also, other directors include David Ossip, CEO of Ceridian HCM Holding, and Sarah Frier, CEO of neighborhood social network Nextdoor.

Stad has a strong pedigree, having backed a number of very successful companies in the past, including Spotify and Uber Technologies. Dragoneer will focus on six areas: software, internet, media, consumer/retail, healthcare IT, and financial services/fintech.

East Resources Acquisition (ERESU)

Current Buffalo Bills and Buffalo Sabres owner Terry Pegula started East Resources targeting the energy industry in North America.

It makes sense given Pegula’s history, having sold his company, East Resources, to Royal Dutch Shell for $4.7 billion in 2010.

Now Pegula is back, looking for operational control of a company that has long-lived assets with low fixed costs, that is producing oil and gas and generating free cash flow, but is operating below full capabilities.

With Pegula’s extensive knowledge of the oil and gas industry, he could find multiple opportunities in a short period of time.

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