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Streetwise for Sunday, June 21, 2020









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Streetwise for Sunday, June 21, 2020

Last week was Father’s Day, a sad reminder that it has been 18 years since you left us. I know, as I have known in years past, that I can never actually give you this letter. 

However, if you could read it, I know you would be even more overwhelmed by what is happening in the world and in the financial markets than you were when I last wrote a year ago.

Furthermore, as I gave a sideways glance at my well used and underlined fourth edition of ìSecurity Analysis, by Graham and Dodd, I wonder what you would think of todayís investment world. It is unlikely you would recognize the Street you once knew so well.

Our country has been engulfed in a global pandemic. As I write this the death toll in the United States alone has reached 117,849. That equates to about 22% of all the military casualties in World War II, the Korean conflict, and the wars in Vietnam and Afghanistan. Tragically the number of deaths increases daily. 

The result has been a near shutdown of our economy for almost three months. As of June 5, the unemployment rate was 13.3% as businesses across the country closed their doors and sent employees home. The Bureau of Labor Statistics (BLS) said the May unemployment figure, when adjusted for data errors, would have been 16.4%.

The tragic part is that nearly 21 million people are currently unemployed. A statistic that surpass even the Great Depression, something that neither you nor I ever expected to see.

The latest GDP Nowcast from the New York Federal Reserve estimates a 25.5% annualized decline in the current quarter. That would compare with the declines of 8.4% in 2009’s fourth quarter during the 2007-09 financial crisis, and 8.0% in the 1980’s second quarter, owing to President Jimmy Carter’s credit controls.

You would find this hard to believe but the 10-year Treasury recently posted an average rate of 0.70%. The current Fed Funds target rate is 0.00-0.25%.

Jerome Powell, the Federal Reserve’s current Chairman, said this about rates, ìWe are not thinking of raising rates. We are not even thinking about thinking about raising rates.î 

However, Powell said in his semi-annual policy report to Congress that he believes that the economy may be bottoming out. Meanwhile, the financial markets are viciously volatile from fears of a second wave of the coronavirus, escalating tensions with China, and a complete vacuum of visibility on earnings.

Monetary stimulus has been a key feature in encouraging temporary rallies in the equity markets. Now there are signals from the Fed that more economic support is in order as the Fed begins to purchase corporate bonds.

To further aggravate matters, A study by the University of California, Santa Cruz, indicated that the pandemic has resulted in a 21% decline in active business owners during the period from February to April. The number of African American owners fell 41%.

Several deaths recently of members of the African American community in confrontation with police officers has resulted in the largest protests of my lifetime, not only in the United States, but worldwide. Maybe, just maybe something positive will come out it all this time.

And the stock market, well its volatility is unlike anything I can recall during my 50 years on the Street. For example, the Dow Jones Industrial Average fell 6.9% recently in its largest decline since March. That plunge came on the heels of a 45% upswing over an 11-week period. Now that is volatility. And the future…who knows.

Well Dad that is all for now. I continue to follow in your footsteps by teaching and writing newspaper columns with the hope that my words may one day, and in some way enhance the investment life of others.

Your loving son.

Note to readers: Many of you ask how I have come to write a column dedicated to my Dad every Fatherís Day. The idea was derived many years ago from watching Alan Alda as Hawkeye Pierce in the TV series MASH as he wrote symbolic letters to his Dad about the war in Korea.

This column and the “Toys for Tots” column I write each year are, based on reader input, my two most popular ongoing columns in my 32 years of writing Streetwise.

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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