Coronavirus - Rising Inflation?

Let me start by saying that I am not a financial advisor, so my thoughts about the coronavirus economy are based solely on my experience.

How is inflation related to covid? As the covid crisis eases with hundreds of thousands of people being vaccinated daily and restrictions on businesses loosening, the U.S. economy appears to be rebounding. Last week's unemployment numbers decreased and employment numbers increased.

With wages increasing and a new stimulus package on the way putting more money into the economy, the demands for goods and services will also theoretically increase. Where there is demand, there are price increases aka inflation.

If wages are increasing at the same rate as prices or slower, then inflation is not so bad. However, inflation has a bad reputation for many reasons. First, usually wages rise at a much slower rate than the prices on goods and services. This means that everyone is negatively affected. Second, wages rise much slower for low wage earners than high wage earners. For example, a 3% raise for a $30,000 a year worker is much different than a 3% raise for a $60,000 a year worker. Third, to combat inflation from getting out of control, governments will try to slow down the economy from overheating by raising interest rates. It encourages saving versus spending. Higher interest rates means that lending becomes more expensive. This means that housing prices will become cheaper, yet to buy a new house, you will have pay a higher interest rate. Business will be slower to expand operations because business loans will be more expensive. Now the hope for all this government induced pain is to crimp demand to a more "reasonable" level, so prices will stabilize or go down. That is the theory.

Someone once told me that the best analyzer of the market is not a business analyst who studied business, but a business analyst who studied psychology.

Last week the government did not raise rates, however the fear that they would raise rates caused the bond market and stock market to move significantly last week. In the case of the stock market, a serious drop.

I hope this post sheds a little light about why the stock market tanked last week with all the good news coming out about our economy rebounding from the coronavirus slump. I know, it seems counterintuitive, but as the coronavirus-era has showed us, life is full of curveballs.

Stay safe everyone.

Posts weekly.

Coronavirus Baby Boom or Bust?

Many jokes were made early on that the stay-at-home rules were going cause a huge spike in births 9 months from now.  I mean couples, wed and unwed, would be together constantly and there would be little in the way to prevent them from finding time for love. 

I mean, eventually you have to put down your phone if nothing more than to give your eyes a rest.

Freeimages.com

Now there are reports that the birth rate may actually decline significantly. The Brookings Institute said we could see "300,000 to 500,000 fewer births next year." (link to full report at end of post)

Why?

They based their numbers on birth rates during the Great Recession of 2007-2009 and the Spanish Flu of 1918. During the Great Recession, the birth rate fell from 69.1 births per 1000 women age 15 to 44 in 2007 to 63 in 2012. They said that is a decrease of 400,000 births.

During times of economic uncertainty in the U.S., people tend to put off having children due to financial worries. Seeing large credit card bills  or having a spouse laid off or hours cut tends to put a damper on the romantic mood.

Whereas during robust economic times, the opposite is true. Getting that bonus or new job may lead to a sense of elation and desire to share it with someone. Also, financial security helps a person rest at night.

I think about my neighbors with their new child who have not been able to hire a babysitter since the coronavirus because of contagion fears. One parent has to be with the child at all times. And what about all of the parents who had kids in school or day care? Once those institutions and businesses closed, parents either had to leave their kids home alone or work from home. If you are a couple who has just been wed, you might be scared off having kids right away.

That's even if you are able to get married. With the stay-at-home orders, many weddings have been put on hold. We are going on over three months in most states where weddings, let alone big weddings, have not been held. I was recently on a zoom meeting and a participant related that after two months of delay, she finally got married. They had a zoom meeting with the city clerk's office to be officially married. Sometime in the future they will have the church wedding.  But what about all the others who are just waiting?

Also with fewer people dating, there is a significant decrease in unplanned pregnancies. 

How does this affect everyone else?

Fewer babies mean fewer future workers which means less taxes which means less funding for government programs like social security, medicare, infrastructure, department of defense, etc. 

It is no wonder governments want to ensure they ease the economic pain as much as possible whether through trillion dollar stimulus packages or propping up the stock market or telling everyone everything is okay.

Still, I agree with the Brookings report on a forthcoming baby bust versus a boom. The government can only do so much to create the right mood.

Click here for the >> Brookings Report

Take care and be safe.

Posts Tuesday and Wednesday

Coronavirus Cases Soaring

At the beginning of June I felt optimism that the worst of the coronavirus was over. Businesses were opening across the U.S. and around the world, the stock market was rebounding, and infection rates were dropping. I mean even Disneyland announced that they were reopening July 15.

Then on May 28, Korea started closing down after a new outbreak. On June 16, China announced Beijing was instituting a soft lock down after another outbreak, halting flights and closing some businesses. Then states in the U.S. that had instituted strict stay-at-home policies, like California, started to noticed an uptick alongside those that had less restrictive policies like Arizona, Texas, and Florida. By mid-June, California was so bad that last week everyday broke a new record of new infections: 3,000 Monday, 5,000 Tuesday, 7,000 Wednesday, then back to 5,000 Thursday.

Yes, a large part of the increase is due to increased testing, but by no means all.

ICUs are starting to fill up again, a definite sign more testing is not the only cause of the spike.

And here is the kicker, the people that are heading to the ICU and make up the majority of the new cases are young adults. According to The Wall Street Journal, 60% of new cases in California are under the age of 49. In Arizona, 60% of new cases are those under 45. When I take my daily walks most people are wearing masks. At least 9 out of 10 people who aren't wearing masks fit that under age 45 category.

Just like a maskless 20-something strutting down the street past a masked elderly couple. I guess he was proud he wasn't wearing a mask to show how "invincible" he was. 

If the spouse of the elderly couple catches coronavirus from him and later dies, can the young man be charged with negligence. According to Wikipedia, the four elements to a negligence case are: duty, breach, proximate causation, and injury. Holy moly, are we going to see a slew of lawsuits against individuals who aren't wearing masks and spread the coronavirus?

My neighbor has not had a babysitter since the coronavirus hit and has been working from home.  But, walking through my local park yesterday, I saw two nannies sitting together on a large blanket with 5 kids. There was maybe a four-foot gap between the two ladies, but none between the kids. Hmm. 

The Wall Street Journal said Texas and Arizona are attributing the rise in cases to the recent reopening of bars and restaurants. The Texas Tribune said the Governor shut down the bars in the state on Friday as intensive care units are being flooded and they are contemplating plans to treat patients at convention centers and stadiums.

A month ago, most people saw a light at the end of the tunnel. Now it looks like we are going back inside.

 

Financially what does this mean? Disneyland has delayed reopening, Apple is shutting down stores, the stock market is dropping, and states are barring other states' residents from visiting them like New York and New Jersey. So, more layoffs, more people on unemployment, and the bonus of less traffic. 

Will the entertainment industry postpone their reopening? I am seeing fewer gigs on the industry job boards. Even fewer than last month. And here I am only talking about non-union gigs as union gigs have been non-existant.

As I mentioned during the last post, Dr. Fauci complained that people keep talking about the 2nd round when we are still solidly in the first round.

I spoke to a young cop on the street a month ago while I waited for my take out. His partner wore a mask but he didn't. He said it was a personal choice.

Hopefully, everyone makes the right choice so we can get rid of this virus once and for all.

Posts Saturday and Tuesday

Coronavirus, Protest, Graduation, Economy - What A Week!

If there was a single week that would make Coronavirus an after thought it was last week. Why? Momentous life events happened!

For a large group of Americans, the most important issue last week were the protests against racism across the country brought about by George Floyd and other black Americans who have recently been killed.

Whether you were you someone who could identify with the protestors, or were a business owner who saw their livelihood go up in flames, or were a protestor, this significant event has shaken the whole of America. On the fishing boat last week, a younger fisherman asked an older fisherman, is this like the Rodney King riots. The older man reiterated what I had told my sons the day before, "No. These protests are much more widespread. They are occurring across cities and towns throughout the United States. The King protests occurred in only a handful of big cities and looting occurred in even fewer." One side effect of the protest, is that more people are outside and mingling with others. For coronavirus numbers this is bad, but it shows the humanity of people, in that people of all colors are willing to face personal health risk to protest against an injustice.

For many students it was a week of finishing school. Seniors in high school and college graduated - remotely. Other students technically finished - although many were done when the coronavirus shut their schools down in March. Students missed Spring Break, Proms, Grad Nights, and all of the other fun end-of-year activities. Schools scrambled to try to make the end of the school special for their seniors whether it was a drive through celebration or zoom interactions. For non-seniors, like mine, it ended with a whimper. The principal emailed a congratulations to the students and staff for overcoming the challenges of the coronavirus these past three months and she looked forward to the Fall school year whatever it may look like.

Investor's Business Daily

Finally, for investors the big issue wasn't just the ongoing incredible "V" rebound in the stock market, but the drop in unemployment from 19% to 13% in May. On this news Friday, the stock market zoomed up 800 points. That brings the market to almost pre-coronavirus levels. Still, protests are raging across the U.S., there is no cure for the coronavirus, and new cases of coronavirus infection are soaring so I find the rapid rebound quite surprising. People with 401ks are definitely breathing a mighty sigh of relief.

Did you think less about the coronavirus last week?

Take care everyone.

Posts Tuesday and Saturday

(Painting the bathroom took longer that expected yesterday, so I am a day late.)