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The Best of What They Said and I Read Week Ending 6/21/2020

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice

U.S. Global Investors – June 19, 2020 – Frank Holmes

  • “…We fear what we don’t understand, and fear often triggers us to make decisions we later regret. Nearly one-third of investors at Fidelity who were over the age of 65 sold all of their stocks between February and May. Tragically, many got out right at the bottom. Think of Warren Buffett, 90 in August, who unloaded his entire airline holdings soon before they began to take off…Meanwhile, a great number of millennials trading on Robinhood accurately called the market bottom, with accounts surging just as stocks began to rally.”
  • “…Like the U.S., India is seeing a surge in coronavirus cases this week and—again, like the U.S.—will not initiate another lockdown. Some 12,880 people tested positive on Thursday, a record one-day number. Instead of locking down the Indian economy, Prime Minister Narendra Modi is encouraging people take up yoga to build a “protective shield” against the virus.”
  • “…The major market indices finished up this week. The Dow Jones Industrial Average gained 1.04 percent. The S&P 500 Stock Index rose 1.86 percent, while the Nasdaq Composite climbed 3.73 percent. The Russell 2000 small capitalization index gained 2.23 percent this week.  The 10-year Treasury bond yield fell 2 basis points to 0.691 percent”

 

Barron’s – June 19, 2020 – Why the Widening Wealth Gap Is Bad News for Everyone – Reshma Kapadia

  • “The one-two punch of the worst health crisis and economic downturn in decades has brought to the fore an issue that has been simmering for decades: an increasing income and wealth disparity among Americans. This widening gap has long-term economic implications and threatens the sustainability of the stock market’s recovery.
  • “This isn’t a fringe idea: Federal Reserve Chairman Jerome Powell noted that the current downturn “has not fallen equally on all Americans,” and in congressional testimony this past week he warned that if the job losses and economic fallout seen so far were not contained and reversed, “the downturn could further widen gaps in economic well-being.”
  • “…Low-income workers have seen very little wage growth since the last recession: The top 1% of earners now account for a fifth of total income in the U.S., while the bottom half of earners account for just 13% of total income. Savings rates for the top 10% have risen over the past three decades, while the other 90% has seen negative savings rates, leaving those earners with little to invest and often saddled with debt. And while a little more than half of U.S. households own some stock, usually through 401(k) plans, just 10% of households own 84% of the stock market, which means a swath of Americans didn’t reap the benefits of the last bull market.” 
  • “On its face, income and wealth inequality is a natural byproduct of a healthy capitalist system. But when inequality of any kind gets exaggerated, it has broad repercussions—and by multiple metrics, wealth inequality has made the U.S. an outlier among developed nations. The U.S. middle class now makes up roughly 50% of the population, putting the nation closer to countries like Russia and Turkey, rather than Japan, France, or Germany, where the middle class makes up more than 60% of the population.” 

The Kiplinger Letter – June 5, 2020 

  • “…This is a new era in monetary policy. The Federal Reserve has a do-it-all role as it tries to revive the economy from the shock delivered by the coronavirus. Businesses, investors, savers and borrowers all stand to feel the effects. Start with interest rates, the traditional tool the Fed has used to tamp down inflation during good times or boost growth during bad times. Rates across the board will be minuscule… For years to come. Fed Chair Jerome Powell and his colleagues don’t expect to raise interest rates before 2023, to give the economy time to recover.  Savers will be out of luck as the yields paid by savings accounts, certificates of deposit, Treasuries and other safe options range from slim to zero…Borrowers gain from low rates, of course. Mortgages, car loans and other consumer credit all stand to stay very cheap…It’s also good news for the biggest borrower in the world, Uncle Sam. The cost of the spiraling federal debt figures to stay manageable, due to ultralow bond yields. But note that easy money encourages businesses to borrow heavily, too.”

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