Building Wealth At last, there is hope things will soon be "normal" again as some states have slowly started to reopen their economies.
Just don't get your hopes up too much. It's unlikely we'll see normal for a while...
In an ideal situation, the number of COVID-19 cases and deaths would drop each day as we head into the warmer months. The majority of businesses would reopen, and millions of people would get back to work. Consumers would return to their pre-coronavirus spending habits. Stocks would soon hit new highs. And there would be little resurgence of the virus in the fall.
The economic hardships caused by the coronavirus would be short-lived. This would all be just a blip (although, a big blip) on our economy's history.
A guy can dream, right?
Here's what I know... It's going to take a while for things to return to how they were before the coronavirus. While reopening some businesses is a step in the right direction, there's much that can go wrong...
One of the biggest problems I see is that millions of Americans may not want to return to work right away. There's little incentive.
And that's because they're making a lot of money being unemployed.
According to the Labor Department, roughly half of all U.S. full-time workers are making more from unemployment benefits than they made at their jobs before the economic shutdown.
In many cases, folks who lost their job are receiving a weekly check of about $978 from the government. That's up $600 from what was paid on average last year. And roughly half of full-time workers made $978 or less per week in the first quarter of 2020.
Even when businesses reopen, mangers may struggle to hire back their workers. For example, if you were laid off from the restaurant industry, why rush back into a crowded restaurant when you make more by simply sitting on the couch?
Now, by no means am I saying that workers do not want to return to their jobs. I'm not here to discuss whether Americans are lazy or not... But if you can make more money from unemployment and can lower your risk of getting infected, the choice seems easy enough.
Some workers may ask their bosses if they could remain on leave or furlough because they don't want to risk their health (and newfound wealth). It's going to put hiring managers in a predicament.
You also need to consider consumer spending habits... I'm willing to bet that most folks won't rush back into crowded restaurants or shopping centers even when they are allowed to open at full capacity.
Many people have been ordering food and other essentials through delivery services over the past couple months. In the future, they may continue to use delivery services instead of going out to shop at stores and eat at restaurants. Consumer habits may change for good...
The point is that even though things seem to be on track to getting back to normal, there is a lot that can go wrong.
Just a couple weeks ago, I talked about how we'll see many bankruptcies of well-known companies in the months to come. Loans from the government just wouldn't be enough.
On Monday, retailer J. Crew was the latest to file for bankruptcy. I suspect we'll hear about more companies doing the same shortly.
Volatility in the markets will continue. I hope that I'm wrong... But everything that I'm seeing suggests that folks are being too optimistic.
I expect more ups and downs in the coming weeks, so I urge you to be careful with your money.
You should only own stocks you know and love... ones that you'd be willing to hold for the next decade or so.
Have some cash ready. If stocks do make a move lower, you'll want some cash on hand to take advantage of lower prices.
Finally, you need to own some "chaos hedges." A hedge like gold makes a lot of sense given today's economic setup. (Gold tends to move higher while stocks fall.)
As we said last week, all the pieces are present for the next great gold bull market to unfold. If stocks struggle over the next few months, precious metals could really take off. I always suggest allocating a portion of your portfolio to gold and other chaos hedges.
Now, more than ever, it's important to do so.
My colleague and legendary gold investor John Doody recently sat down on camera to share his latest thoughts on why gold will soar to $3,000 per ounce shortly. He also put together a limited-time offer to join his newsletter, the Gold Stock Analyst, but the special offer ends soon. Click here to learn more.
What We're Reading...
- In some reopening states, unemployment can pay more than lost jobs.
- Americans grapple with risking their health to return to work.
- Something different: U.S. Treasury seeks to borrow a record $3 trillion this quarter.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
May 6, 2020