Until Coronavirus Is Contained It Will Keep Going Down
The US economy is down. Don’t look now, but things are about to go from bad to worse. Recent activity data shows that the economy might be stalling. Rising coronavirus cases in 40 states aren’t helping get things back on track either.
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It’s not V-shaped anymore
The US enjoyed a brief rebound in May and June, with some analysts celebrating a V-shaped model. This meant that while the economy plunged, a sharp rebound will happen after.
Recent weeks’ have shown a cooling off in the recovery rate. Instead of a V-shaped model, analysts are now looking at what they call a reverse square root. Aneta Markowska, the chief economist of Jefferies, noticed the leveling off around June. “It was a straight line up for the better part of two months. So this is definitely a notable slowdown that began around June 17th.” Jefferies monitors daily indexes of high-frequency data on various economic activities.
Using anonymous credit card data, analysts from JP Morgan Chase were able to predict virus trends. Data suggested that as card purchases in restaurants increased, new virus cases followed. Card spending then drops afterward. Spending drops are more pronounced in high infection states like Arizona and Florida. According to Markowska: “Texas, Arizona and Florida have not just leveled off but are outright contracting … what began like a V is morphing into a W.”
Economic analysis firm IHS Markit sees a W-shaped recovery if a new wave of infections happens. It said: “Official backtracking on the relaxation of restrictions as well as the voluntary pullback on the part of consumers could cause spending to weaken again sharply, throwing the economy back into a brief two-quarter recession.”
Four Economic Indicators
In a July 11 article, Business Insider reported indications of an economic slowdown. The article showed four indicators support the idea that the recovery has slowed:
- Data from the Dallas Federal Reserve shows people have stopped moving around. While the movement is still trending upward since April, rates have slowed down.
- According to OpenTable, restaurant bookings have declined over the last few weeks. Especially in high-COVID states, reservation bookings have dropped.
- The rate of employees reporting for work has trickled down per Homebase. Compared to 37% of employees going back to work in May, gains were 6% in June. This means that the pace of business reopening has slowed down.
- Kronos, a time tracking software, reported a decline in the number of work shifts. The reduction is higher in states with high coronavirus cases. Fewer shifts mean lesser payroll.
Summer Plans on Hold
Ryan Preclaw, Barclay’s director of credit strategy, sees the economic damage spreading wide. He believed that coronavirus outbreaks have the ability to influence economic outcomes. This applies not only to states with high incidences but to other states as well. Lower incidence states will take cues from high-risk ones and reconsider reopening plans.
Preclaw foresees people staying home over the summer instead of going out. In case they go on a trip, they will travel by car instead of airplanes. In a Jefferies survey, 60% of 1,800 respondents plan to stay home this summer, up from 52% from May. 75% of those planning a vacation intend to drive versus 60% in May. Jefferies analysts conclude that there is an “increasing fear of heading out to shop or enjoy entertainment, a sharp drop in expected travel and less optimism around a 2020 return to work.”
Survey respondents also talked about saving up. Around 33% say that the next stimulus check from the government will go to savings or used to pay debts.
Wear a Mask
Dallas Fed President Robert Kaplan thinks the key to recovery is much simpler. According to him, the most important thing for the economy is to wear a mask. “While the monetary and fiscal policy is very important, they’re not as important right now as us doing a good job flattening the curve on this virus.” If we do that, we’ll grow faster.”
Kaplan said that wearing masks in public is key to preventing the spread. “The primary economic policy from here is broad mask-wearing and good education of the health-care protocols. If we all wore a mask, it would substantially mute the transmission of this disease and we would grow faster.” He noted that “We would have a lower unemployment rate … we would be less likely to slow more of our reopening.”
Kaplan believes that stay at home measures helped arrest the spread of the virus last March. During this time, the GDP contracted by 35%, but he expects the economy to pick up later this year.
Watch this video of Cleveland Fed president on what the path to economic recovery could look like:
The continued rise in cases is slowing down any recovery efforts. Reopening the economy while outbreaks are still out there proved to be more difficult than expected. Something’s got to give eventually.
Given the situation, what are your summer plans this year? Will you brave it out, or stay at home? Share your plans and let us know why in the comment section below.
Gold ‘Frenzy’ To Build Around Election, Platinum Could Soar 50% By Year-End
Peter Hug, head of the precious metal division at Kitco, believes the Fed’s decision to hold interest rates at near-zero through at least 2023 is bullish for precious metals and particularly gold. He also mentioned the road platinum can head to by the year’s end.
“About three Fed meetings ago they indicated they would hold rates at pretty much zero through the end of 2021 into early ‘22, today they’ve extended that by an additional year, there have been some analysts that are suspecting they will keep rates at zero right through 2024, so we’ve got another almost four years of zero interest rates to look forward to,” said Hug.
“The Fed being a bit more accommodative on inflation indicates to me that it’s a very positive environment for hard assets in general but I think the metals as well will continue to move higher over the next period of time based on the dovishness of the Fed, global central banks and the uncertainty of the US election coming up in about six weeks.”
The State of the Gold and Silver Markets
Hug said the current consolidation phase is a great sign of the overall health of the gold and silver markets. This comes after the frenzy in the gold and silver markets about a month ago.
“The market has been consolidating, which is a very good sign, especially for gold. Gold has been consolidating between our support level of 1925 and 1975 for the better part of two weeks. Silver seems to be between $26.50 – $27.50 range and consolidating as well. The fact that people are not selling into a market that is as frenetic as it was a month or six weeks ago, indicates to me that this market is setting up for the next leg higher once we get through this consolidation phase.”
Availability and Premiums
The gold and silver markets are taking a bit of a breather and the mania has slowed a bit. With this, Hug said the availability of gold and silver coins is getting better. He said premiums are coming down as well.
“On the gold and silver side, dealers are starting to show inventory. That’s not a result of increased production, it’s more a result because of this consolidation phase, retail investors have started to pull back on the markets so there’s not as much buying frenzy in the physical space right now, I think that changes if gold gets north of $2,000 again. But this consolidation of $50 range in gold and the $1, $1.50 range in silver has basically dried up the demand at these levels.”
“So production is still coming on board and dealers are starting to build inventory. And because of that you are seeing premiums come down. Silver maple leafs you can get, again, depending on quantity, somewhere between $5-6 over spot, Eagles are down somewhere between $5-7 over spot, so you are starting to see as this market stays sideways and we don’t see another rush into the buying side from the retail investor, you give it another 2-4 weeks and I think there will be reasonable inventory on the market and premiums should come down.”
Volatility to Return Soon?
Hug said that if you are looking to acquire gold and silver coins, you shouldn’t wait long as we could see volatility return very soon.
“I caution that past October 15 the market is going to be very volatile as we go into the election.”
Other than gold or silver, Hug sees a huge opportunity in the platinum space. There, he expects prices to climb 50% by the end of the year.
“I’m constructive platinum. It is also consolidating in the $900-950 range, but I do anticipate platinum to be north of $1000 and then look to $1200 possibly $1400 before year end.”
US Billionaires Got Richer During Pandemic by $845 Billion
US billionaires got richer during the pandemic by a tune of $845 billion. This represents a 29% increase from the time the Covid-19 lockdowns started until now. While the stock market crashed during the early days of the pandemic, it has since recovered. Along with recovery are net worth increases for America’s billionaire. Among the pandemic’s big winners of 2020 were Jeff Bezos, Elon Musk, and Mark Zuckerberg. Also in the list were investor Warren Buffett, Oracle CEO Larry Ellison, and ex-NY Mayor Michael Bloomberg.
RELATED: Jeff Bezos Is Now Worth $200 Billion
In a report released Thursday, the Institute for Policy Studies and the Americans for Tax Fairness (ATF) said the total net worth of 643 of the nation’s richest people rose from $2.95 trillion to $3.8 trillion.
This is equal to a 29% increase between March to September. The report based the numbers on Forbes’ annual billionaire’s report and real-time data.
Jeff Bezos, the founder, and CEO online retail giant Amazon is now the world’s richest man. The pandemic forced people indoors and played right into Amazon’s online strategy. As millions switched to online shopping, demand for Amazon’s services skyrocketed. Amazon shares zoomed along with 40% in 2020, as the company racked up billions in orders. People bought groceries, medicine, household products, and entertainment items on Amazon’s sites. As the company grew richer, so did its CEO and majority stockholder. On August 19, as stock prices of Amazon went up, his net worth exceeded $200 billion. As of September, Amazon stock has fluctuated and Bezos’ current worth is $184 billion.
Another rich guy that got even richer was Tesla’s founder and CEO Elon Musk. Tesla’s value grew five times its January price. By August, the company’s stock split pushed his personal shares to $104 billion. This allowed him to join the coveted centibillionaire club. Compared to his March net worth of $24.6 billion, he’s now over four times that. As of September, with Tesla dropping value, Musk’s worth has dropped as well to $88 billion.
Facebook’s Mark Zuckerberg, who was worth $107.6 billion in August (now down to $93.7 billion). Facebook stock rose from $209 in Jan to $303 in August, making his 13% stake worth over $100 billion. Like Musk, he also joined the centibillionaire club this year.
“COVID crisis supercharges inequalities”
Chuck Collins, director of the Institute for Policy Studies’ Program on Inequality, and co-author of the report said he was somewhat shocked by the figures. He added that the COVID crisis is “supercharging America’s existing inequalities.” He said, “I would have thought maybe six months into this that things would have shaken out – that everybody would take a hit.”
“The difference is stark between profits for billionaires and the widespread economic misery in our nation. It sort of dramatizes the unequal sacrifice and profiteering element of the wealth accumulation at the top.”
Meanwhile, Covid-19 infected 6 million Americans and killed more than 200,000. As businesses collapse, the economy outside of Wall Street is in recession. More than 50 million jobs vanished in the pandemic. At present, 14 million Americans remain unemployed. Even those lucky enough to still have jobs got hit. Average work income fell by 4.4.%, per Bureau of Labor Statistics data. Outbreaks are still prevalent, even as a vaccine remains under development.
As such, the economy’s reopening remains slow.
Even local governments are feeling the pressure. States and cities are hamstrung with crippling deficits. California declared a $54 billion deficit, while New York City is looking at a $9 billion loss in revenue. From now until 2022, state budgets face a $555 billion deficit. This is according to the Center on Budget and Policy Priorities.
COVID-19’s unique effect made those with better plans during the pandemic fares better than most. In the case of Amazon, people flocked to their site when going out posed safety issues. For the others, the rise in stock reflected more on how they handled their business during the crisis. Some people are just quicker to seize on opportunities, even those coming from a crisis.
Watch this as Bloomberg reported last July 2020 on how billionaires got $637 billion richer during the pandemic:
Should we begrudge the rich getting richer, especially at a time like this? Do they deserve this success? Let us know what you think by leaving your thoughts on the comment section below.
Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed
The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.
Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”
“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.
Uncertainty and the Stock Market
However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.
“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”
“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”
Stimulus and Economic Recovery
Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.
“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”
Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.
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