"Bank of America Sector Analysts estimate it could be 2024 before spending volumes on Airlines and Lodging are at 2019 levels, and a full recovery is dependent on a vaccine being available and widely administered”. A sentiment we strongly disagree with; although financial markets are in the green for the year, at Samra Wealth Management, it is our belief that an FDA fast-tracked vaccine will do little to dampen the economic blow Covid-19 has served. The key premise of this month’s issue of The Samra Report is: If a vaccine was available today, would you take it? Would you allow your children to take it?
Although unemployment figures reflect a state of recovery, we believe the structural changes made causing temporary unemployment, are likely to become permanent. The United States as well as other economies are in the midst of an economic revolution: concerts, professional sporting events and other large gatherings have more than close proximity in common. They support many other ancillary services including janitorial services, printing, tourism, food and beverage, as well as many others. Last month Goldman Sachs and J. P. Morgan announced they were preparing for their employees to return to their offices across the globe. However, days after returning to work, J. P. Morgan sent some employees home.
In our November 2019 issue of The Samra Report: “Winter is Coming” we stated: “consumption spending makes up 68% of the United States GDP equation, insinuating a reduction in wages translates to a reduction in economic output. Although economic data does little to support our view, we remind investors that economic data did little to predict the last financial crisis.” 2020 has shown a disconnect of epic proportion when comparing Unemployment (U-6) to the stock market (S&P 500). With stocks riding near all-time highs, investors may not be aware of what’s to come, however, corporations are taking measures to dampen the impact of a prolonged recession. Firms are not ramping up for the holiday season, this past week:
Disney said it will lay off 28,000 employees across its parks, experiences and consumer products divisions
Royal Dutch Shell said it’s cutting between 7,000 and 9,000 jobs, while Dow Inc. said it will reduce its workforce costs by 6%
United Airlines, Alaska Airlines, American Airlines announced furloughs to over 60,000 employees.
At Samra Wealth Management we expect heightened volatility for the remainder of 2020, carrying-over into the first quarter of 2021. We believe the risk of a resurgence of Covid-19 would be seriously exacerbated during cold and flu season, creating a risk-off consensus. We recommend investors looking to invest in gold do so tactically, as the price of gold and other commodities is measured in US Dollars. Fundamentally speaking, lower interest rates lead to a weaker US Dollar, impacting the price of gold.
With news of President Trump testing positive for Covid-19 and his transfer to Walter Reed National Military Hospital, the uncertainty of the Presidents health solidifies these times are unprecedented. With less than a month left until the Presidential election, the risk of invoking the 25th Amendment, voters and investors questioning the President’s ability to govern and campaign, and a recent surge in Covid-19 in global hotspots such as Paris, London and New York, are leading to further restrictions. Restrictions that could cause the economy a second, more destructive, blow, should the government fail to pass a timely stimulus bill.
Politicians concerned about the federal deficit would be wise to familiarize themselves with Modern Monetary Theory (MMT) by reading the Deficit Myth by Stephanie Kelton.
* Last edited October 4, 2020.
Disclosures:
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
References
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