With still no end to the pandemic in sight, the US budget deficit ballooned to a record $864 billion this June. This helped bring up the total deficit for the current fiscal year to $2.7 trillion dollars. The previous record occurred last April at $738 billion. In contrast, the total deficit for fiscal year 2019 amounted to $984 billion.
Other News: Unemployment Rate Declines to 11.1%
US Budget Deficit in June
US Budget Deficit Hits All-Time Monthly High of $864 Billion
If the pattern continues, the US is on track to its highest deficit ever at $3.7 trillion. Previous high was $1.4 trillion in 2009, when the government spent big money to rescue the US from recession. The deficit will also depend on when the virus gets contained and a vaccine developed. If both happen later than sooner, the deficit may grow even bigger.
A bulk of June’s expenses focused on programs to help prop up the economy during the current pandemic. So far, the coronavirus effect is showing no signs of slowing down. Currently, the country has surpassed 60,000 new cases daily and may be on track for 100,000. A brief spark of economic recovery last May has faded into memory as new cases keep rising. Instead of reopening the economy even more, many states have put their plans on hold.
Stimulus Programs Top Spending for June
Chief among the contributors to the budget deficit is the Paycheck Protection Program. PPP provided small businesses with forgivable loans as long as some of the money goes to payroll. Additionally, laid-off workers received unemployment insurance worth $600/week. Earlier, the government also distributed stimulus checks, unemployment insurance and widened eligibility. Workers earning $75,000/year or less were recipients to a $1,200 stimulus check in April.
At the same time, the government moved the deadline for filing of taxes to July 15. This meant less tax money flowed in the previous months. As of June, revenues totaled $2.26 trillion, which is 13.4% lower compared to last year. Spending totaled $5 trillion, which is almost 50% of the previous year. Meanwhile, 21 million jobs disappeared in March and April, and only 7.5 million returned last May and June. This confluence of events has pushed the deficit into the highest ever for the nation.
Despite the slowdown in economic activity nationwide, more spending is in the works. Upon resumption later this month, Congress will hammer out details of a new stimulus plan. The Trump White House has already indicated support for a new round of stimulus checks. Democrats have pushed to continue unemployment bonuses, as fewer jobs are currently available.
Republicans argued that unemployment bonuses disincentives workers from going back to their jobs. A recent study reported that two-thirds of beneficiaries might be receiving more money from unemployment than their old jobs. In 20% of recipients, the unemployment money proved to be twice as large as their former salary.
For the next round, Republicans are pushing to limit stimulus checks to those earning $40,000/year or less. If adopted, this removes 20 million middle-class Americans from the list.
Various estimates for the total cost for the new stimulus package range from $1.5 trillion to $3.5 trillion. Given Congress’s schedule, the stimulus package may fall under the 2021 budget instead.
Fed to spend $3 trillion to prop market f
The Federal Reserve also saw its balance sheet rise from $4.,2 trillion in February to $7 trillion at present. With the Fed pledging to do everything to keep the market afloat, investors are going wild.
Currently, the Fed avoids stocks and focuses on US treasuries and mortgage-backed securities. Its near-zero interest rates made stock trading attractive to bargain hunters. Andrew Brenner of NatAlliance observed the inverse relationship of coronavirus to the markets. “The worse that COVID-19 gets, the better the markets do because the Fed will bring in stimulus. That is what has been driving markets.”
The Fed’s increased bond activities encouraged credit activities among companies. The second quarter of 2020 became the busiest for debt issuance. Around $1.2 trillion worth of investment grade paper changed hands.
Last April, Federal Reserve Chairman Jerome Powell pledged the agency’s full support. He promised that the Fed will be utilizing lending powers reserved for emergencies. Powell stated that “We will continue to use these powers, forcefully, proactively, and aggressively until we are confident we are solidly on the road to recovery.”
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How To Buy Gold For Your Investment Portfolio – Part 2
Yesterday was part one of buying gold and silver coins for your investment portfolio. With gold and silver both on a hot streak, investors are looking for the fastest way to gain exposure to and buy precious metals. You must be prudent and exercise caution so you don’t make a mistake and find yourself with a bad investment.
Do: Buy Gold With Your Savings
Don’t borrow money to buy gold. Use your savings so when you take possession of your gold, it’s yours without any claims against it. With volatile gold prices, you don’t want to be paying back a loan on your gold if the price suddenly dips.
Don’t: Buy Gold With Credit
The current financial system is built on fiat currency and debt with dollars being printed out of thin air. The reason to own gold is the opposite of that. So to purchase gold by using the system it is protecting against defeats the purpose of owning gold. Just use your savings and own your gold outright from day one.
Do: Store Coin Nearby
If a crisis hits and you need access to your gold, you don’t want to be out in public trying to retrieve your gold. So whether it’s in a small safe hidden in your house or buried in your yard, keep your gold nearby for easy access.
Don’t: Store Coins In a Safety Deposit Box
Storing your gold at a bank sounds like a safe decision. But it’s a bad idea for a few reasons. The first is that if there were ever a crisis, you have to go to the bank to retrieve your gold. That assumes the banks will be open during a crisis. Then you have to get access to your safety deposit box, retrieve your coins and safely get them home. That’s a lot of things that need to go right during a crisis. Additionally, gold has been confiscated before. Here in the US, gold was confiscated in 1933 under Franklin Roosevelt. If it were to happen again, gold stored at home, where there is no record if it, is much safer.
Do: Only Invest With Money You Don’t Need For Awhile
Nobody knows when inflation will hit, or the dollar will collapse, or when gold prices will finally take off. But we aren’t trying to time any of those occurrences. The reason to own gold is a long term store of value. So you don’t want to speculate in gold. We could see prices move higher or significantly lower. But long term, history has shown that gold prices steadily march higher as the dollar steadily declines in value. So when buying gold, make sure it’s with money that you don’t need in an emergency. We suggest using savings or other funds that you don’t need to worry about getting access to for at least five years.
If you have any more questions about investing in gold, find a reputable gold coin dealer near you. They will be glad to answer questions.
Tech Companies Report Record Earnings, See $200 Billion Added To Market Cap
A day after their CEO’s spent five-and-a-half-hour-long testifying at a congressional hearing on anticompetitive practices, four of the largest tech companies in the world grew even larger after each reported strong earnings in the second quarter.
Yesterday alone, Apple, Amazon, Alphabet (Google’s parent company) and Facebook added about $200 billion to their cumulative market cap after they announced earnings. This shows just how dominant each business is. Combined the companies are now valued at more than $5 trillion.
Apple reported more than $11 billion in earnings despite shutting down most of their retail stores during the pandemic. On the earnings call the tech company reported strong demand for the smaller, lower-cost iPhone 11. It also reported a surge in sales for the iPad and Mac products.
“Mac and iPad, these are productivity tools that people are using to stay engaged with their work or stay engaged with their schoolwork,” Apple Chief Executive Tim Cook said during the call. “And we believe we’re going to have a strong back-to-school season sitting here today, it certainly looks like that.”
The company also surprised analysts during the call by announcing a 4-for-1 stock split. Investors who currently have shares will receive three additional shares for every one they own. The share price is also adjusted down to roughly 25% of the current price, helping to make shares more affordable.
Tens of millions of Americans stuck at home during the shelter-at-home restrictions. With this, Amazon was perhaps the biggest winner and reported a record net income last quarter. On the earnings call, Chief Financial Officer Brian Olsavsky said that online grocery sales had tripled in the quarter and video streaming had doubled from a year ago. The company also saw an increase in its cloud computing business.
Alphabet reported earnings and net income in line with expectations. However, it announced the tech company’s first-ever drop in revenue for display ads on Google.
“The macroeconomic environment costs by the pandemic created headwinds for our business,” Alphabet CEO Sundar Pichai said on the call, but said that indications in the third quarter are a stabilization in users and expectations are for revenue to return as well. “This was true across most of our advertising verticals and geographies. Of course, the economic climate remains fragile.”
Facebook, though, had the biggest after-hours jump in its stock price after it beat Wall Street expectations by topping $5 billion in quarterly profit. Also, Facebook said that its traffic grew during the pandemic, with more people at home online, but that the average price per ad declined due to the economic fallout of COVID-19.
“Facebook has been a lifeline of economic activity,” said Chief Financial Officer David Wehner on the earnings call. Also, the company announced $5 billion in quarterly profit.
It said that with more people at home all day due to the pandemic site traffic grew, but like Alphabet, saw a decrease in the average price per ad due to the economic fallout of COVID-19.
How To Buy Gold For Your Investment Portfolio
With gold prices soaring, more and more investors are curious about how to add gold to their investment portfolio. Here is part 1 of a simple list of do’s and don’ts to safely buy gold (or silver).
Do: Buy Physical Gold and Silver
If you are buying gold because you think the dollar is being printed into oblivion and gold is a store of wealth, the only way to ensure you own what you think you own is to physically have the gold in your hands. Junk gold or silver, coins, bars — it doesn’t matter. Just make sure it’s physical gold you can hold in your hands. The old saying is “If you don’t hold it, you don’t own it.”
Don’t: Buy “Paper” Gold and Silver
“Paper” in this instance means gold that isn’t physically in your hands. According to Greg Hunter at USAWatchdog, there are as many as 542 paper claims for every physical ounce of gold. That means when you buy a paper ounce of gold, you have virtually no chance of ever being able to claim the actual gold underlying that claim.
The most common paper gold is the large exchange-traded funds like GLD, the SPDR Gold Shares ETF. In the fine print buried in their prospectus, these ETFs reveal that they don’t own a physical ounce of gold to back your claim. Additionally, they themselves only have a claim on a paper ounce. Even worse, you also can’t redeem your paper claim for a physical ounce of gold, they force you into a cash settlement. So even if they had a physical ounce of gold to back your claim (which they don’t) you would still only get cash.
Do: Buy Coins and Bars That Are Common and Easy to Sell
The most common ways to own gold, like the American Eagle, Canadian Maple Leaf and Austrian Philharmonic coins are your best bet in a time of crisis. They are widely held and recognizable. Also, most importantly, they can be bought or sold close to spot prices. In a time of crisis, you don’t want to be selling an uncommon coin or one of questionable authenticity. Coins from the large mints are your best bet for quick transactions with low costs.
Don’t: Buy Numismatic Coins (Unless You Really Know What You Are Doing)
Numismatic coins, those that are bought and sold by collectors for their beauty and rarity, are great coins. And, they often trade for many times over the spot price of gold or silver because of their beauty or rarity. Because of this, they can have wide spreads between their bid and ask prices. Also, even those prices can be very subjective depending on the buyer or seller. In a time of crisis, it’s better to have coins that are common and easily bought and sold.
In part 2 tomorrow, we’ll cover the best way to pay for your gold purchases, where to store your gold and more.
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