This transcript is from our client tea, held on June 18th, 2020.
Rob: Hopefully, everyone has been finding some silver linings upside in this time of COVID, perhaps more family time, more gardening time or just more time to enjoy where we are and whom we are with! Thank you everyone, for taking the time to join us on this video call.
Today we will discuss the economy, the markets, the political situation and the contagion situation that is most prevalent on people’s minds. As time goes on, I talk less about the medical part of it, because the longer this goes on, I feel like the less is generally accepted about it. From what I am reading, in terms of hospital bed availability and knowledge about how it spreads, the numbers in the U.S. regarding the communicability and morbidity are only dimly understood. I’m going to set that aside for the time being, because the issues that are important to our strategy are what is the efficacy and economic effect on the U.S., including the very aggressive monetary and financial stimulus taken, which is more than in most countries.
I think our country, financially speaking in terms of the various stimulus packages, is funneling money through unemployment benefits as a way to impact small and medium sized businesses. There is a wide disparity between various states about shutting down or allowing different kinds of openings. I flew on an airplane recently and it was packed to the gills….no empty middle seats at all! Some people wore masks, (it was required on the airplane), but it was all over the map. States and local governments are taking their own measures, and the impact is that in the United States, we have no consistent policy and we have taken a leap into the never, never land of three trillion dollars of financial stimulus. No one really knows what happens when you pump three trillion dollars into target beneficiaries and the deficit goes out of bounds. There is no way of knowing now if it is the right or wrong thing to do, rather it was done because Congress could do it quickly without resistance. These federal funds have ended up supporting stock investors and relatively well. Even so, the bond market, with interest rates having been forced close to zero, has outperformed the stock market. People with financial assets have done very well. The real estate market in most places has also held up remarkably well. Residences that are reasonably priced sell very quickly. There is a divergence between smaller cities and major metropolitan areas, so it remains to be seen what happens in markets like Los Angeles and New York as young people seek safety. There was an article in The Wall Street Journal about the coming exodus from major urban areas. We will see whether that prediction pans out or not, and it is probably a question of timing and when things will settle down. Normally, when a disaster happens, there’s an expected end to it. People don’t really have a clue whether that’s the case with this pandemic, like trying to figure out if schools will open up in the fall. Will people be comfortable enough, given the youth populations statistical probability of contracting or communicating the virus, to want their children to go to school? The effectiveness of remote learning is often mediocre at best. Teachers say that remote learning has, by and large, not worked. The social loss, to the children’s lives of missing school is also a factor. What are the economic effects of keeping kids at home for another four months? Our staff members have children, and some are working from home, I know they’re working, at least they’re all nodding their heads up and down that they’re working just as hard or harder than ever and being more productive than ever. And of course, I applaud them. We are very much in a knowledge service industry and not a tangible, hands on industry. I don’t really know how well other industries make progress, so what’s expected is that the U.S.’s economic output is already expected to decline 6% in 2020, a steep recession, but not a depression. Consumer demand was high before the pandemic was recognized and it is likely that consumer demand will rebound very quickly when a vaccine is available, or herd immunity is achieved. Economically we have to acknowledge that given the inconsistent measures taken in our country, COVID-19 will continue to spread. Given the lack of tracking and testing, it’s unlikely that partial shutdowns will be an adequate solution. I wonder when a medical “solution” arrives, how many people will take the vaccine? Even when a vaccine is developed, will there still be a significant number of people who don’t take it, who don’t wear masks or practice social distancing so that it will take much longer to have an economic recovery.
The stock market’s strong recovery and performance has been predicated on two things: the incredible amounts of cash that have been injected into the hands of consumers and the fact that this money has no place to go other than stocks or real estate. When we buy a bond now, it will only offer one to two percent of interest and so that strategy doesn’t make a lot of sense. This is a continuation of what’s been going on for the last 10 years. The steady rise in asset prices occurs because, conservative savers can’t earn a decent rate of return on something that is fixed and relatively conservative. The technology stock market is at an all-time high. It’s above where it was before COVID-19 because people are now using video conferencing like crazy and then watching Netflix. I read that the Nasdaq 100, the technology index, is up solely due to just six companies: Google, Apple, Facebook, Microsoft, Netflix and Amazon. If those 6 weren’t in the Nasdaq, it would have performed like the Dow Jones Industrial Average and the S&P 500. It would be down 10%– 15%. The divergence of stock and bond markets is extreme. There are now 40 million people out of work. It’s unknown how many businesses will remain shut for good if they’re forced to remain shut for another few months. Restaurants, hotels, and retailers are among the most affected. Internet shopping is huge. My cousin says her house is like a shipping and receiving department. She has three adult children, two of whom are at home, and every day she sorts packages that come in from the various home delivery services. Government economic statistics don’t capture the long-term impact of this shift in purchasing patterns. The unemployment rate officially hit 13%, but it’s probably more like 20% because many employees have been put on the payroll protection program. The PPP is one way that money has been funneled to small and medium sized businesses in order to keep people employed. Some of these businesses have figured out ways of doing business that will permanently require less people. There is going to be a much higher level of permanent unemployment which will force the country to face the question of how much money can we create through the Federal Reserve without causing investors to flee government bonds and move to cash.
Now that banks are precluded from foreclosing on people who are delinquent on their mortgage, what does that mean? Will people be required to catch up on their mortgage payments? If so, over what period of time? If not, we will have no way of judging how solid a bank is going forward because of the impact of this government mandate which will transform an entire industry. What we expect to happen is that interest rates, which are close to zero now, will stay down for an extended period of time. There really is no other option. There is no way that with a twenty-six trillion dollar national debt, which equates to 150% of GDP, that monetary policy does not curtail real growth. The federal government has to become the major player in the bond market and eventually the stock market as well. In the U.S., the government has essentially said it will backstop the stock of private companies. No matter what their quality is, they will go on government assistance if they are big enough to count in the employment statistics. This is what they do in China. We are moving to a planned economy, and free markets are becoming a rarity. By the government stepping into a control position of the bond market, which it has already done. It means that “zombie” companies, low quality companies, get to stay alive solely so they can continue to employ people. That’s exactly what happens in China where central government planners decide which companies live, and which companies die.
Kyle: The first thing we’re seeing is that the government’s purchases of bonds has been really bad for investors. The government has stepped in and driven up the prices of all bonds, which in turn drives down the amount of interest that we get paid to hold our bonds. Now, when we go out to buy bonds, we’re competing with the government and as a result, investors are earning close to nothing on bonds.
Question: How will the November presidential election affect stocks? How will so many people working from home affect stocks as well?
Rob: If Joe Biden wins, I think there’s no doubt that tax rates will go up. This will be a negative for stocks. Corporations have had a huge boost from the Trump administration as well as from most of the previous presidents for the last 30 years. That’s what has created such a wealth gap between the top 2% of earners and the rest of the country’s workers. Corporations have a big advantage and those benefits have flowed through to people that own their stocks. The other question is about working from home. Kyle, do you want to address that?
Kyle: Yes. There’s obviously telecommuting companies that are thriving, but also electric vehicle companies and clean energy companies are doing well too. The work from home movement is one current trend that a lot of traders are counting on. There are big companies putting lots of dollars into e-communication which is driving prices up for the average consumer. Zoom is probably the best example of this. We’ve seen the price of Zoom skyrocket. Is Zoom really a 60 billion dollar company? We tend to think it’s not, based on its earnings, but a lot of people are speculating that it is. When we look at the shifts in the stock market, like clean energy or working from home, we are always on the look-out for companies that are managed for the long term, companies that will continue to perform well due to these societal changes. We’re not buying Nicola, the hydrogen truck company, because it has no earnings. The market says Nicola is worth more than GM which has 100 billion dollars in revenues. We don’t understand that, but are always watching for these kind of situations in the stock market to look for investment opportunities. At the same time we are also trying to protect investors.
Question: Regarding your question about taxes going up and stocks values potentially going down, what’s your thought about opportunities that have been created with the technology stock market going way up versus the rest of the stock market going down?
Kyle: We want to be careful, watching for signals to move out of sectors that are vulnerable. We saw this in mid-March, when the stock market was down 36% year to date. We asked ourselves what companies do we want to move into that are more likely to rebound quickly? We saw many financial stocks struggle. People are really worried about hospitality and travel related industries. We hope to find opportunities to rotate into new sectors such as medical devices and maybe home builder supply chain companies.
Rob: Gayle Johnson can you speak to the sectors of the market that you’ve been looking at?
Gayle: Sectors I like right now are tech and health care and they’re still doing very well for our client portfolios. So the question is, should we take some profits off the table? If we do that, where do we park money so it earns something? We are working on how to proceed with that strategy.
Kyle: We received some questions about the economy, about New Mexico’s financial situation, about other places that rely on tourism, and also about the decline in energy prices.
Rob: These are great questions. Tourism is one of the top three industries in New Mexico and in western North Carolina. In New Mexico the state government relies heavily on oil and gas revenues which have plummeted. Before COVID-19, the U.S. was exporting energy, and there were budget surpluses in New Mexico. This past winter, we saw a price war break out between the Saudis, the Russians and U.S. producers. I think both the Russians and Saudis wanted to knock out the smaller U.S. oil and gas companies, and they have been somewhat efficient in doing just that. Chesapeake Energy has declared bankruptcy. Anyone who borrowed money to do oil and gas exploration is in trouble. It’s akin to real estate development where, if you go out and borrow money so as to grow faster, you can make more money if you are successful, but if you are wrong and lose, you lose big. New Mexico, as I said earlier, relies heavily on oil and gas revenues and so it is now in a world of hurt, but we believe that this will only be temporary. It’s very interesting that during this time period of cascading deficit spending, states like Illinois, have been able to ask Congress for help. In the midst of a general crisis, the Feds have authorized Illinois to borrow more money and under better terms, which they have done. If Illinois were to go out into the market to borrow on its own, not enough investors would buy their bonds and it would throw the entire market for municipal or treasury bonds into turmoil. The present economic slowdown has brought many states that already had large liabilities to their state government retirees into fiscal disarray. How do state and local governments deal with plummeting revenues? The solution so far has been for the federal government to step in and act as a backstop lender, which it was never willing to do before. Illinois has said something like: “Well, as long as you’re lending to us to get over this pandemic crisis, you might as well lend us some more so we can shore up our regular finances which are in a mess and bail out our retirees.” There is kind of a feeding frenzy going on. The size of the federal deficit is so big, and the ongoing crisis seems so large that while noteworthy, we don’t see a lot of people objecting or offering alternative courses of action, because it’s not acceptable to hold back funds from people that are in need due to the slowdown. The bond market’s risky junk bonds which have been on a tear, continue to rise and there are more and more companies that should be considered junk, i.e., not making money. One could say that Delta Airlines is a junk bond though it’s not rated that way. They are in a very high-risk sector because no one knows when people are going to start freely traveling again. I think we will come out of this intact and I am optimistic about the U.S.’s ability to adapt to whatever new reality post virus might look like. We don’t really know how long the downturn will last but a lot of people who know more than us feel that we should have a uniform set of rules that apply nationwide. That makes sense because we can’t, for example, close Texas off from New Mexico, so if Texas is hard hit by hospitalizations then people who are going to come to Santa Fe this summer from Dallas for red and green chile will drive here and New Mexicans will be affected. No one is contemplating closing the borders between states.
In the long run our economy will adjust so that the number of businesses will shrink. There will likely be fewer restaurants and airlines, and not as many hotel chains. Businesses are figuring out how to operate with fewer people, with less travel and perhaps with people coming into an office two days a week instead of five. In a city, like New York, we think most people are not going to want to get back to commuting on the crowded subways and you can’t really blame them. People will do more things locally and will want to work closer to where they live. Manhattan is facing a decline in population for the first time. When you look at the price of Manhattan real estate and observe how crazy it’s gone up over the last 15 years, it’s not surprising that a major correction is in process. That’s the definition of a market cycle. There are always winners and losers, but I think in the U.S., we will come to terms both medically and financially with COVID-19. That is why the sensible general investment advice is to stay the course. We think about planning for client’s cash needs. Instead of having six months of cash set aside, now we feel it’s prudent to have two years of cash on hand. Being opportunistic about where investors might make short term investments is not our practice, especially in an environment like this.
Kyle: After the downturn in the market during this past March, we saw a lot of short-term investors move into stocks. There are inexperienced people out there who are stuck at home who are convinced that short term trading is the way to go. As a result, the volume of buys and sales in the stock market has been immense.
Rob: We recommend if you are tempted to trade short term, that you set up a separate account and take a few thousand dollars and trade away. Go for the gusto! Let’s turn to the real estate markets. The residential property or housing markets in many smaller U.S. cities is strong in contrast to some urban areas where high end housing is weak. No one knows what the future looks like for commercial property because even before the pandemic, there was downward pressure on real estate. Shopping obviously has declined exponentially so local retailers are struggling. We had a client say that they were eager to get back to their hairdresser and this pointed out that there are personal services that people need which are delivered at a physical location. There will always be a need for some retail space but less in terms of goods and more about services. Some professions require face to face interaction. Going forward, the location of service delivery and the tone of how easy or hard it is to get around becomes a critical factor. The future of commercial buildings will depend on the quality of fresh air access and the ability of tenants to control their environment. The future of real estate markets for restaurants and hotel enterprises, especially smaller ones, is very much an open question. Our private real estate investment portfolio has several projects with problems due to COVID-19 which has changed people’s behavior. They say that in real estate, you make your money when you buy. You realize it when you sell but the potential for gain is set at the time of acquisition.
Stepping back, the big picture is that the bond market has had a huge price run up because interest rates have gone close to zero. There’s no room for them to go down unless they go into negative territory which is its own morass. The Federal Reserve has come in to bailout the economy and prop up consumer confidence. Will they soon try to save the stock investors as well? The Japanese government is now the largest owner of Japanese stocks. If the Federal Reserve starts buying the Standard Poor’s 500 or the Nasdaq 100, it could become the dominant controlling shareholder. The trade-off is “social stability” at the cost of growth. This is also the central theme when we come back to talk about real estate. Where is there demographic growth? Where are people moving and what kind of services do they need? Do people need a place to work or shop? Can they do everything from home? We are big believers in moderately priced commercial property where people can park, come in and get service and then leave easily. We believe the sweet spot in the rental market is between $1000 and $2000 a month which attracts people who are going to pay their security deposit without a fuss, pay their rent on time and take care of the unit, be it commercial or residential. New York City now has rent control, like some beach towns in California. The result is less housing, more degradation of the rental housing stock and a disincentive to build or renovate. When the government intervenes with housing, the results are often unpredictable.
Question: It’s a scary time for investors and there’s a lot of uncertainty. Are there other ways, other than diversification to protect oneself and ones’ capital?
Rob: Well, certainly there are things to do in the short run. Holding cash and some gold is not a bad thing.
Kyle: Rob and I are also big proponents of having some physical cash at home. Not large amounts, but some cash on hand where you can get to it. The suggested amount is different for everyone as we have different lifestyles, but we typically would say in the five to ten-thousand dollar range.
Rob: That’s right. Five to ten thousand dollars in gold coins as well. We’re talking about to two to four months of cash spending. Another safety factor is reducing debt and enhancing other potential sources of income. The good life is about great cash flow. Appreciation in property is nice but it’s out of our control. People that confuse luck with brains don’t usually end up in a good way. People who make decisions thinking that they know what’s going to appreciate are living in a fantasy world. Just because something happened consistently for a number of years in the past has absolutely no predictive value of how it’s going to act in the future. None.
Question: What other kinds of income producing assets are out there that can adjust to the scary new circumstances of the world?
Rob: Oil wells and gas wells used to serve that function. Their value would fluctuate with the price of energy but back in the day, no one expected the Saudis and the Russians to target producers in New Mexico, Texas, and North Dakota, nor that we would produce so much natural gas that it is practically given away now. Ten years ago, natural gas was considered to be “green”. That was before the fracking industry came in to being and maybe that’s why there’s so much gas now because of the success of that method. Another option is income producing real estate. There are some people who like to manage their own rental properties. It’s a lot of work and a hassle but you generally get paid in good times and bad. That’s another kind of diversification. The ideal situation is where you live close to your rental because keeping one’s eyes on the property is a key to success. Finding good property is a bit like researching stock. You have to do an analysis of the market and then try to find value. Commercial real estate lending has been another strong area for us. The private lenders that we deal with, and there are quite a few, have done well. It’s not like they haven’t taken some hits from people delaying their loan payments but the kind of commercial real estate lending that we support is highly secured by property and so long as the property’s value has not fallen out of bed we are fine.
Kyle: Gold doesn’t produce income. What do you think about holding physical gold?
Rob: Holding physical gold is like holding physical cash, it is a good thing. I would be buying gold today not for its price appreciation but for its stored value.
Question: If things are out of control, spending wise, isn’t it logical that the U.S. dollar would go down?
Rob: What’s going to go up against it? Are the euro or the yen in any better shape? No, they’re not. I think the dollar remains the currency of the world, just like English remains the common language.
Question: What’s the end game here?
Rob: If there’s 26 trillion dollars of debt and interest rates are close to zero, but we are still increasing our national debt, what happens when the government cannot maintain public confidence in the bond market? The government creates debt and another arm of the government then buys it. Then they lend it to central banks and the banks then lend it back to the government. It’s a lovely situation as long as you don’t look at it to closely. It’s not sustainable, but until the market says, “We do not want to lend the government any more money”, then we are all going to be in the soup. When the government can’t sell its bonds, it can say “hey, we are not going to pay you interest” and/or “too bad, you can’t take your money out.” There’s nothing anyone can do about that as you can’t argue against the Fed. They’ve got control of your capital and you don’t. At some point, there has to be a reckoning.
Question: What about cryptocurrencies?
Rob: Cryptocurrency is like gold on steroids but it’s only as good as the people with whom you are counter trading. There is no intrinsic value to a bitcoin. It’s only good in so far as you can get someone to give you cash for it. Can you easily turn it into cash and exchange it for real goods or services? Cryptocurrency, like the rest of our society, is based on voluntary compliance. All items of value are based on implicit contracts. Governments throughout history have changed their mind about the social and financial contracts with their resident populations, though it hasn’t happened in a while. Nixon took the U.S. off the gold standard and broke the contract which partially led to the rampant inflation of the 1970’s. I don’t think we see a return to inflation because there’s too much industrial capacity, too much energy and too much productive capacity worldwide. I love looking at agriculture capacity because it’s real, visceral. The price of meat is up but ranchers in California are losing their shirts because no one wants to process the cattle, so ranchers are losing money because of the over capacity to mass process livestock is not running properly and the system of government reimbursements doesn’t support the processing of meat. So, the government is reimbursing ranchers for about half of their losses. Why? Agricultural subsidies don’t make sense but in any widespread loss of confidence can lead to a general break down in confidence which the authorities want to avoid at all costs.
Contessa: As far as cash and gold, are you saying that we should keep it in our home safes or does a lockbox at the bank work just as well?
Rob: I think lockboxes at banks work well. I once asked our local bank in Santa Fe if they will deny access if the lights go out and they cannot depend on electronic security. Safety deposit vaults are often mechanical and that’s great. If you have a home safe, keeping valuables there is a good idea. I would keep some gold/cash at home and some at the bank. One buys gold and stockpiles cash partially for psychological comfort. There’s very little opportunity to exchange gold or cash but we look at it as a form of insurance. Gold and bitcoin are just a form of insurance to us.
George: Please talk more about where this all may be going.
Rob: Let’s rephrase that. “What’s the end game?” The end game is, I believe, a change in the basic rules. Governments are now the biggest players in the economy and if/when there is a justifiable loss of confidence, the central banks can change the rules which could mean any number of things. The establishment says that our 26 billion dollar deficit is not creating more money, it’s not printing money, it’s not jeopardizing the system….? Am I crazy? I don’t think the authorities necessarily know any more about what they’re doing in terms of stimulating demand by printing money than they do about stopping COVID-19. If/when things do spin out, I want to be prepared by being highly diversified. It is a hassle, by definition. Anyone who owns private investments has to wait for their K-1’s, which come by the end of the summer. Private investments, which I think are important, are kind of messy.
Question: Rob, do you know Neil Howe’s book “The Fourth Turning?”
Rob: It describes the large-scale societal changes that are going on now and the financial system may reflect that. I think it’s exciting, as there may be some great investing opportunities.
People that have stayed as clients with us over the years, I want to acknowledge you. We have some off-beat characters as clients and that is one of the reasons they like us and, get along so well, because that’s who we are as well. So with that, we thank you again for joining us. Please send us your follow up questions or comments. We hope to see you in person sometime soon, when it is safe to do so!
The Markets – Kyle Burns
The fragility of the market was evident through the first quarter of the year with nearly every major market experiencing declines due to a worldwide pandemic. In the markets, fear ruled as investors worried about the lasting impact of Covid-19 on businesses and their personal lives. What a difference three months can make! Much has changed over the second three months of the year. While many of us are still anxious about the impacts of Covid-19 on our personal lives and society, the market appears to have shaken off its fears and charged forward as if business has resumed as normal. It feels like a strange new world each time we leave our house or office and even mundane tasks such as grocery shopping can be an involved undertaking. The markets, however, carry on without regard to our individual experience.
The first quarter was historic for its volatility and rapid decline, but the second quarter of 2020 outdid its predecessor, posting a historic recovery. The S&P 500 closed the second quarter up 19.95% and is now down only -3% for the year. This was the best quarter experienced for US stocks in over twenty years and was a recovery of more than 39% from the market’s low point on March 23rd. Much of the turnaround in US stocks was attributable to the technology markets, which at the year’s midpoint were up 15%. The technology sector benefitted from their ability to allow their own employees, while also enabling employees in other industries, to work from home. Additional benefit was gained by high tech companies’ lack of reliance on in person physical interaction to maintain their profit margins. Consumer discretionary companies, such as Home Depot and Amazon, were up 7% year to date. This was the only other US stock market industry sector that had a net positive return over the first six months of 2020.
Year to date, declines were experienced in the remaining nine S&P 500 sectors. The energy sector remained down -35.3% after returning 37% during the second quarter. Many other sectors showed strong returns from April through June. Though overall, they still were negative through the first six months of 2020. Healthcare was down -0.8% even though some pharmaceutical and biotech companies gained strongly on the hope for a Covid-19 vaccine. Low interest rates and worries about credit defaults, kept financial company stock prices depressed, down -23.6%. Even utilities, which are normally safe havens for worried investors, were down -11.1% for the first six months of the year.
Internationally, similar trends were seen with strong recoveries over the second quarter, but most foreign stock markets were still down for the year. International developed markets finished the first six months of the year down -11.1%, with Europe and Japan down -11.2% and -7.6% respectively. The superior ability of Europe and the major Asian economies to control the spread of Covid-19 better than the US has led many large investment firms to shift their investment focus to non-US markets. These companies predict a stronger relative international stock market in the near term. However, returns have remained stronger for US based companies, but we are watching for a potential shift of profitability away from the US. Emerging markets, led by China, finished the first six months of 2020 down -9.7%.
Owners of typically defensive investments in bonds and gold have been rewarded this year. The US aggregate bond market was up 6.2% through the end of June due to the continued decline of interest rates. While owners of high-quality bonds have been rewarded, new buyers of bonds are being punished by extremely low interest rates. The benchmark 10-year US Treasury ended the second quarter earning 0.65%. One year ago, the same 10-year bond was earning 1.99%. Riskier high yield bonds were down -3.8 as investors worried about defaults and moved into safer investments. International bonds were up 0.9%. Investors in gold were rewarded with a return of 18% for the first 6 months of the year. It has been interesting to see gold continue to perform well during the recovery in the stock market. Gold has moved back into the spotlight as a favored asset class and will remain there while fears over Covid-19 persist. Crude oil remains down, -31%, so far this year but is far off its lows and improved by 91.8% since the end of March. The broader commodity index, which holds both gold and oil, is down 19%.
Impact of COVID-19 on Women – Contessa Archuleta and Keren James
In 2019, women made up 47% of the U.S. workforce and 40% of the global workforce. According to the Institute for Women’s Policy Research, women accounted for 58.8% of the job losses in March through May of this year. This is due to the impact on female-dominated sectors such as travel, leisure and hospitality, and retail, as well as education and health services. Women comprise almost 70% of global health care workers.
According to a Citibank research report, 220 million women globally (excluding China) worked in sectors that were particularly vulnerable to the coronavirus slowdown. Researchers estimate that when all is said and done, 44 million men and women will lose their jobs, 31 million of which will be women, with those in the Americas and Europe at greatest risk. The value of job losses incurred by women will approach $1 trillion of global GDP, or 1.2% of the 3.2% estimated decline in 2020.
From mid-May to mid-June, when the U.S. economy started to reopen, women gained the majority of new jobs (6 in 10, or 59.9%), but still lagged behind men in regaining pre-COVID employment levels. As of the June Jobs Report by the U.S. Bureau of Labor Statistics, women’s payroll employment was still 10.5% below February levels, whereas men’s payroll employment was 8.7% below February levels. Job numbers are expected to rise in July based on the reopening in a majority of U.S. states. However, continued spikes in cases could force local governments to shut down again.
Women are a key generator of U.S. and global growth. It is possible that COVID-19 may erode recent gains in closing the gender gap and decrease future earning potential for women. This in turn, would reduce future growth generation. Some women have made the difficult choice not to return to work due to a lack of safe and affordable childcare. The impact of this choice could last a lifetime, as it takes a long time for women who return to the workforce to recover from time away from their careers.
Census figures show that almost one-quarter of U.S. workers (38 million adults) have at least one child under the age of 13 at home. Out of those working parents, only 16% have a nonworking spouse at home who can care for their children while the other parent works. Parental leave, paid time off, flexible work schedules, and onsite or partner childcare options have been proposed to mitigate the impact of COVID-19 on working parents and the economy. If we want the economy to recover, decision makers should consider women’s roles in the workplace when enacting policy changes.
Market Fragility – Gayle Johnson
Fragility can take on many shapes. Human beings are fragile and mortal. The markets are also fragile, whether they are mortal is debatable. The environments on which we depend are always changing, as go the markets. While human brains are subject to disorders, the markets are subject to “kurtosis”. Kurtosis calculates how often extreme moves are occurring relative to normal. A recent study revealed that market fragility events are occurring as much as five times more frequently than in the decades from 1928 and forward. Fragility events are nearly double the three-year average as well.
So, are you feeling a bit fragile, both personally and in your portfolio? We understand, and are here to help you not just cope, but thrive. Our team will assist you in managing the hysteria, irrational exuberance, and help you commit to your objectives and goals. Personally, we say, “Turn off the TV, go outside, enjoy a new artist, or whatever floats your boat.” This pandemic may not pass quickly, but it too shall pass.
Rob: As you can imagine, the last several months have caused a dramatic change in my travel schedule. This has allowed me time to accumulate and begin learning how to use some metal sculpture welding/cutting equipment. I have, as of yet, sustained no serious injuries doing so and am thoroughly enjoying exploring three dimensional expression issues while learning some new basic technical skills. Both of my daughters are back in Santa Fe, one of whom brought along a much cherished young man. He is of great assistance and a veritable fountain of knowledge in the organic gardening and cooking arenas. As many other households throughout the country have experienced during this slowdown, there are inter and intra-generational issues that arise. Nonetheless, we are having fun together and hope that you too are able to get outside and enjoy the summer!
Kyle: It is amazing how productive we can be when some of the normal distractions of life are removed. Over the past several months, my wife Tabitha and I have caught up on several overdue projects around the house. We recently landscaped our back patio and created an outdoor sitting area where we spend nearly every evening eating dinner and relaxing. Our sons, James and Johnnie, have done pretty well keeping themselves busy reading, spending time on the trampoline and going for bike rides. The boys will be spending July in Louisiana with their grandparents which should be a good change of pace and add some excitement. I recently started riding a gravel bike and this has been a lot of fun. It is very efficient and you can really get in some good rides around Santa Fe.
Gayle: A year ago this month, we were summer vacationing, enjoying all the things we took for granted, and talking about the 2020 election. Six months ago we were packing away Christmas decorations, engaged in winter activities, and talking about the election. A month ago, we realized our vacations for 2020 likely won’t happen, checking our hand sanitizer supplies, and talking about the election. So let’s envision a year from now; hopefully we will be not just planning vacations, but traveling, and enjoying time with family and friends without masks and hand sanitizers, and still talking about the election (results). I never thought I would buy masks for my granddaughters but I did. They may not remember this pandemic but I am documenting it for them. Not as a sign of what a challenge it is, but as a symbol of how resilient, kind, and resourceful we are as human beings. So remember, wear your masks if for no other reason than to live to November 3rd! Continue to be well, Gayle
Jeff: We continue to poke along and make progress on our little home ranch property. When we finished building the horse barn and corral, our daughter brought her horse to us from Colorado. The horse is a 15 year old appaloosa and her name is Cloud, as she has white colored hair. My wife and I are novices in caring for horses so fortunately for us, this horse is very social and easy. Our dog, Rosita, who is 10 months old now, was thrilled with the arrival of the horse and considered her to be the new best buddy. When the horse finally got tired of the dog pestering her all the time, she gave the dog a gentle kick to let her know who is boss. The dog still likes to hang out with the horse but she is now careful to keep her distance. My current construction project is a chicken coop, which is more whimsical fun. The design of it mirrors that of the horse barn but on a much smaller scale. With the fencing now done, next comes building the nesting boxes. It seems like there is always more to do than time to do it!
Contessa: The last three months were both challenging and rewarding. Having to adjust to working from home, I found that balancing between work and family is not for the faint of heart. My kids showed resilience and strength in adapting to the stay-at-home order. They weathered the demands of online schooling and held it together when they couldn’t see their friends or celebrate their birthdays with their usual themed birthday parties. During this time, they have become best friends (most of the time). I now always try to remember, challenges bring opportunities. By staying home on the weekends, we finished several projects from our to-do list including planting a vegetable garden and building a fire pit in the backyard. We hope to use the firepit to have a matanza – a New Mexican celebration and get-together where you cook something underground for many hours. We are also spending as much time outdoors as possible. In June, I climbed my first fourteen-thousand foot elevation peak in Southern Colorado (14er)! The kids stayed with grandma and grandpa for a few days while David and I headed north to conquer Mt. Elbert, the highest summit in the Rocky Mountains at 14,440/443 ft in elevation (it’s up in the air). This was one of the most physically and mentally challenging experiences of my life. There were multiple times during the trek where I wanted to quit but I persevered through it with constant encouragement by my side. Once we reached the top, the pain and exhaustion disappeared, and I felt proud of my great accomplishment. Like the other most challenging times in our lives, we reflect, learn, and grow as a person through the experience!
Keren: Having survived the transition to remote schooling this past Spring, and given the current challenges around childcare, my son, Gryffen, is spending the summer in Texas. It was a difficult decision that became all the more so given the surge in cases there. After his subsequent exposure to the virus, he bravely underwent the test which turned out to be negative for COVID 19. Since the first night of the Shelter-In-Place, I have been posting a list of gratitudes on social media as a means of maintaining my perspective and positive outlook. My son’s health, that of my extended family and our clients is always at the top of my list. We continue to rotate shifts between working in the office and remotely from home. Gayle and I are beginning to conduct client reviews with masks and it is so lovely to see clients after so many months. In my free time, I am spending a lot of time on trails with my pup, doing yard work and gardening, reading, working out, watching online music and theatre performances, and staying connected with loved ones by phone, Whatsapp and Zoom. Technology and those connections across the ether are also listed with regular frequency in my list of gratitudes. We are, as always, ever grateful for our clients who continue to place their trust in us.
Anthony: Quarantine has been a very surreal experience for our family. What I can only describe as something out of a movie. Most days of quarantine are fine, and while our patience is often tested, we certainly appreciate all the personal time we spend together. Lots of movies and television series, new meals experimented with, and our den has been turned into a temporary playroom offering up board games, bowling, archery, art, etc. . We also managed to finish the school year in good order, with our daughter surprising us by winning a Santo Nino Spirit Award for her good work, ethics, kindness, and ability to follow the rules. It was certainly a proud parent moment for us, being her first year of school. We eagerly await the re-opening of Santo Nino for Kindergarten in the fall. This summer, our backyard has taken on many forms, transforming into a campground, water park, and even an outdoor movie theater. Now with certain restrictions being lifted, it’s been nice for our sanity to get out and support our favorite restaurants and visit family and friends. What I hope to take away from it all is to appreciate all that we have, family, friends and never take for granted the little things.
Elizabeth: The past few months have been a time of reflection, gratitude, and personal development. Our son turns four next month and our daughter will turn two the following month. My husband and I spend much of our time pondering how this has happened so quickly. After a long hiatus, I have recently endeavored on a creative path and have shifted my efforts from acrylic to sumi ink drawings. I am finding the medium both delightful and challenging. With that said, I am a novice at best, but have enjoyed getting back to the calming nature of creating. We are also using our creative efforts to build a treehouse and sandbox in the backyard for imaginative play and exercise for the kids and have been so thankful for the warm weather and time outside. Next month will mark my first year with the Rikoon Group, and I want to thank everyone for making it so wonderful. I wish you all continued health and happiness as we all continue to navigate this new direction in the world.
Please join us for our quarterly audio gathering to discuss economic and market related events on Thursday, September 24th, from 2:30 p.m. to 4:00 p.m. (MT).