I fear the US economy is starting to feel the hangover effect, after binging on $13 Trillion, yes with a "T", trillion dollars of stimulus. I'm not going to argue whether it's needed or not because I previously said stimulus to main street America is definitely needed. But the hangover reminds me of how I felt after a Saturday night of partying in Chicago once we officially transitioned from winter to warm weather --- everyone was out drinking.
When I think about government stimulus, everyone this spring and summer was wasted off of stimulus. If you were unemployed you got an extra shot of stimulus in the form of $600 added to your unemployment pay. For small businesses and then surprisingly large business (remember my post on even the LA Lakers organization getting PPP funds), we benefitted from stimulus if we promised to bring workers back. We soon found out many of my business colleagues graciously took the money and then far too many decided NOT to bring workers back --- why because they were more concerned about tying the funds to when business would come back. But being in the RISK MANAGEMENT business, this is fundamentally flawed thinking. The PPP experiment as I call it was a social experiment to see if as a nation we could band together and do what's best for our neighbor financially. I'm sad to say, the experiment didn't work as business people fought it along the way, while cashing in the money. During a health pandemic where people SHOULD stay home quarantined, you cannot expect business to return back to normal --- use government taxpayer money to keep people afloat.
Note to anyone reading -- What kept people going was the unemployment checks and the extra bump of $600, it caused an e-commerce boom. How do I know, well I am in the Cyber Risk Management business. I have been getting calls from all over the country to help people do more business across the internet. My most amazing story is a company that sells boats and luxury yachts in Florida. They called me and we discussed business. At the beginning of the pandemic, no business because their model was predicated on customers coming in. But they quickly learned they needed a robust web platform as they were getting boat and yacht orders left and right. It sounds like most of us in Corporate America could keep going as we could work from home and buy boats and yachts but I wonder about the front line worker who is exposed to the virus on a daily basis if you're driving a bus, riding the train, or working the grocery checkout system. No national quarantine holiday in my humble opinion was a bad risk management move.
Why do I think we're feeling a hangover let's look at the news:
Company Continue to Announce Layoffs -
- Airlines - this industry announced 35K job cuts and some anticipate this number will top 100K
- Disney - announced 28K layoffs
- Salesforce - initial pledges were made to not layoff, well soon thereafter they announced 1K layoffs
Jobless Claims Continue to Rise
As an investor, how do I keep track of economy. I use one indicator called the Jobless Claims report from the US Labor Department. The data is staggering:
- As of September 30, 2020 25 million required jobless benefits
- Last week (Oct 10, 2020), - 898,000 new persons applied for jobless benefit aid for the first time
- To put this data into context, during the 2008 Financial Crisis that I believe was the worth since the Great Depression, the number of first-time applicants peaked @ 665,000
COVID-19 Continues to Spike
- France noted that 40% of it's hospital beds are filled w/ COVID patients
- Europe cases are rising
- The rural US is now the leading source of new cases
- And unfortunately people are fatigued or bored with staying home
Like a patient addicted to stimulus, the stock market is calling for more. What happens if we don't get more --- a painful withdrawal??
The ride up has been nice if you bought into e-commerce and stay at home stocks: think ROKU, PELETON, AMAZON, FACEBOOK. Everything else hasn't moved much...need proof I believe the S&P500 is up only 4%. So my barbell approach is still working. My retirement funds are safe (not invested in the market) and my investments in ROKU and Collectors, Sprint, Alibaba Allergan and others have surprisingly made me a tidy fortune during the pandemic. Real Estate is the other area where I'm poking my nose in.
A reminder to not drink the Kool-Aid --- you'll avoid a hangover. Stick to the pillars.
