Markets are looking to the future despite the current disruption caused by Covid-19

In the middle of last week Federal Reserve Chairman Jerome Powell said the central bank was not considering employing negative interest rates to combat slowing economic conditions. And the data last week did indicate that COVID is wrecking havok with US economic activity. Last Tuesday witnessed a decline in the Consumer Price Index of 0.8% for April. Energy prices declined 10.1% in April, while food prices rose 1.5%. The “core” CPI, which excludes food and energy, declined 0.4% in April, versus a consensus expected -0.2%. Core prices are up 1.4% versus a year ago.

The April decline was the largest since March of 2008. The best news in the report was the rise of hourly earnings which were up 5.6% in April. However, this was largely the result of the lowest wage jobs experiencing layoffs. The Producer Price Index also registered a decline in April. The plunge in energy prices drove the index down 1.3%. The bad news continued through Friday of last week as April retail sales declined 16.4% and industrial production was down 11.2%. Retail sales were down nearly 22% from the year before. Sales at restaurants & bars fell 29.5%, general merchandise stores were down 20.8%, sales at food & beverage stores fell 13.1%, Gas station sales dropped 28.8%, non-store retailers (internet and mail-order) were up 8.4% in April and up 21.6% from a year ago. These sales now account for 19.4% of overall retail sales, an all-time record. “Core” sales, which exclude the most volatile categories of autos, building materials, and gas station sales, declined 17.2% in April and are down 17.6% from a year ago. Overall sales are down 21.6% from a year ago. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: April Housing Starts (950K, 1216K); Wednesday: May 15 MBA Mortgage Applications (N/A, 0.3%); Thursday: May 16 Initial Jobless Claims (2,425K, 2,981K), May preliminary Markit US Manufacturing PMI (38.0, 36.1), April Leading Index (-5.7%, -6.7%) and April Existing Home Sales (4.30M, 5.27M).

Equities moved lower for the week on negative economic reports and Federal Reserve Chairman Jerome Powell stating additional stimulus could be needed as the outlook is “highly uncertain and subject to significant downside risks”. The cautionary tone from the Fed Chairman and weak retail sales, which fell 16.4%, led to a 2.20% drop for the S&P 500 Index and a 5.42% drop for the Russell 2000 Index. Real estate was the worst performing sector as many tenants have skipped payments, especially in strip centers and traditional malls. In addition, cyclical sectors fell by more than the market as continued lockdowns have a larger impact on profits. Southwest Airlines Co., Delta Air Lines Inc. and American Airlines Group Inc. all fell by over 10% for the week after IATI projected air traffic will not return to 2019 levels until 2023. By contrast, United Natural Foods, Inc. surged after pre-announced results were significantly above the street as consumers eat more meals at home. Net income grew by 54% versus last year’s quarter. Cisco Systems Inc., one of the final technology firms to report, beat expectations as work-from-home equipment and security sales buoyed the tech giant. With more than 90% of firms reporting earnings, the S&P 500 is projected to see a 16.6% drop in EPS in the first quarter, led by a 64.2% drop from the consumer discretionary sector. S&P 500 EPS is projected to trough in 2Q with a 43% decline. Looking ahead to next week, Walmart Inc. and Home Depot Inc. are set to report results. Consumer discretionary stocks are the last sector to report results as many names have off-quarter period end dates. Traders will continue to monitor the path of the virus and reopening plans across the country as lockdowns ease.

In response to the havoc caused by the lockdowns for Covid-19, we are now in the middle of the largest federal budget deficit since World War II. This year's budget deficit will, quite simply, blow the deficit numbers in 2009 as we were coming out of the sub-prime mortgage financial panic out of the water.

The Congressional Budget Office recently totaled up all the legislative measures taken so far - as well as the effects of a weaker economy (payments for unemployment benefits would be going up even with the recent law) - and they estimated this year's budget deficit at $3.7 trillion, which they forecast would represent about 18% of GDP. It's likely Congress and President Trump will end up compromising on some sort of additional measures that drive the deficit even higher. As a result, we're guessing the budget gap for the current fiscal year ends up closer to $4 trillion, or about 20% of GDP, the highest since 1943-45.

Given the economic crater generated by the Coronavirus and related shutdowns, as well as the heavy-handed legislative response, budget deficits will be enormous in the years ahead, too.

In spite of these sky-high numbers, it's important to recognize that the US government is not about to go bankrupt. The debt, while large (and growing), remains manageable. Before the present crisis, the average interest rate on all outstanding Treasury debt, including the securities issued multiple decades ago, was 2.4%. Now, our calculations suggest newly issued debt is going for about 0.25%, on average, which applies to both the recent increase in debt as well as portions of pre-existing debt coming due and getting rolled over at lower interest rates.

When debt that costs 2.4% gets rolled over at around 0.25%, that's a great deal for future US taxpayers. The problem is, the Treasury Department has been decidedly stubborn about not issuing longer-dated securities – think 50 and 100-year bonds – that would allow taxpayers to lock-in these low interest rates for longer, making it easier to spread out the cost of the extra debt incurred throughout the crisis.

As a result, if (or more like when) interest rates go back up, the interest burden generated by the national debt could go up substantially.

The best move the Treasury Department could make would be to use the recent surge in debt to overhaul the kinds of securities it issues. One idea that deserves exploring is replacing all securities with a maturity of over, say, 2 years, with "perpetual" or "interest-only debt." No principal would ever have to be paid on these instruments; they'd just pay the same nominal amount of interest twice per year. If we want to mix it up a bit, some debt could pay interest with gradual adjustments for inflation, just like TIPS.

This is not a new idea. The British issued perpetual bonds starting in the 1750s, and the last ones were retired in 2015. And although they're called "perpetual" bonds, and they're not callable, the Treasury Department could always buy them back at market prices to retire them.

Liquidity should not be an issue. Every time the government needs to issue longer-dated securities, it could simply re-open that very same security. Then the private sector could slice and dice them, on demand. If someone needs a 10-year zero-coupon Treasury note, just take the interest payment due in ten years and package that into a stand-alone security. Want something like a traditional 30-year? An investment firm can package a stream of interest payments over the next 30 years and tie it to a big package of payments due in exactly thirty years.
Source: First Trust


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 


 

Latest News

 

The Fed: Fed Chairman Powell tells '60 Minutes' a recover...

Fed Chairman Jerome Powell said Sunday he's optimistic about the long-run

Read Story

 

Futures Movers: U.S. oil extends climb to 2-month high ab...

U.S. crude-oil prices in electronic trade on Sunday look to add to a climb toward a two-month high for the commodity, supported in large part by efforts to rebalance a supply-demand dynam...

Read Story

 

China has been trying to avoid fallout from coronavirus. ...

Russian President Vladimir Putin once called Xi Jinping, the Chinese leader, a "lone warrior."

Read Story

 


Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Fortem Financial

Recent Posts

PRIVACY NOTICE REGARDING CLIENT PRIVACY

Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at www.fortemfin.com.

IMPORTANT CONSUMER DISCLOSURE

Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California and Arizona. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.