Tag Archives: Economy

U.S. Markets Overreacting

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Updated:  Monday, 2/3/2020 at 8:25 am

We never want to downplay the threat posed by the Novel Coronavirus in China and globally. The highly contagious coronavirus is a pneumonia-causing illness that infects an individual’s respiratory tract. It is now responsible for a reported 360 deaths in China as of Monday morning and 17,000 infections, according to Chinese officials and official figures from the World Health Organization. Furthermore, it can be confidently assumed that the Chinese Communist government has drastically under reported the magnitude of the spread and the total number of its citizens effected by the virus.

Consequently, the U.S.represents a relative virgin population for the Novel Coronavirus. Americans have little to no immunity to this strain of virus from previous spreads or vaccination.  Thus it does pose a potential temporary risk and impact to the U.S. economy.

Subsequently, the World Health Organization has declared the fast-spreading coronavirus a global health emergency — a rare designation that should help to contain the spread and outbreak.

On Friday, the Federal government decided to quarantine Americans arriving on U.S. soil from Wuhan and the Guangdong province in southern China. Additionally, the U.S. initiated measures to screen passengers arriving from all other regions of China. Those found without symptoms are released and asked to self isolate themselves for the fourteen days, the prescribed incubation period for the Coronavirus.

U.S. Influenza Season

However, most Americans are not aware that the CDC estimates that there has been 25 million cases of seasonal influenza in the U.S., 250K hospitalizations and 20,000 deaths reported. This is not abnormal for influenza season in the U.S. Moreover, influenza has been assessed as widespread in Puerto Rico and in 49 states.

Image if the media chose to report these statistics like the quantity of seasonal influenza cases, hospitalizations and deaths in the U.S. every hour and had quasi-infectious disease experts on-air to pontificate about the potential severity and potential deaths. Additionally, image if they had their reporters stoke fear by wearing a nurse’s mask to cover their respiratory system and displaying concern in their voices while reporting live from a mall in Chicago.

More than likely, the market would have been impacted by the over reporting of news.

Conclusion

Bottom line, the market has been  freaking out over the coronavirus outbreak, which doesn’t pose a threat to any long-term investor, as long as they remain calm and disciplined.  The media’s coverage and reporting of the coronavirus might be best described as over-dramatic. The effect has been the market sell off and market volatility. Additionally, the media appears to be now over hyping the preventive measure U.S. officials have taken to prevent the spread of the highly contagious virus on U.S. soil.

Friday’s U.S. stock market two percent sell off was definitely an overreaction to the over-reporting and over-hyping by the U.S. entertainment media.

References:

  1. https://www.cdc.gov/flu/weekly/index.htm#ILIActivityMap

Coronavirus is less deadly than SARS — but that also explains why it’s so contagious – MarketWatch

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Two months into the epidemic, the coronavirus has not proven to be as deadly as the SARS virus. That, however, may also help explain why it’s spreading so quickly. It has an incubation period of up to two weeks, which enables the virus to spread through person-to-person contact.

The coronavirus, a highly contagious, pneumonia-causing illness that infects the respiratory tract, is now responsible for 213 deaths in China as of late Thursday and 9,692 infections worldwide, according to Chinese officials and official figures from the World Health Organization.

SARS, or severe acute respiratory syndrome, infected 8,096 people worldwide with approximately 774 official SARS-related deaths; most of those infections occured during a nine-month period from 2002 to 2003. Even with 43 new fatalities reported over 24 hours, the fatality rate remains steady.

SARS had a fatality rate of 9.6% compared to the fatality rate of 2.2% for the coronavirus.

SARS had a fatality rate of 9.6% compared to the fatality rate of 2% for the coronavirus. However, that death toll could rise as the weeks progress, and drug companies scramble to come up with a vaccine for the virus. Whether the fatality rate remains steady has yet to be determined.

— Read on www.marketwatch.com/story/coronavirus-is-less-deadly-than-sars-but-that-may-explain-why-its-so-contagious-2020-01-30

Buy the dip in stocks and then sell the rip higher – Bank of America

That’s the strategy that strategists at Bank of America Securities appears to be espousing for investors, amid swings in U.S. stock benchmarks that have become increasingly gut-wrenching in the aftermath of a coronavirus outbreak in China that appears to be giving bullish investors at least a momentary pause after a record-setting rally.

For the week, the S&P 500 index and Dow are on track for a more than 1% loss, and the Nasdaq is on pace for a 1.2% drop, after Chinese authorities on Thursday said that more than 7,700 people have been infected with the Asian influenza, with at least 170 dead. Moreover, the Centers for Disease Control and Prevention confirmed the first case of person-to-person spread of coronavirus in Illinois. There are now six confirmed cases of coronavirus in the U.S., two of which are in Illinois

Stocks Have Outperform Other Asset Classes

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For the next decade, which asset class among stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency, would be the best vehicle to invest money for the highest long-term total returns?

Since 1890, the S&P 500 (or its predecessor indexes) has outpaced inflation at a 6.3% annualized rate (when including dividends). Long-term U.S. Treasury Bonds have produced an annualized inflation-adjusted total return of 2.7%. Finally, U.S. real estate has produced an annualized return above inflation of just 0.4%, as judged by the Case-Shiller U.S. National Home Price Index and the consumer-price index.

Yet, the U.S. stock and bond markets are currently overvalued, and it is plausible that real estate will do better than either stocks and bonds over the next decade.

According to almost all standard valuation metrics, U.S. equity stocks currently are somewhere between overvalued overvalued. Furthermore, you can only partially explain away this overvaluation because of low interest rates.

Given stocks’ overvaluation, it’s entirely possible that stocks will over the next decade have the potential to fall short of their historical averages.

To the contrary, real estate has been relatively undervalued and historically less volatile than the stock market—a lot less as measured by the standard deviation of annual returns.

As a result, real estate has proven to be less riskier than equities. Yet, the misperception that real estate is riskier has been derived from the leverage typically used when purchasing real estate adds inherent risk to investing in real estate. Essentially, the risk for real estate comes from the leverage, not real estate inherently.

If there is a major stock bear market in the next decade, real estate might be the better investment just because of it’s lower risk and relatively undervalued.

Sources:

  1. https://www.marketwatch.com/story/the-single-best-investment-for-the-next-decade-2019-08-08
  2. https://www.marketwatch.com/story/stock-bulls-are-telling-themselves-a-lot-of-lies-about-this-market-2019-06-04

2020 Investment Outlook

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Investors should expect heightened market volatility in 2020. History tells us that it’s not uncommon for three to four large-cap equity stock market pullbacks of at least 5% to occur each year and market corrections of at least 10% can occur every year. As a result, it may be prudent for investors to position their stock portfolios away from higher-risk asset classes for safer asset classes.

Portfolio Guidance:

  • Cash has an important place in a portfolio as a volatility dampener and a source of funds.
  • Focus on higher quality assets.
  • Go beyond traditional fixed income for yield. Investors may consider equity dividends as another source of income.
  • Defense can be a good offense. Given expectations for market volatility, suggest reducing exposure to riskier assets.
  • Focus on longer-term diversification, as shorter periods are likely to be more volatile

China’s Seven Deadly Trade Sins

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China has not been partners in good faith in trade and economic negotiations. They’re an authoritative Communist Dictatorship that enslaves it citizens for the empowerment of the Party

The U.S. and the Western multinational enterprises have enabled and fueled China’s extraordinary quarter century economic and global geopolitical growth. While the U.S. goal is Free Trade, Individual Freedom and Democratic Capitalism. U.S. companies are getting fed up with the force technology transfer by companies doing business in China and the Chinese firms exporting and selling those products in the U.S. market.

China’s Seven Deadly Sins

1. Stop stealing Western intellectual property,

2. Stop forcing technology transfers,

3. Stop hacking U.S. computers,

4. Stop dumping into U.S. and Western markets and putting our companies out of business,

5. Stop state-owned enterprises from heavy subsidies,

6. Stop the importation of fentanyl, and

7. Stop the currency manipulation

They’ve reneged on the Hong Kong autonomy agreement, they reneged on the agreement signed in the Oval Office with President Obama regarding the militarization of the South China Sea. In 2015, China’s President Xi stood with President Obama in the Rose Garden at the White House and promised (lied) that “there is no intention to militarize” a collection of disputed reefs in the South China Sea known as the Spratlys.

President Obama stated on his way to the 2016 G20 Summit in Hangzhou China. That “If you sign a treaty that calls for international arbitration around maritime issues, the fact that you’re bigger than the Philippines or Vietnam or other countries … is not a reason for you to go around and flex your muscles,” Obama added, according to Reuters. “You’ve got to abide by international law.”

Military analysts have criticized President Barack Obama’s administration for having been too timid in countering China aggression and militarization in the South China Sea. Critics, for instance, have faulted the previous administration for not conducting more frequent freedom of navigation patrols. “China’s militarization of the South China Sea has been a gradual process,

Source: https://www.nytimes.com/2018/09/20/world/asia/south-china-sea-navy.html

Democrats In Love With Big Tax Hikes Might Do Well To Remember Walter Mondale | Tax Policy Center

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Mondale insisted his tax hikes would target the wealthy and Reagan’s wouldn’t. It didn’t matter. In the election, Reagan got 525 electoral votes. Mondale got 13. He lost the popular vote by 18 million.

— Read on www.taxpolicycenter.org/taxvox/democrats-love-big-tax-hikes-might-do-well-remember-walter-mondale

2020 Market Outlook: U.S. Stocks and Economy | Charles Schwab

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Key Point

  • The U.S. economy likely will remain bifurcated in early 2020. Manufacturing and business investment may continue to struggle amid trade uncertainty, but services activity and consumer spending may continue to be healthy.
  • The Federal Reserve’s 2019 rate cuts should support stock prices, as well as rate-sensitive areas of the economy. However, rate cuts are only a partial cure for what ails manufacturing and corporate animal spirits.
  • A preliminary U.S.-China trade deal could stabilize the decline in corporate confidence. However, returning to a strong business investment environment likely requires a more comprehensive trade deal.

The dividing line remains firm

U.S. economic growth slowed in 2019, pulled down by weak business investment and manufacturing activity. Although strength in consumer spending and services persists heading into 2020, we expect stabilization—at best—in growth next year.

Myriad uncertainties are clouding the outlook, including earnings and the presidential election. Ongoing trade war ambiguity could further depress corporate confidence and investment.

A key risk in 2020 is that manufacturing weakness and business investment fatigue could hurt services activity and consumer spending, by depressing job growth. Although the U.S. unemployment rate (a lagging indicator) remains low, weekly initial jobless claims (a leading indicator) in manufacturing-oriented states have been rising.

As such, U.S. payroll growth may weaken if limited headway is made on a comprehensive trade deal. However, global economic stabilization could be positive for U.S. growth.

— Read on www.schwab.com/resource-center/insights/content/outlook-us-stocks-and-economy

U.S. – China Deal is Imminent

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China’s annual Economic Work Conference is likely to convene within the next two weeks, meaning a trade deal with the U.S. is “imminent,” according to ICBC Standard Bank Chief China Economist Jinny Yan.

www.cnbc.com/2019/11/27/icbc-us-china-deal-is-imminent-due-to-beijings-upcoming-policy-meeting.html

Democracy and Economic Opportunity

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Frustration with polarizing politicians, unequal wealth distribution and personal economic opportunities breed dissatisfaction with democracy in America

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
– Winston Churchill

A Pew Research Center survey found that the discontent that many citizens of democratic countries feel are tied to concerns about the their respective domestic economies, individual rights and out-of-touch elites. Furthermore, most believe elections bring little change, that politicians are corrupt and out of touch and that courts do not treat people fairly. On the other hand, citizens are more positive about how well their countries protect free expression, provide economic opportunity and ensure public safety.

Several surveys of how well democracy is working for the average citizen vary considerably across nations. In Europe, for example, more than six-in-ten Swedes and Dutch are satisfied with the current state of democracy, while large majorities in Italy, Spain and Greece are dissatisfied, according to the Pew Research Center survey. Thus, it is safe to assume that citizens per capita income and their respective country’s economic business cycle seem to impact democratic dissatisfaction differently in some advanced and emerging economies.

Furthermore, it appears that there is a considerable correlation between the prevailing views of the domestic economy and the assessments of democratic performance. If the domestic economy is growing and the perceived distribution of wealth are seen as relatively equitable, then people tend to have a more favorable view of democracy.

Source: RICHARD WIKE, LAURA SILVER, AND, ALEXANDRA CASTILLO, “Many Across the Globe Are Dissatisfied With How Democracy Is Working”, APRIL 29, 2019

Market Minute | TD Ameritrade

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U.S. consumer activity remained robust and employment continued to set records – hence the many critics and even a few Fed dissenters of the “mid-cycle adjustment.” Now, Treasuries are selling off with some momentum the last two months as the economy stabilizes.

It’s not that our economy is vastly improving – it’s that it’s stabilizing with the rest of the world while geopolitics are looking less dire. So rates are a little topsy-turvy, going up without real economic acceleration.
— Read on mail.tdameritradenetwork.com/H/2/v40000016e6519f5f6b372a96e965fc958/67faea12-ef19-46a7-9842-7bf7e98df4dd/HTML