[Market Madness] Edition 0068
Sunday Recap
Not so calm weekend
Well folks, thank you for the feedback on yesterday’s piece. I look forward to continuing to provide quality content and improving Market Madness for future editions. Additionally, happy Father’s Day to the Fathers out there - thank you for all you do.
Across the world, we are seeing COVID 19 cases ramp up, with the past several days trending above 30,000 new cases here in the U.S. and a single-day jump of 54,000 new cases in Brazil. All eyes are on the case numbers from Oklahoma today following Donnie’s rally yesterday. The WHO and individual health experts are worried that people are no longer focused on spread mitigation, but rather, rushing to return to normalcy. Their cries for awareness suggest that the rush to normalcy might push that reality further back. Apple is leading the way with respect to precautionary measures as they close stores in several hot spot states. This week will be an interesting turning point in the battle against COVID 19.
Financially, many are looking to see where the futures open this evening, as an indicator of where the markets will open on Monday. Following the technical happenings on Friday, we could see another day of increased trading activity and volatility. I’ll be sure to look into and cover off on what the S&P 500 rebalance means for you. Given the virus conditions we just discussed, it’ll be interesting to see how investors factor this information into their trading activity. We’ve seen quite often how picky investors are to the news they choose to follow when investing - they may outright ignore it for now, or heavily rely on it…but who really knows.
In today’s edition, we are going to take some time and look at the savings habits consumers have developed while in quarantine as well as the impact COVID 19 will have on world trade moving forward.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
Fundamentals
Friday Close:
Dow Jones Industrial Avg: -0.80%
S&P 500: -0.56%
NASDAQ: +0.03%
US 10 YR: 0.697%
Crude OIL: $39.57
Market Madness Portfolio: -0.09%
COVID 19 Global Cases: 8,970,475
Indices Overseas:
FTSE 100: +1.16%
Nikkei 225: +0.55%
Hang Seng: +0.73%
TEDRATE: 0.14
LIBOR (3 month): 0.30638%
Savings galore
Banks have revealed to us today that consumers have really developed some sense of a savings habit in the wake of COVID 19. Since January, the FDIC (federal deposit insurance corporation) announced that cash deposits by consumers had increased by a record $2 trillion.
In past editions, we had talked ad nauseam about the shocking lack of savings by average consumers. Studies in the past have suggested that Americans do not nearly set aside enough money for when an unexpected disaster hits.
“Research from the Federal Reserve found that 4 in 10 Americans couldn’t afford a $400 emergency, and 22% say they expect to forgo payments on some of their bills.” (excerpted from article)
This research was published in May of last year, and I had seen other information more recently that suggested those numbers could be even worse. It goes without saying that we are truly seeing the impact of that now. On Friday, we talked about the record number of Americans’ loans that have moved into deferment (about 100 million debt accounts since March 1) as a result of a lack of savings, a reduction of income, and a loss of employment all caused by COVID 19.
We have also discussed at length the remarkable increases in savings and investment being made by consumers in the wake of mass store closings. Given how long the pandemic has had its grip on society, I am continuing to hope that it has been long enough for the majority of consumers to adjust and develop stronger savings and investment habits for the future.
We have seen that, as stores have reopened, consumers are not afraid to take their money and spend on goods that may have been foregone in the past months. This helps the economic recovery as well, circulating money that was being safeguarded in cash and pumping it through the veins of the economy. So too does savings and investing. The importance becomes education consumers on finding the right balance between spending and saving that allows for greater individual protection from downturns, and economic expansion. Building strong savings habits is a great start to getting the economy back on the right foot. We are still early on in the recovery and a lot can change, but seeing an increase of savings can be a good start.
For your wallet: The article suggests that an increase of deposits will likely make banks lower their already minuscule interest rate on deposits. A lower rate on deposits will decrease the total level of interest you gain by holding your money in a checking or savings account. This action should spark investors interest in looking for safer accounts to move their deposit savings into short- or intermediate-term CDs to boost their return, while still having more liquid money than investing into the financial markets.
On global trade
Trade has been a hot topic issue, particularly in the U.S. for some time now. Donnie and Chinese president Xi Jinping have been attempting to come to an agreement on a trade deal for a while. There has been forward progression at times, and backward progression at other times. It has not been an easy journey, as years of past decisions have led us to the trade conditions that Donnie set out to completely reshape. (This is not the main idea of this article, and thus will not be visited in more detail - we’d need many more pages to cover this topic effectively.)
In an increasingly interconnected global marketplace, trade is vital and the veins connecting nations and people from everywhere. Trade allows nations to specialize and take advantage of comparative advantage (doing what they do best and trading for the rest). As the saying goes, ‘a Jack of all trades is the master of none.’ The same is true of nations. Nations prove to be more successful when there is an increased level of trade and specialization, not only for that nation but also for the global community. Benefits are realized in economies of scale, reduced prices for consumers and a more efficient and cost-effective allocation of scarce natural resources used in production.
Let’s review this info-graphic for a quick lesson on globalization trends:
As with most things lately, COVID 19 has left a lasting impact on the future of global trade as well. Dramatic changes brought about by the coronavirus have dealt a difficult hand to nations and leaving them without a playbook to fall back on. The reactions have been different, with some countries removing trade restrictions to try and help the flow of goods across the globe, and other countries building up walls, protecting the production they have and trying to save their own nation before assisting the global stage.
“In the post-pandemic world, more economic activity will be designated vital to national security, and thus deemed to require self-sufficiency. If governments wall off segments of their economies, costs could rise and growth could slow. Richer economies may grow more slowly while newly industrializing one—winners in recent years—may fall back. The World Bank this month warned of lasting harm to low-income countries from ‘prolonged damage to global supply chains, global trade and financial flows, and global collaboration.’” (excerpted from article)
Companies operating with a global supply chain strategy have been put through the wringer this year. Some have seen this as the rationale behind why companies should return at least some of their production back to the U.S. and reduce consumer dependency on foreign goods. The challenge still remains balancing a payroll budget for companies who can source labor in other countries as a fraction of the cost of U.S. labor. (This is a very in-depth and complicated topic - one that will be addressed at another time because it is tangential to the points being address here.)
Regardless of where companies operate and produce their goods, they have been forced to go back to the strategic drawing board to consider options in which they can continue to facilitate the purchase of input products and provide goods and services for paying customers regardless of the impacts brought on by a worldwide pandemic.
The choice for nations becomes binary; should we follow the track of comparative advantage or follow individual national supremacy? The former comes with pros and cons, and so does the latter.
‘“If more countries pursue the track of self-sufficiency, it will increase competition for scarce resources, drive up prices and deepen international hostilities,“ said Phil Hogan, the EU trade commissioner. “It would be a lose-lose situation for our citizens and our economies.”’ (excerpted from article)
This decision is by no means a new one, just one that has been reignited in the wake of a worldwide pandemic. Following the coronavirus crisis, national leaders must address their plans for global trade and production, which will set the stage for goals and challenges for many more years to come.
Quick Takes
Donnie returns to the campaign trail, but to an audience below expectations. (via CNBC, headline only)
Grocers are looking to robot systems to help revive prepared food in the wake of COVID 19 precautions. (via CNBC)
U.S. daily COVID 19 new cases surpasses 30,000 over the weekend. These numbers are the highest seen here since May 1st. (via CNBC)
The public debt challenge following the COVID 19 crisis? (via FT)
Tesla’s Elon Musk announces on Twitter a delay to their annual shareholder meeting. (via ATOM+, headline only)
Reader’s Corner
The reader took the day to celebrate my Father and all that he has done for me. Check back in tomorrow for some high quality banter!
Behind the Madness
Thank you again for checking in.
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