When initially talking with Russel and Katia about this series and our desire to provide a message with some tangible action items, we thought we would be on a road to recovery and the pandemic figured out. We could not be more wrong about the pandemic and partially right about the recovery. As of writing this the first week of August, we have a lot of data from Q2 and what it looks like under the hood of the economy.

Below are some statistics:

  • Retail sales have rebounded sharply, rising 18.2% in May and 7.5% in June. Amazingly, retail sales are now 1.1% higher than a year ago, during a time where unemployment has climbed from 3.7% to 11.1%.
  • Government transfer payments made up 30.6% of all personal income in April and 26.4% in May.
  • Personal savings hit 32.2% in April, the highest level on record – by far – going back to at least 1959.
  • Real GDP was 9.5% lower in Q2 than it was in Q1 – If this continued for four quarters, you would get an annualized GDP decline of 32.9%
  • 68% of people on unemployment were receiving more money unemployed that at their jobs.
  • Some estimates are coming in and the economy is growing at a rate of 3.6% faster in Q3 than in Q2….or 15% real GDP growth for the year.  
  • Private sector wages fell by 27.4% annual rate in Q2
  • Small business income fell at 43.1% annual rate in Q2

What is being shown to us now? You can’t spend your way out of a virus. We can’t stop a virus, there are many examples in the world today that show us that countries like Japan, Germany, Australia all put in place very strict orders and reduced the early spread, but when they opened back up things spread exactly as it has in other countries.
We all have to be aware of the overabundance of negative news that we get every day, almost always the focus is on the negative numbers.
The Positive
Treating the virus has gotten MUCH better since March. About 1% treated in the hospital die from the virus. This was a lot different in March and April – 6-7% were dying in hospitals with Covid.
The state of the Nation & GDP – 18 states are experiencing rising Covid cases. The GDP in these states account for 29.9% of total US GDP. That means there is 70% of the rest of the GDP total that is not confronting rising cases in the country.
Almost all data points on the high frequency data is in an increasing trend. Seen HERE
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While I looked forward to a more upbeat outlook for our part 3, I wasn’t sure really where we would be at. The uncertainty to me is actually increasing as it relates to the upcoming 12 months. As I have mentioned to many of you, taking a more conservative approach to upcoming decisions is likely a good thing.

There is an election in a few months, government benefits are stopping, businesses will soon run out of PPP and ultimately the rubber must meet the road in terms of whether businesses will survive or not given the prolonged pandemic. From an investment perspective, our strategy remains the same – Diversified, head down and even more meticulous that we identify clear objectives.

There are a few things that I want to continue to get out:
  1. Save more and cut back as many expenses as you can while you have every excuse to do so.
  2. Do not get caught flat footed and take the changes in the economy for granted. You will be passed up.
  3. Life is different now and it will never go back to normal, life will continue to move forward. Accept that and some anxiety should be released.
  4. It is possible to turn the pandemic into an opportunity. I have talked with many of you, and many feel that those who can navigate and make adjustments can likely come out of the pandemic leading the next decade.
  5. Identifying what is important to you is something we all need to do.
  6. Life is difficult, talk to people you trust. Form relationships with people that have an honest interest in your success.
  7. Take some time for yourself.

Some things are changing and it might not be such a bad thing. I’m starting to come up with some new idea around financial planning and the fact that many of you might want to have a different work/life balance.

Expect some updates as the month progresses. The baby countdown is happening with our due date 9/2 coming up!

 

Greg