Tudor Financial May 2020 Update
Professional Investment Strategies
Investing, Planning and Financial Guidance Since 1992
Serving Clients in Over 30 States
|
|
Depression-Era Unemployment
"You may proclaim, good sirs, your fine philosophy. But till you feed us, right and wrong can wait."
Bertolt Brecht
"Just a few months ago, new jobless claims were in the low 200,000's and stood near a 50-year low. Only about 1.7 million Americans were collecting benefits. And the unemployment rate was at a half-century low of 3.5%."
(The Wall Street Journal 5/1/20)
This is the COVID financial tsunami of 2020:
February 2020: 165 million in the U.S. workforce
(8)
May 2020: 41 million applications for unemployment
(4)
25% of the workforce filing for unemployment
Under $40,000 household income - 40% affected by unemployment
Over $100,000 household income - 13% affected by unemployment
(7)
The battle against an invisible force has created millions of casualties. The latest cumulative
weekly unemployment claims of 41 million
(7)
suggest unemployment has now reached depression-era levels. The Great Depression from 1929 to 1933 saw unemployment rise to 25%. Few safety nets existed in that period. It was not until the
Federal Social Security Act of 1935
was enacted that unemployment insurance existed, hence the images of the unemployed selling apples in the streets.
|
|
Expect a Fallout From
Shutdowns and High Unemployment Levels
T
he cost of shutdowns/potential casualties of this financial tsunami:
- 100,000 businesses may close permanently(5)
- 42% of lay-offs permanent?(6)
- Unemployment will remain stubbornly high for an extended period
- Personal and business bankruptcies will rise significantly in the coming year
- Although federal support is lessening the blow, states and municipalities may falter in the next twelve months from extraordinary cash flow pressures.
- Social security shortfalls will grow as the U.S. deficit expands to a record $24-25 trillion.(5) (Social security is paid from wage earners. As we have historically noted, it is a transfer tax from earners to recipients without a "trust fund" as backup. At the moment, 41 million fewer wage earners are paying into the system)
- And yet markets have already priced in this atrocious news and risen vigorously...
|
|
V-Shaped Markets Defy
Economic News
In recent months we suggested that market trajectory was similar to a bear market acting like a correction. We proposed that after corrections, markets recover in a V-shaped pattern. Corrections are quick declines followed by quick recoveries - often within weeks or months. And this is exactly how markets have behaved in recent months.
The 2020 COVID declines can now be described as the shortest bear market in history. The S&P 500 decline from the February 19th high to the March 23rd low took only 23 trading days - less than five weeks. That was the bear market part. The new bull market recovery (20% or greater rise) took 12 trading days or a little over two weeks. However, the S&P 500 as of this writing is now up a huge 38% from its low
(1)
Some thoughts:
- It is clear in hindsight that the easiest returns come off the bounce of extreme oversold markets. (panicked investors in March created the best buying opportunity in eleven years).
- Markets are back to breakeven with early March levels(1) Any panicked investment sales after the first week in March have been detrimental to returns
- Many forget that markets already know and price in media news. Millions of market participants have already priced in current and future COVID risks
- Market professionals forecasting returns are wrong more than 50% of the time(3)
- At current levels, buying opportunities exist but are not as compelling as late March. Many missed the best buying opportunity of the past eleven years. Winner and loser asset categories will emerge in the coming year
- Since COVID shutdowns are unprecedented, there is no historical template. No one can with certainty know market direction in coming months. Both bulls and bears have valid arguments. However, markets have already priced in almost all widely available scary news
|
|
State & Municipal Bankruptcies?
|
|
Federal law currently does not allow states to file for bankruptcy.
Why would this now be a pressing issue?
States and municipalities are not known for sound financial management: spending and debt-making is easy when money is not your own. Many states and cities were not fiscally sound before the COVID crisis - for example, owing billions in unfunded pensions. Forced shutdown on states, cities, counties has been harsh - reduced wage tax revenues, high unemployment claims, lower toll revenue, lower gasoline taxes. If state and municipal finances are weak during the best of times, what impact will depression-level unemployment have on these government-run territories? In the coming year many will be drowning in shortfalls.
|
|
Age 72
The revised age at which retirement account holders must now begin a lifetime minimum level of withdrawals from their retirement accounts.
This was changed on December 20, 2019 with the passage of the
SECURE ACT
.
The prior age was 70 1/2
The March 27, 2020
CARES ACT
suspends the requirement to take retirement withdrawals in 2020
(1)
In 2020, investors can choose whether to take those withdrawals
(aka Required Minimum Distributions)
|
|
“
Wealth isn’t primarily determined by investment performance, but by investor behavior.”
-Nick Murray
|
|
Dow Industrial Index
February 19, 2020 - 18,214
(2020 low)
May, 29 2020 - 25,400
(1)
39.5% Recovery
|
|
Grant S. Donaldson, MS, CPA
|
|
(1) yahoofinance.com, S&P500 historical data, Barrons, Morningstar.com, Vanguard benchmark returns
(2) Information available upon request
(3) www.coxadvisory.com
(4) cnbc.com
(5) University of Illinois, Harvard,
HOW ARE SMALL BUSINESSES ADJUSTING TO COVID-19? EARLY EVIDENCE FROM A SURVEY
(7) WSJ, May 15, 2020 & May 28, 2020
(8) Department of Labor
|
|
Past performance is not indicative of future results. Nothing in this communication should be construed to contain a solicitation to buy or an offer to sell any security. Some information contained in this communication has been provided by sources other than Tudor Financial, Inc., the accuracy of which is the responsibility of the provider. Advisors affiliated with Tudor Financial are Registered Reps. of Westminster Financial Securities, Inc.,40 North Main Street, Suite 2400, Dayton, Ohio 45423, member FINRA/SIPC. If you would like a copy of our Schedule ADV Brochure, a written disclosure statement outlining our background and business practices, please contact our office.
|
|
|
|
|
|
|
