Usually when we write market updates every so often, we talk about what’s going on in the financial markets, and what we’re seeing and our thoughts on the market activity. If you’ve talked to me even briefly in the last few weeks, you know I’ve made it clear that my crystal ball is broken. Now, if a financial advisor who follows this stuff for a living has no idea what to think or expect, well, that’s pretty disconcerting for some folks.
As I’ve said to many of you, there is no how-to guide for managing money as a financial advisor in a pandemic. There may have been a guide from 1918… but apparently it’s out of print! That said, as a financial markets nerd, this situation we find ourselves in is one of the most challenging puzzles I’ve been privileged to put together in my now two decades-plus career.
Over the last couple of weeks, the top three concerns I’ve heard from folks are the outcome of the election and what that will do to the financial markets, the outcome of the CARES 2 Act and what (if anything) the House and Senate agree on, and third, what if whatever they do isn’t enough and everyone loses their houses and jobs and unemployment stays high and the entire economy shuts down again? Or worse, what if everyone follows Suze Orman’s advice to hoard cash, run up credit cards and only pay the minimum due?
Let’s walk through these one by one. First, as for Ms. Orman, anytime someone leads with “this is worse than 2008!!” that’s fear-mongering at it’s absolute pinnacle. Despite any good intentions she may have about encouraging people to start and build an emergency fund, I am appalled that anyone would use fear mongering to teach basic financial principles to the public. Shame on you, Suze Orman.
Our country is stronger than it was in 2008, and our banks are operating under the requirements passed after that crisis to ensure it doesn’t happen again. Changes were made in mortgage underwriting, so if you see someone making less than thirty grand getting a million dollar mortgage, let me know. It just doesn’t happen anymore. In addition, at the start of the pandemic, many banks actually raised their mortgage requirements, making it harder – not easier – to buy a house.
Now, when it comes to homeownership, there could be a bubble if unemployment stays high and jobs don’t return across the country. There could be a correction in property prices if this carries on for years instead of months. However, in national real estate numbers, the whole country is still a sellers’ market, and buyers are facing stiff competition, especially with entry and mid-level homes. Here in Lexington, if no new houses were built, we’d be out of inventory in four months, according to the local Realtor’s Association and based on current demand.
This is the 2020 economy, folks, not 2008. This started with a health crisis, not a financial crisis. Are there financial issues resulting from the pandemic? Definitely. We all know someone who has been affected and it’s awful. But even last fall and in early 2020, we knew people who had lost their jobs or houses or cars for one reason or another. More than 30 Lexington restaurants shuttered their doors at the end of 2019 simply because of stiff competition. And of course my heart goes out to everyone who has seen their life’s dream ripped away because they were shut down by our government.
One major player in all of this is the Federal Reserve committing unprecedented amounts of financial support to the financial markets. This is the part that I really pay attention to. They’re attempting to stabilize and make sure the markets function properly, but will it work? Well, like I said, my crystal ball is broken. This is all uncharted territory, and it’s a global crisis after all.
I have no idea if the money handed out via the Fed or the CARES Acts will create prosperity or simply fix a broken window. Only time will tell. As many blank checks as have been written, we do know that eventually the country will have to pay the price. In the foreseeable future, I think this will prop up significant portions of the economy until an effective drug combination is found, or a vaccine becomes widely available. As the country opens in fits and starts, we’ll get to a new normal, even if that means wearing a mask everywhere we go. There will be an election to deal with, and the next day, life will go on.
If you know me, you know I read the Herald Leader (in print – I’m a dying breed) every day for two reasons: the sports section, and my daily horoscope. It’s my guilty pleasure. All the rest of the news outlets – CNN, FoxNews, etc. – I ignore. Why? Well, back in the early 2000s when we had the tech boom/bust and the world cratered, I decided that the only thing I could control was my own perspective and mental health. I talked to my friends and family about what was going on in the world, but I tuned out the mainstream news.
I know from all of you what I need to be worrying about, and I’m grateful for all the time you spend worrying for me! But none of those things affect how I do my job or how I make financial decisions for your portfolios. With every investment we make, we are judging and measuring companies, products and solutions. It never has to do with who our elected leaders are, or what the television talking heads say.
If we’re friends on social media, you’ve seen that many of my posts start with “Smyth is happy.” That’s intentional. The best thing you can do for your mental health and emotional capacity is to choose happiness each and every day. You can measure what the talking heads say, but don’t allow them to create anxiety about things you have no control over. This is just life, folks. Let’s live it.
As always, please, keep your questions coming. I need to know what’s going on out there! And in all seriousness, do let us know what your concerns are. We’re always doing the best we can to help you succeed.
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