T his Week from Jesse Hurst
Jesse W. Hurst, II
CFP® CERTIFIED FINANCIAL PLANNER™
AIF ® ACCREDITED INVESTMENT FIDUCIARY


Will 90% get the American Economy an A?

Life seemed so much simpler and well-defined when I was a young student. The grading scale was straightforward, 90% or above earned you an A. You knew exactly what you needed to get the grade you wanted.
 
As I got older, things became more complex. In high school, 90% was a solid B, and you needed 93% or above to continue getting an A. I found this out the hard way during my freshman year of high school. I had A's in all of my classes during the second grading period, except Algebra II, where I had earned a 92.87%. Mrs. Griffith, who was a wonderful but very tough teacher, reminded me that her grading scale was 92.99% and below was no longer worthy of the A's that I had gotten in elementary and junior high school. I ended up with five A's, an A-, and a wounded ego.
 
(As a completely unrelated aside: The following year I was a teacher's aid for Mrs. Griffith. An announcement came out at noon one day that tickets for The Who's farewell concert tour would go on sale at 4 PM at Ticketmaster at Chapel Hill Mall. I did not have enough money with me to be able to go and get tickets to see one of my favorite bands. Mrs. Griffith loaned me $20 so I could go stand in line with my friends after school. She trusted that I would pay her back the next day, which I did with money from my paper route. Thank you Mrs. Griffith.)
 
Why is any of this relevant? Many economists believe that the United States economy is tracking several months behind the Chinese economy. As you remember, China's economy shut down several months earlier than the US economy did, as the initial epicenter of the global pandemic started in the Wuhan province of China. Economic data would support that China's economy has recovered to approximately 90% of its pre-viral outbreak levels. The general thought process from these economic prognosticators is that the US economy will recover along a similar, but somewhat rocky path. The hope is that we will get back to at least 90% of our prior levels in the months ahead. The big question is, will 90% on the US economy an A? 
 
The chart below, courtesy of JP Morgan Asset Management, shows the length and severity of US recessions over the past 100 years. As you can see, most recessions have resulted in a GDP loss of 3% or less. Even the Great Financial Crisis of 2007-08, which seemed fairly devastating at the time, only resulted in a 4% GDP loss. In addition to the economic contraction, we had one month, October 2009, of double digit unemployment during this time period. Aside from the Great Depression, the only double digit recession and GDP decline happened in 1946, with the unwinding of the World War II industrial machine after we had won the war. The projected GDP loss from the current, government mandated, economic shut down is projected to be nearly 3 times what we experienced during the last recession. We will also likely have many months of unemployment above 10%.
 
In mid-May, I attended a webinar put on by John Mauldin and Jim Bianco, an economist with Bianco Research. Jim was quick to point out that a 4% GDP contraction and one month of 10% unemployment created enough anxiety and social unrest in 2008 to spark both the "Occupy Wall Street" movement on the left, and the "Tea Party" movement on the right. He questioned what kind of unrest could happen if our current downturn and recession was 2-3 times more painful than what we experienced just over a decade ago. His concern was that government imposed economic shut downs, quarantines and job loss would lead to social upheavals. This was roughly two weeks before the very ugly George Floyd incident sparked outrage and protests across the country.
 
While the initial rebound in economic data as the economy started to reopen was encouraging and should be applauded, we likely face a bumpy and uneven road ahead. Additional viral flareups and hotspots along with additional restrictions and business closures by state governments will likely make the future economic data less upbeat. It is important to understand that if we recover to 90% of our pre-crisis economic levels, we have still lost 10%. So, it is important to ask once again, will 90% earn the US economy an A??
 
We will continue to monitor the data and economic trends as it becomes available. We will keep you informed and try to help our clients make smart financial decisions, so that we can all keep "Moving Life Forward" together.





Weekly Market Commentary
July 27, 2020
 

The Markets
 
Where are we on vaccines and treatments?

During 2020, the United States government has spent more than $13 billion on Operation Warp Speed (OWS), which is focused on accelerating the development of vaccines and treatments for COVID-19, according to The Economist. The United States is not alone. Governments around the world are funding similar research.
 
The Economist reported, "...with the eagerness of the pharma sector to find treatments, along with the broad range of investments made by OWS (as well as other governments), there has been a lot of progress in the search for tests, drugs, and vaccines...Even the master of caution on vaccines, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, thinks a signal of vaccine efficacy might arrive in September."
 
Any progress on treatments and vaccines is welcome news. Last week, there were more than 4 million confirmed COVID-19 cases in the United States, and the number of deaths rose above 1,000 a day, reported Joe Murphy and colleagues at NBC News. Late in the week, the number of new cases in Arizona, Florida, and South Carolina appeared to be trending lower, according to data from the Coronavirus Research Center at Johns Hopkins.
 
The resurgence of the virus may be one reason for the decline in U.S. stock markets last week. The Nasdaq Composite Index delivered back-to-back losses for the first time in more than a month, while the Dow Jones Industrial Average and the Standard & Poor's 500 Index finished the week slightly lower, reported Ben Levisohn of Barron's.
 
It's difficult to pinpoint the exact cause of the drop because there were many possible drivers. For instance, the Department of Labor reported the number of new unemployment claims increased, after 15 weeks of declines. Markets may have been concerned about increasing unemployment numbers when the extra $600 in weekly unemployment benefits expires at the end of this week. Congress has yet to agree on whether or how to extend benefits.
 
In addition, earnings have been less than stellar - as expected. Last week, 26 percent of companies in the Standard & Poor's 500 Index had reported second quarter results. The blended earnings, which combine actual results for companies that have reported with the estimated results for companies that have not yet reported, were down 42.4 percent, reported John Butters of FactSet.
 
There is little doubt the virus has wrought economic havoc. Let's hope we find a vaccine soon. Future generations may think about COVID-19 the way we now think about polio, measles, and rubella.



Data as of 7/24/20
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-0.3%
-0.5%
6.5%
9.2%
9.1%
11.2%
Dow Jones Global ex-U.S.
0.5
-7.5
-1.9
-0.5
-1.2
2.4
10-year Treasury Note (Yield Only)
0.6
NA
2.0
2.3
2.3
3.0
Gold (per ounce)
5.2
24.9
33.3
14.9
12.0
4.9
Bloomberg Commodity Index
2.5
-15.8
-14.1
-6.2
-6.1
-6.2
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.


JUST FOR FUN.
  The terms money and currency are often used interchangeably. However, Andrew Beattie of Investopedia pointed out, "According to some theories, money is inherently an intangible concept, while currency is the physical (tangible) manifestation of the intangible concept of money. By extension...money cannot be touched or smelled. Currency is the coin, note, object, etc..."
 
See what else you know - or don't - about money by taking this brief quiz:
 
1)      Which of the following was once used as currency?
  1. Tea bricks
  2. Knives
  3. Animal skins
  4. All of the above
 
  1. Which was the first animal to appear on a U.S. coin?
    1. An eagle
    2. A buffalo
    3. A jackalope
    4. A ring-necked pheasant
 
  1. What were nickels made of during WWII (1942-1945)?
    1. Nickel
    2. Metal alloy
    3. Steel
    4. Leather
 
  1. What is chrometophobia?
    1. Fear of thinking about money
    2. Fear of spending money
    3. Fear of touching money
    4. All of the above
 
Weekly Focus - Think About It

  "A nickel ain't worth a dime anymore."
--Yogi Berra, Professional baseball player
 
Answers:
  1. D - All of the above (Tea bricks, Knives, and animal skins)
  2. A - Eagle
  3. B - Metal alloy
  4. D - All of the above (Fear of thinking about money; fear of spending money; and fear of touching money)
 
Best regards, 
 
Jesse Hurst CFP ®, AIF®
Invesmtent Advisor Representative
 
Impel Wealth Management 
 
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* These views are those of Carson Coaching, and not the presenting Representative, the Representative's Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
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* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as "The Dow," is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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Sources:  
https://www.brainyquote.com/quotes/yogi_berra_106829

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