Five Questions

To make things easier this week, instead of a video recording, I’ve recorded an audio giving more detail about the contents of this week’s Common Sense. The audio will provide additional details on my answers listed below. Hope you find it useful!

https://www.dropbox.com/s/sifaeelpy0jkd9z/7.16.20%20DWM%20Audio%20Update.wav?dl=0 

Every month or two I like to answer some of the questions that I hear most often from our clients we serve as well as media inquiries. Perhaps this might answer a question you have had as well.

1. How will the resurgent virus impact the economy?

I expect the economy to be in a difficult transition for at least the next six months. Lockdowns are going to be a part of life for the next six months and so any traction that you see on an economic basis likely will be small and incremental. We are not through this economic challenge yet.

2. Why is the market rallying?

This is the most popular question that I get. Sorry to be redundant, but I think it bears repeating: I believe the market is looking at one year from now for when there will be a vaccine readily available and the economy will begin to reopen again. We have already seen a tremendous pent-up demand to get out of the house and move back towards something resembling normal. Economic activity will spike post vaccine and the market is pricing this in.

3. I understand China markets have been rallying. Isn’t that a better place to invest than the United States?

China markets have bounced-up off March lows, but they still pale in comparison to the forward recovery for the United States markets. China still faces challenges and emerging Asia is going to impact its economy. I am not suggesting China is a bad place to invest, but I would be careful when reading headlines. We have smaller amounts in Asia investments directly as we believe investing in US multinationals captures Asia economic growth as well.

4. When are interest rates going up?

I believe it’s going to be a long time before rates go up. Even though economic activity likely will spike when a vaccine is widely distributed, there are still tremendous deflationary pressures within the US economy. Energy prices will remain low, technology will continue to make companies more efficient, and unemployment rates will likely be at elevated levels for a significant period of time. The Federal Reserve has already stated they intend on keeping rates low for a long time. This time we believe them.

5. Should I be investing in gold right now?

Gold is an asset that is bought generally when people are very fearful. The price has rallied understandably given the craziness in the world today. Beyond that impetus, it’s hard for us to really decipher what moves the price of gold besides fears of an economic disaster. While I believe the US economy will face headwinds, and global conditions are likely to be challenging, we do not expect collapse. Instead we expect a slowdown and economic growth on a long-term basis. Gold pays no interest and for the time being we like assets they give us ongoing annual returns.

If you have a question that you’d like answered, just send me a note and I’d be happy to respond personally or in one of our communications. 

Lastly, the world continues to be an uncertain and risky place. Please do be careful.