| Read This Story: Don't Bet on a "V" Shaped Recovery In late 2009, unemployment peaked at 9.9% and that was a terrible economy. We could have unemployment above that level for the next year. As that reality settles in, I expect a W-shaped economy with a small rebound in the third quarter followed by a second decline. The first of the W will form quickly, the second bottom will be more of an L-shaped decline and then I expect years of slow growth. Will the fiscal and monetary stimulus we've seen so far prove sufficient to resuscitate the economy? Fiscal policy is going to delay recovery. I'm sorry for offending some readers but I have to say unemployment benefits are too generous. A New York Times article explained that workers in more than half of states will receive, on average, more in unemployment benefits than their normal salaries. This is because of the extra $600 per week in benefits included in the CARES package. When Congress was voting on that, some Republican senators asked that this be corrected because it must be an obvious drafting error. The Democratic response was that no one should argue about $600 a week for the unemployed. To keep the bill moving, it was passed. Those benefits are set to end in July. By that time, many businesses will have failed and there will be fewer jobs to return to. We've seen the worst energy demand destruction in history. Will crude oil prices recover to the point where the energy sector looks attractive to investors again? Oil has endured booms and busts for more than a century. There is an old joke about seeing bumper stickers in Texas that said, "Please God, give me one more oil boom. This time I promise not to blow it." Remember, they drive big trucks in Texas so their bumper stickers can be wordy. This is the biggest bust in history but eventually there will be another boom. In the meantime, investors should take a short-term view of energy markets. Crude oil gained more than 50% in less than a week and there will be short-term opportunities, lasting days to week, in the sector. Which sectors and asset classes look the most appealing to you right now? Gold, especially mining stocks, are attractive. Gold is a classic hedge for times of crisis. Read This Story: Best-Performing Asset of the Last 20 Years Bonds also are attractive right now. They offer great potential. If interest rates fall, bond funds can deliver double-digit gains. There is room for rates to drop, especially if the economy performs like I expect it to. Do you see any lurking dangers that the investment herd is underestimating right now? Everybody seems to be underestimating quite a bit right now. There is likely to be a second wave of the pandemic in the fall. Possibly a third wave in the winter. Will we shut down again? Profit margins will be lower in the future. Over the past five years, companies in the S&P 500 reported more than $0.10 in profit on a dollar of sales (on average). That was a record. Now, companies will spend on personal protective equipment for workers and accept sub-optimal processes to avoid risks. This will compress margins. These are worthwhile expenses so companies should spend that money. But lower margins create additional risks for shareholders and higher risk premiums imply lower stock prices. John, I have more risks to cite that the herd mentality is ignoring, but I've taken a lot of your time. Let's start on that topic the next time we talk. Editor's Note: Amber Hestla has just provided you with invaluable insights into how to protect and build your wealth during the coronavirus crisis. But she's not the only expert on our staff who can help you make money in good times or bad. Consider the legendary trader Jim Fink. Jim Fink is the chief investment strategist of the premium trading service, Jim Fink's Inner Circle. Jim has developed a way to quickly and predictably multiply the gains of regular stocks. Jim is now making you a promise. If the recommendations you get from his Inner Circle advisory don't give you the opportunity to turn $5,000 into $50,000 in the next year, simply give us a call and we'll give you another year free of charge. Jim has put together a new presentation, in which he discusses how to make market-crushing profits, whether the market is going up…down…or sideways. Click here for details. |
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