Quarterly Economic Review For Private Wealth Advisors, July 2020

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During the Coronavirus epidemic, Advisors4Advisors is publishing free updates between CE classes. 

(July 13, 2020)  Roth Conversions Amid Covid
This week's client video was not about the financial or economic news. Superceding markets and economic news was this important update for clients, subject toi FINRA review, about a tax strategy created by the constellation of factors amid the Covid epidemic.  

(July 3, 2020)  Economic Fundamentals Recovering As Stocks Surged For the Week
Charfs on May manufacturing PMI, new-job creation, unemployment and total employment form a snapshot of what's really happening in the economy.

The Standard & Poor's 500 (S&P 500) for the short market week ended  Thursday at 3,130.01, gaining 3.94% from last week and up 33.26% from the March 23rd Covid bear-market low.

The Incredible Shrinking PCED Rate
(Monday, June 29, 2020) The personal consumption expenditure deflator, the inflation index referenced by the Fed in its policy pronouncements, plunged in May, as it has done every month since the Covid crisis struck the economy in March.

This one-minute video summarizing Fritz Meyer's inflation outlook is part of an integrated educational marketing platform for advisors compatible with A4A CE classes. 

Some consumers prefer video content; others like to read. Everyone learns differently. Some consumers want email updates, but others only want when turmol wreaks financial havoc. You must meet ther market by communicating a message across multiple media -- social, video, text, email, animated GIFs, and making it accessible on demand. 

Chronicling The Economic Bottom Of The Covid Crisis

(Friday, June 26, 2020)  The consumer sentiment survey from The University of Michigan and May's DPI data from BEA start this 11-minute inveatment commentary for financial advisors.

(Monday June 16, 2020) One Of Andy Gluck's All-Time Best Videos For Financial Advisors
Plunges, like the 7% one-day loss last week, are a marketing opportunity.

With Roth IRA conversions suddenly a compelling strategic financial planning move, due to Covid economic fundamentals, this call to action examplifies how to market financial planning service by educating consumers using video. 

The new math driving Roth IRA conversions is in A4A's financial planning stream.  

27-Minute Q&A Video    

(Thursday, June 11, 2020, 5 p.m. EST) Corporate earnings, Fed policy, M2, demographics, and equity-indexed universal life insurance, are among the topics advisors asked questions about at Fritz Meyer’s  class for CFP®, CPA, CIMA®, and retirement income professionals, which was conducted June 9.

In the Q&A, Fritz calls attention to today's news that Treasury Secretary Steven Mnuchin says shutting down the economy again is not a viable option. In addition, in this 27-minute presentation, Fritz answers the many thoughtful questions from members of Advisors4Advisors who attended the class held on June 14.

Below are the questions and names professionals who asked questions. 

Guy Cumbie: The Germans are running a surplus even in pandemia?

Edward Fulbright: P. 16 What is going to happen when we have to contract again because of exposure to Covid-19?

Edward Fulbright: Is Federal Reserve’s Main Street Loan Program separate from CARES?

Edward Fulbright: Can you talk about the possibility of a W instead of a V-shaped recovery?

Jean Fullerton: Doesn't our demographics look worse as a result of substantial immigration restrictions?

Jason Hochstadt: Heard a major economist earlier who is extremely bearish.  Some examples: 32M jobs in highly impact sectors such as travel and leisure and restaurants, etc. -  is 1/3 of private sector workforce and 1/2 of these individuals may not get their jobs back.  Is no way for restaurants to remain in business at 25% to 50% capacity and 3/4 of households either won't go out to dine or will do so much less often. Lots of moral hazard is being created by global central banks; there is no template for simultaneous demand and supply shocks globally; demand is key and will take many years to return and govt.' programs are effectively life support (not stimulative or w/ productivity multipliers).  Obviously, Fritz would disagree - but curious as to his thoughts as 1/3 of companies have pulled financial guidance; most companies have higher costs (so lower profit margins) and most companies are being constrained in how much business they may do (social distancing).

Jason Hochstadt: For slide 29 - won't earnings be down significantly (they already were in Q1 and will be in Q2 and projected for all of 2020) - so how do we get the 7.4% earnings driven return in 2020?

Jason Hochstadt: Slide 35 - at 19.7x 2021 projected operating earnings - if you use 12-month earnings wouldn't this be 06/30/20 thru 06/30/21 - and with 2020 a large decline, isn't the 19.7x really considerably higher?

Jason Hochstadt: Is Fritz concerned over the level of corporate debt, nearly $200 bil. in BBBs already downgraded to fallen angels and the overall level of debts and deficits and how this could restrain future growth even further?

Jason Hochstadt: Haven't all bond spreads shrunk due to The Fed stepping in as the backstop for countless assets including high yield bonds (fallen angels), high yield ETFs, munis, commercial MBS, etc.?

Doug Pauley: M2: you told us during the Great Recession that inflation didn’t rear its head because M2 didn’t grow (as shown on your chart).  But now, with the big move up in M2, should we prepare for inflation - or, is the rise a short-term blip that will regress back?

Norman Politziner: How would deflation affect insurance policies re, equity indexed universal life?

George Roberston: Why is India excluded from the GDP growth potential graph?  You include US, Euro area, China, Japan and Russia but not India?

Steve Visser: As Fritz said, the market may be getting a little ahead of itself with a P/E at 19. However, fixed income doesn't look attractive either.  What asset classes does Fritz think are attractive for new dollars?

(June 2,2020)  This two-minute video summarizes Frits Meyer's analysis of the cost of the epidemic to U.S. gross domestic product over the next two years.  The goal of this client video is to provide perspective for retirement investors and reset their expectations in light of the epidemic. Based on guidance from the  the consensus forecast  for the next seven quarters, the return to the record GDP level of the last quarter of 2019 won't happen until the end of 1Q22.      

(May 29, 2020)   Disposable income per capita surged from $46,000 a year to more than $51,000 last month because of cash payments authorized in the CARES Act. The savings rates in April skyrocketed, too.
 
Fritz breaks down the anomalistic data coming from BEA and also notes the slight uptick  on the consumer sentiment survey from University of Michigan. The possibility of a second wave of the outbreak and the setback to the economy are also discussed in this 12 minute update..

(May 26, 2020) Newly released economic data are starting to make it look like a new bull market, may have somehow managed to sneak up on investors. As always it's  entirely unexpected.

The S&P 500 is shown versus U.S. recessions since 1957, in this eight-minute update from Fritz Meyer, an indpendent economist who teaches monthly free continuing ed classes for CFP^® professionals to Advisors4Advisors members.

The latest forecasts from several multiple sources, including CBO and WSJ, and a look at how long it will take the U.S. economy to return to record 2019 GDP levels.

During the coronavirus crisis, this page is updated weekly with Fritz Meyer's latest observations, as a free service to members of A4A.