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Streetwise for Sunday, July 19, 2020









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Streetwise for Sunday, July 19, 2020

Each year towards the end of July, I repeat Benjamin Franklin’s rather astute comment that while you may delay; time will not. I am also gratified and honored that it has been another year for Streetwise, its 32nd as a nationally distributed column without a single missed week. (If you are keeping count, those years represent 1,741 columns.)

What is so ironical is that the more things change, the more they remain the same. Consider that on Sunday, July 31, 1988 the following prologue appeared in the Trenton Times of Trenton, NJ.

“Today Lauren Rudd begins writing a weekly column about Wall Street for The Trenton Times…”

Space does not permit a full recital, but the following words that began the column back then might once again be considered a prescient commentary on today’s market activity.

“The individual investor has been pummeled and is ready to surrender. What with the debacle of last October (Refers to the market crash of October 19, 1987), many are deciding that they have had enough and are leaving Wall Street, an action reminiscent of an audience walking out on a bad play.

After going down in flames that fateful day, individual investors retreated to lick their wounds and to decide what to do next. This left Wall Street worried as well it should. The individual investor has always been its bread and butter. However, these same investors now feel that their trust in Wall Street may have been misplaced and that the game is rigged with the spoils going to the large institutions.”

Yes, there has been a degree of change over the ensuing years. The fair disclosure rule requires that everyone receive the same information at the same time, while Sarbanes Oxley helps ensure that the content of financial statement is accurate. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act was a small step forward. Although today many might refute that statement.

Meanwhile, corporate earnings are likely to decline from last year, making the upcoming earnings season nothing to write home about. According to FactSet, the S&P 500 is expected to report a decline in earnings of -44.6% for the second quarter. What is the likelihood of such a decline? 

Based on the average change in earnings growth due to companies reporting positive earnings surprises, it is likely the index will still report a year-over-decline in earnings of more than 40% for Q2. At the same time, during the second quarter (March 31 to June 30), the value of the S&P 500 increased by 20% (to 3100.29 from 2584.59). Where do industry analysts believe the price of the index will go from here? The consensus is for a 6.3% increase over the next twelve months.

However, lest we forget, Main Street is not some ethereal concept. Rather, it is encompassing honest people doing honest work; crack-the-bones work; lift-it, chop-it, empty-it; feel-the-flames-up-close work; crawl-down-in-there work, work that someone must do.

Washington would be well served to learn from Main Street about the need to do the things that no one wants to do but that someone must do. Otherwise we will continually face potential economic destabilization as the Sirens of unfettered deficit spending and rising national debt continue to woo us.

The share of income and wealth going to the so-called “1%” has incensed protesters and agitated economists around the world. Academics such as Thomas Piketty and Gabriel Zucman have pointed out that governments should consider using taxes for redistribution.

Such policy ideas have taken center stage as we approach November of 2020. Senator Elizabeth Warren advocates a wealth tax. And she has found unlikely billionaire allies, including the investor George Soros and Facebook’s co-founder Chris Hughes, who say they would accept a levy to “help address the climate crisis, improve the economy, improve health outcomes.” 

An economy significantly influenced by the wealthy is not without risk. Political enfranchisement remains one person, one vote and Main Street will fight back to prevent Medicare, Medicaid, and Social Security from becoming sacrificial lambs to be slaughtered on the altar of fiscal austerity.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

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