2020 Economic Coma

April 28, 2020

THE 2020 ECONOMIC COMA

April 2020 UPDATE

As the famous writer, Charles Dickens wrote in his book, The Tale of Two Cities... “It was the best of times, it was the worst of times”, and we are clearly in an unprecedented time. Our country has never shut down its economic engine like we recently have due to the worldwide Coronavirus epidemic. We call this the self-induced 2020 Economic Coma.

Most Americans are being asked to “Shelter at Home” and to keep social distancing of 6-feet between each other in order to lessen the contagious curve of this virus. In the process, this has caused our country to head into the direction of a new type of recession, not like anything we have ever seen before.

There is good and bad news in this scenario in our opinion, but we are optimists here at Schmolke Investment Team and we believe in time that Everything Will Be OK!

First the bad news. We’ve had 10 recessions since 1948 (1) but we don’t have any historical data or experience to know what potentially will happen under our current economic circumstances. Unemployment numbers keep rolling in at a radical pace of over 22 Million Americans have filed for unemployed in just 4-weeks (2), whereas, during the 2007-2009 Great Recession we saw a 4-week peak unemployment come in at approximately 2.6 Million and almost 9 Million unemployed at its peak.

Oil recently plummeted to its lowest level ever, below $0 with the price for May futures (oil delivered in May) tumbled to below negative -$30.0 per barrel (3), yes that’s right less than negative $30 bucks. In our opinion, this is the effect of nearly 3 Billion people across our planet being locked down in their homes and not driving their cars, many factories are temporarily shut down, airplanes aren’t flying, and energy demand is standing still (for a while).

As we stay at home, many industries have literally been put on hold like airlines, cruise lines, restaurants, hotels, entertainment, education, just to name a few. Banks are being challenged, not only from to the virus pandemic but due to lower interest rates and loan portfolios being put at greater risk. Middle America is struggling to pay their mortgages, car payments, and provide the basics for their families.

In an over simplistic explanation of a traditional economic recession, demand for products and services slows, which leads to a progression of higher unemployment. This process usually takes 6-months to a year to setup and develop, whereas our current circumstances happened at an accelerated pace. It’s interesting that the end result of these different circumstances does have some similarities, namely company earnings are being affected and reduced demand for product and services.

Now for the good news. Although the economy was seeing some retraction of economic growth before the pandemic, our country was not heading into a recession. Quite the contrary, we were seeing many industries expanding, corporate earnings continuing to grow, and being in an election year typically fosters economic growth. Interest rates are low, Americans were working, and inflation was and still is virtually nonexistent. All this creates the baseline for a solid recovery.

The U.S. Congress has passed bipartisan legislation to help Americans and businesses and the Federal Reserve and the U.S. Treasury has taken immediate action that has infused liquidity into the markets, virtually propping up the economy until we restart the most powerful economic engine in the world.

From the stock market perspective, the current situation looks more like a correction. The stock market has decided to look through all of this disruption into a year down the road and is quite possibly implying a quicker recovery than all the doom and gloom floating around in the media. Typically, we focus on economic indicators and corporate earnings, where now everyone is focused on public health and the virus data.

So, here’s the deal; the circumstances we find ourselves in today is more attuned to a natural disaster when our Government “paused” much of the economy, when everything was working. Although it’s not like restarting your lawnmower, this leads us to believe that coming out of our “Economic Coma” means it will be easier to restart the economic engine than a typical recession.

Our Experience leads us to believe the following:

America will slowly start reopening over the next three to four months, and we think up to 75% to 80% of the economy will be up and running.
We expect continued volatility as the markets try to understand the economic impact of the changing business environment.
Active money management will be better than passive money management in 2020 and going forward.
Companies are trimming overhead and will come out of this temporary shutdown with stronger balance sheets.
Employment will slowly start picking up as we come out of our “Economic Coma”.
Many economists are forecasting negative GDP for 2020 but the third and fourth quarters should see some major turnaround in economic growth.
As time goes on our research labs are learning more about the Corona virus and they will produce potential treatments and vaccines.
Our world will change from the experience of this global pandemic. New businesses will emerge, communication is changing, businesses are evolving and adapting.
Selective stocks will outperform bonds.
America will not only survive; we will find new ways to thrive.

Schmolke Investment Team is paying attention to the right economic data, our own experienced analysis and insights, and the medical community’s virus updates and developments. We are here 24/7 watching what’s going on so you, our most valuable asset, can sleep well at night. We appreciate your business and trust in our team.

As we always say, Experience Matters when dealing with people’s money but good judgment comes from the experience of watching a lot of crap happen over the years. As we stated earlier, we believe that “Everything Will Be OK!”

So, if you know of anyone who could benefit from our unique money management experience and our passion for what we do, please pass their name and contact information along to us. You can reach Brian at (318) 448-3201 or email at brian.schmolke@lpl.com.

Stay safe and let us know if we can help you or your family.

Brian Schmolke, CFP®

Bart Schmolke

Schmolke Investment Team

“Experience Matters”

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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2020 Economic Coma