Just when you thought stuff couldn’t get weirder. It did. The Trumps have the virus. Mild or serious? Dunno.
Overnight, as the news was broadcast, the odds of a Biden win next month shot through the 60% mark. Stock futures tanked, until the market got more interested in the latest jobs numbers (not too hot – the recovery is slowing, Covid is winning).
Some think the at-risk, obese, mask-flaunting, 74-year-old president got what he deserved for trying to man his way through a public health crisis and downplay the bug. Others think he will receive sympathy and support as he works towards recovery. Meanwhile the Vix went up, oil fell and more confusion was injected into our world.
But remember what we said a few days ago? The presidential race is a sideshow. Markets care way more about the economy and stimulus. That’s why the Trump diagnosis turned on Friday into a financial nothingburger. So here’s the latest:
Over 661,000 jobs were created in the US last month when 850,000 were expected and compared with 1.5 million the month before. The overall unemployment rate fell half a point, but also down were the number of people in the workforce. When folks who have given up looking for work are factored in, the jobless rate is 12.4%. Ugly. So, as stated above, the good news is dribbling away – bad news for Trump.
Meanwhile there’s renewed hope Congress will get its act together and pass a fat new stimulus bill. With Trump sick, odds grow Republicans will want that cash flowing as soon as possible. Millions of unemployed need support. Angry, struggling people don’t usually vote for an incumbent. The bottom line is simple: if the president is truly stricken and markets wobble, the taps will turn on. More stimulus.
Meanwhile investors have been looking past the gloom, infections, job woes and GDP plop. Earnings forecasts for S&P companies are up – month after month all the way to the end of 2021. We know a vaccine is coming. We know it’ll allow more, safe reopening of the economy. We know GDP will restore. We know global growth will spurt as the pandemic fades. We surmise by the end of next year American employment levels will be back to those of late-2019. And we know in 2021 central banks will not change a thing – rates in the ditch and massive stimulus spending continued.
Who’s in the White House will be moot. So all of this pre-election angst and extremist positioning is useless, futile, destructive and degrading. When it comes to your portfolio, don’t be distracted, tricked or diverted by the headlines. Just look at the hours following the Trump early-morning testing. Anyone selling on that news was being hasty and emotional. Those who slept in were fine. There’s a lesson in that.
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Retirement? Ha. It’s a myth for many without defined-benefit pension plans or seven-figure investment accounts. Canadians are making two big mistakes: (a) thinking they can live on government pogey – CPP, OAS or GIS – and (b) saving.
But you’re not alone. A report this week (Natixis Global Retirement Index) points out that people around the world trying to, or about to, retire are facing the four same nasty realities. They are absurdly low interest rates, record levels of public debt, virus-induced recession and income inequality. Also named is climate change – increasingly the cause of health issues while climate-related disasters chew up property and wealth.
The report states a second wave of Covid will just make things worse, and that interest rates have now gone negative in 16 of the 44 countries studied (including us). Four years ago, only one country gave savers a lower rate of return than inflation. Meanwhile, as you know, society is getting older – especially in the western world. The strains on retirement support plans and health care will augment, just at a time when governments have gone trillions into debt to deal with a virus they all pretty much botched.
The recession has caused many seniors to raid their retirement savings in Canada, the States and elsewhere. Not good. A multitude of households have also deferred debt repayments, making the amount they owe that much greater. Low rates not only clobber those who opt for brain-dead GICs or sucky HISAs, they also hurt pension plans – big time. Bond yields drop to nothing while pension liabilities grow (this is a good argument for commuting a pension, if you can). Future payouts become larger. Pension administrators freak out more.
Lousy returns also mean retirees have to deplete their savings faster in order to get by, raising the risk of outliving their money. As for governments, they’re blowing their brains out on the virus, which means tough choices ahead as a sea of old fogies expect support after gambling everything on real estate.
But blah, blah, blah. You know all this. The report just confirms again what we’ve talked about for a few years on this pathetic site. Savings vehicles are a one-way street to financial stress, unless you already have millions. Public pension payments will leave you gasping for cash flow. And thinking a house is a substitute for income is a really bad idea. Houses cost money. They do not produce it.
The big risk – more than ever since rates have collapsed and governments gone off the rails – is running out of money. It is not losing it. Financial markets got through Y2K, Nine Eleven, the Dot-com episode, the credit crisis and (soon) the pandemic. Those who invested well, stayed that way and ignored the noise (like an infected president) have reaped. Those who let fear dominate have lost.
Never in our lifetimes has this been more poignant than… now.