A Tale of Two Extremes
For many, the events we are experiencing regarding COVID-19, lockdowns, and reopenings have been confusing, leaving most of us uncomfortable with where things currently stand. Given the incredible extremes we are experiencing, it is easy to see why. First, we have an economy that is certainly not roaring like it was prior to the pandemic, but we have a stock market that is. Clearly there is a disconnect between Main Street and Wall Street. In addition, there are extreme outcomes and differences between the haves and the have nots. The have nots are experiencing much higher COVID19 infection rates and deaths. Currently, about 30 million people remain unemployed. Small business bankruptcies and closures are at an unprecedented high rate. This is the exact opposite of what the haves are experiencing. Those that are able to work from home have been mainly unimpacted economically. Large companies that are able to weather the storm or that are able to do business online or from a distance seem to be doing very well. Additionally, the housing market is also extremely different depending on whether you have resources or not. Recently, the new homes sales rate spiked to extraordinary high numbers as many people are deciding to build space that they can work and live in. While on the other hand, we are seeing all time highs in mortgage delinquencies and know that without intervention there would probably be many millions of people evicted for lack of rent and mortgage payments.
So, what’s going on? For now, it is all about the stimulus. We have seen tremendous fiscal stimulus to the tune of 4 trillion dollars. They have given payments and loans to help with costs for businesses. Unemployment insurance was $600 a week in addition to the state benefits which for many people made it more profitable to stay home and collect benefits than to work. Additionally, large cash gifts were given to the majority of America and all this has led to record spending, especially online. On the monetary front rates are at 0. Actually, rates are negative when you consider what the rate of inflation is. Also, there has been tremendous loan payment forbearance, emergency loan programs, and the federal reserve is buying all of the existing debt and creating a main street lending facility for companies in need. And currently it looks like there is additional stimulus on the way. The Democratic Party is suggesting over 3 trillion dollars more should be allocated to assist the economy while the Republican Party is closer to a proposal of 1.2 trillion. In our opinion, stimulus will continue in earnest, at least until the election. No politician wants to face voters and be the one that wasn’t willing to help out.
So, what are we doing? Well as difficult and uncomfortable as it is, we are participating in the markets, although we are focused on transitioning to more diversified and protected positions. When the markets bottomed, we bought strong individual technology companies and have made excellent profits on them. We have now begun transitions from individual holdings to more diversified positions in indexes that represent core US companies primarily. Obviously, given the uncertainty we continue to hedge your investments. Earlier in the year we purchased Gold to assist us in that process only to find that Gold is turning out to be a risk on trade. It is moving in the same direction as the stock market and seems to be experiencing the same level of speculation that the stock market is. Today we are using hedges like stops which act as a circuit breaker below the majority of the positions that we have in the equity markets. We continue to hold elevated levels of cash and have added some treasuries as well.
So, what’s next? Ultimately it is still all about the virus. We are waiting to see if, when the kids get back to school and winter forces people to be in closer proximity, will it lead to yet another outbreak. Obviously, there are hopes for a virus vaccine. Unfortunately, not only do they have to approve it and manufacture it, but they also have to actually get people vaccinated. Currently, it is estimated that it would take 75% of the population to be vaccinated to eliminate the virus. Unfortunately, most recent polls indicate that approximately only 30% of Americans plan to get vaccinated. While this all seems rather gloomy, we should keep in mind that if we can bridge the gap with additional stimulus to support the economy until an actual vaccine that will allow people to get back to normal activities is developed there certainly is hope that we will come out of this perhaps even stronger than we were prior to the pandemic. Americans are adaptive and certainly have shown the ability to overcome adversity many times in the history of this great country.
So, with that, let me close by saying that while we are living in extreme times, we are here to stay the course. Eventually the path will become clearer, but in the meantime, we will continue to be diligent risk managers. I hope you are staying safe and well. Should you have any questions or concerns, do not hesitate to call. We appreciate you and thank you for your trust and confidence.
Sincerely,
Don
Donald J. Phillips, CFP®
Chairman of the Board
Greater Midwest Financial Group, LLC.
3222 Rice Street
St. Paul, MN 55126-3047
Phone: (651) 490-9790 Fax: (651) 490-9788
donald.phillips@greater-midwest.com
www.greater-midwest.com
Greater Midwest Financial Group, LLC is not affiliated with Kestra IS or Kestra AS. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
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