The Finance Gourmet

Personal Financial Advice from a former Certified Financial Planner

Covid Investing – Just 1 Tip

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People keep asking me about how to invest based on Covid. Covid investing would be the idea of investing in the potential vaccine manufacturers, distributors, the company that makes glass vials, and things like that. Those company’s stocks are already up on the hope that they’ll benefit. It’s unlikely they are underpriced relative to risk at this point. However, there is an easier way to make a Covid investment.

Covid Stimulus or Recession

The real opportunity Covid investing wise is watching the stimulus package that comes out of Congress. Inevitably, the politicians will pick winners and losers. Look for the airlines to make out pretty well. Look for small business to get small stimulus, just like last time.

However, the biggest investment play of all is that there will be no stimulus. Everyone with two brain cells to rub together knows that the US economy is teetering on the verge, and a new resurgence in Covid likely to tip it the wrong way. The Fed is in the news practically begging for a big stimulus package out of Congress. A big stimulus package that includes big stimulus for state and local economies is the rescue that secures a solid recovery. Anything else means a very weak recovery, or a new recession.

covid investing is stimulus investing

Bet Against a Stimulus

I, for one, have lost all faith in Congress to do anything other than try and beat the other side. With all the politicians looking at beating the Democrats or the Republicans instead of doing what is right for American and the economy, the natural outcome is that in order to prevent the other side from getting any credit, any stimulus will fail.

The way to invest Covid?

First, remember the rules:

  1. For long-term investing like retirement, the best strategy is a well-diversified portfolio based on your time horizon and risk tolerance.
  2. If you don’t have $100,000 in an investment account you have no business trading or investing in individual stocks. Build your six month emergency fund in cash, and then start building up an investment portfolio in index ETFs before you try short-term trading or investing in individual stocks.
  3. If you aren’t maxing out your 401k, increase your contributions before trying to buy and sell individual stocks or bonds, or executing any short-term trading strategies.

If you meet the criteria above then it’s time for the disclaimer.

This article is for informational purposes only. It is not investment advice or a recommendation to buy or sell securities. For specific investment advice consult your financial professionals.

All set?

Covid Investing Strategy

If there is no stimulus, the economy is headed for a difficult recession, or worse. The stock market knows this, that’s why every time it looks like there might be some good stimulus news, the markets go up. Every time, a politician shoots off their mouth in a way that suggests there will be no stimulus the market goes down.

Do not try and play this game. Computer programs, and guys with tenth-second access terminals drive the markets in reaction to this kind of news before you can get in with a reasonable trade.

The game you can play is this one: If you think the stimulus won’t happen, then it’s time to short the weakest stocks you have your eyes on, or just grab some in the money puts on market index ETFs. Go ahead and get in on some extra bets against the travel industry while you’re at it. Laddering out the time from now to January would be a smart bet.

If you think the stimulus will go through and be big enough to boost the economy then you reverse the strategy above.

How To Invest In the Election

Investing in the outcome of the election is the same as investing in Covid. It is all about the stimulus. If there is an outcome that puts one party in control of all three parts, House, Senate, and President, then you can all but count on a solid stimulus because now a good economy is good for their party since they’ll get all the credit. Invest for things to improve, and watch which sectors win. Either party is likely to boost the airlines so lean in on that sector.

If there is a mixed government bet against a large enough stimulus in a short enough time to rescue the economy. Now, you can go out on the time of those options. A slow motion recession and stock market correction is very likely. See how cheap you can get in the money June or July. Those should be a good bet.

This is not investment advice. This is an informational article. Do your own research and do not trade beyond your knowledge or means. — For the love of everything, do not go “investing” your kid’s college fund in short-term trades. A lot of unforeseen things can happen. Smart investing is about managing risk; that starts with only investing funds you can afford to lose.

How Is The Economy Doing?

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When it comes to the U.S. economy there are a lot of opinions. Many of those opinions have motivations behind them that tend to skew their analysis. So, who should you listen to about the economy? Well, you could do a lot worse than the Chairman of the Federal Reserve.

The Economy Is Weak

The U.S. recovery is weak, very weak. Although jobs are recovering, they are still lower than they were when the pandemic started. The opinion of the Fed Chairman is that the economy needs more help in the form of government stimulus. Of course, the politicians in Washington care more about Dems vs. Repubs than they do about America, so we are caught in petty fights while the economy sputters.

Why The Economy Needs Help

While politicians, especially the President, love to point to the stock market as proof the economy is doing well, most investors are very skittish right now. Any bad news at all, and they’ll turn into sellers, and take the market with it.

Stimulus in the form of extra unemployment benefits has proven particularly helpful to the economy.

Why?

Because people on unemployment spend that money, and that stimulates the economy.

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The direct stimulus payments to Americans helped too. Even Americans who weren’t hurting much during the downturn spent that money, further stimulating the U.S. economy.

But, all of that is starting to wear off. The direct payment to Americans is a distant memory long since spent, or sent off to reside in savings. In addition, those unemployment benefits have run out leaving those receiving them to cut back on spending, just when businesses are starting to reopen and hire back workers.

politicians point fingers

Politicians Play Games Rather Than Helping Americans

The Fed has done its part, cutting interest rates to zero percent. Now, it’s up to Congress, and that’s a pity.

Somewhere in the last few decades Congress became about hating the other side. As a result the only thing that matters to politicians is beating the other politicians, not helping Americans. So, each side adds to the necessary, agreed upon stimulus measures, additional things that they know the other side will not agree to. The stimulus package fails, and each side blames the other.

No one wins other than petty politicians who feel like they came out “ahead” somehow. Meanwhile the economy teeters on the brink of rolling over into a recession that will be much harder to climb out of than stimulating the economy now would be.

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Unfortunately, even that reality isn’t enough to break through the my side versus their side mentality. A terrible recession will hurt Americans, but the Senators and Congresspersons in Washington won’t feel it. They’ll continue to collect their government paychecks, big campaign contributions, speaking fees, and other payments. Then, they will blame the other side for the recession.

Someday, somehow, America will hopefully break out of this paradigm. But, for now, watch Washington.

No stimulus = recession

Some stimulus = continued weak economy

Big stimulus = economic growth

Invest accordingly.

Update: Well, that was fast –> https://www.cnn.com/2020/10/07/investing/premarket-stocks-trading/index.html

Can The Fed Really Be Treasonous?

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Recently, newly official Presidential candidate Rick Perry suggested that it would be "treasonous" for Ben Bernanke and the Federal Reserve to "print more money" in order to play politics. If you want the political dogfight over the comments, check your regular media outlet. However, the comments highlight a fundamental misunderstanding that most Americans have about the Federal Reserve Board and its power over the U.S. economy.

Before we get into that, however, it seems that there is a glaring lack of logic in both Mr. Perry’s comments and the media reaction to them. If the Fed can fix the economy to such an extent that the recovery might alter the outcome of the election, whenever it chooses to do so, wouldn’t it be more treasonous to not be doing it right now, or say, six months ago?

In other words, if just turning on the printing presses would make a meaningful improvement to the economy, shouldn’t (wouldn’t) they be doing it right now instead of letting the U.S. economy stall, its citizens suffer and allowing other countries to gain strength at America’s expense?

The Fed’s Real Power

The truth is that "printing money" or other fiscal stimulus can only accomplish so much. The Fed’s target interest rate has essentially been zero percent for a long time now, and the economy is not racing ahead while President Obama builds double-digit leads in the polls.  In other words, the Fed has already tried printing money and while it may have lessened the economy’s slide into a second recession (so far) it has not kicked the economic afterburners in.

Theoretically, the Fed could take the gloves off and pull some massive levers that would provide a short-term, temporary improvement to the economy, but doing so would inevitably cause painful repercussions in the near future. Any trained economist knows this, and that is why Fed actions, are always muted. Things occasionally seem drastic, but only when compared to previous Fed actions.

These small actions are designed to help the economy, or control inflation, by nudging things in one direction or the other. It is a tricky game to play. If the moves are wrong, things can spiral out of control quickly and the actions necessary to bring things back in line become even trickier.

During Greenspan’s Fed years, he repeatedly tried to nudge some wind out of the sails of a stock market that he said was plagued with "irrational exuberance." It didn’t work. Wall Street bankers and Main Street investors continued to pour money into an inflating bubble thanks to cheerleaders like Goldman’s Abbey Joseph Cohen who shot to fame by always being "right" about the direction of the bubble market, at least until it stopped going up, since that is the only prediction she ever made.

When the Fed finally raised interest rates in a significant manner, its goal was to rein in inflation. However, the outcome was a nasty recession and a stock market crash. There is no doubt that neither was intended by the Federal Reserve Board.

At the end of the day, any reasonable use of Fed power, politically motivated or not, is but one of many factors pushing the U.S. economy around.

The Fed and Politics

Historically, the Fed has played politics consistently in one way. The Fed tries to never raise rates going into the Christmas holiday season. Smashing consumer spending before the biggest quarter of the year for any retailer or triggering layoffs during the holidays are the last thing anyone wants.

Understand this, Bernanke has already tried most of the tricks he has. If things start heading from blah to AGGHHHH, chances are he’ll try something again, and when he does, that will be a good thing, no matter who gets to take the credit (or blame) as President in a couple of years.

What Does the Election Mean for the Economy?

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Republicans Win House, Democrats Keep Senate – Gridlock?

Traditionally, Wall Street and big business have favored gridlock in Washington D.C. The idea is that when Republicans and Democrats are busy fighting each other, they can’t be changing the laws and regulations that businesses already know. Theoretically, any currently successful business already knows how to earn money and make a profit under the current laws, but that may not be the case under new legislation that gets passed. The devil you know, is better than the one you don’t — so to speak.

gridlockBut, is political gridlock good for American business this time? Is partisan fighting a good thing or a bad thing for the U.S. economy right now?

Is Gridlock Good for The Economy?

With the 2010 U.S. economy in a fragile state, and major changes in the form of ending stimulus funds coming in 2011, the difficult question is whether the Republican takeover of the House of Representatives a bad thing for the economy, or is it good for the economy that Democrats have lost the House.

The major concern to look for in 2011 is the end of stimulus spending and other U.S. Government spending to bolster the states and the economy coming to an end. In fact, every legitimate economist is doing their best to both warn investors that the end of stimulus spending is going to have a big impact. Many of economists compare the end of the economic stimulus to the economy running off of a cliff.

There is little argument that any economic recovery is on shaky ground. There is also little argument that should the economy roll back over into a double-dip recession that something should be done. The is, however, a very big argument over WHAT should be done.

What If The Economy Needs Help?

As is usually the case, Republicans favor lower taxes and Democrats favor additional spending. Recently, however, Democrats seem willing to move a little on the tax cuts thing, as long as they are “targeted” tax cuts. So far, the Republicans refuse to play ball on that concept.

What remains to be seen is how much Republican opposition to any economic proposals from the White House and the Obama administration was due to political posturing for the 2010 mid-term elections, and how much was legitimate ideological opposition.

In other words, now that the elections are over and there is nothing to be gained from standing firm “against big government liberal spending,” or at least nothing to be gained from labeling everything as such, will the Republican controlled House be willing to pass helpful economic legislation?

Consider the recently proposed plan by President Obama to help small businesses. Much of that package contained things that Republicans would normally say, “Yes!” to. However, they all said no during the run-up to the election, because more was to be gained from opposing anything Obama than from helping small businesses. Now, will Republicans be willing to negotiate with Democrats on passing at least some of those kinds of things, or will Washington degenerate into a two kids sitting in their own sandboxes shouting, “No,” at the other?

Hopefully, the two parties can find some common ground, or 2011 might get real ugly, real fast.

The hard truth is that there is a better than even chance that the economy will need some help in 2011. If the two parties only argue about how that help should be implemented, then no help will arrive, and things could nasty, both in and out of Washington.

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