Overeager to Reopen? You have likely noticed the price climbs (or growing “bubbles”): gas, homes, stocks. The economy and markets continue to bet on rapid vaccination and consumer spending. But vaccinations could take longer than intended. New COVID strains could render current vaccines useless. Lockdowns could return. But even if hopes are realized, we then face another threat: a surge in economic growth paired with the recently issued massive fiscal stimulus could produce a sharp spike in inflation, in turn, potentially compelling the Fed to raise interest rates quickly. As a result, we’ve been busy in recent weeks getting portfolios ready for such a time as this, no matter if inflation comes suddenly or not. We all want our fixed income capital to be as resilient amidst rising rates as possible. Future news on this front from our investment team will be shared as changes are made, likely over the next few weeks.
Initial Claims Fall. Still Higher Than Expected: Initial jobless claims for both regular and PUA benefits declined last week, but the level of claims was still higher than expected because of revisions and total claims remain firmly above 1 million (see below). Additional fiscal stimulus and broader vaccine diffusion will eventually allow the labor market to heal, but as the January employment data showed, current conditions are still quite weak and declines in new jobless claims are likely to occur only gradually in the near term. Continuing claims for regular state benefits continued to drift lower in the week ended January 30. Separately, continuing claims for recently extended federal emergency programs rose 2.6 million in the week ended January 23, with California accounting for much of the rise. Claims for state extended benefits – a last stop for many individuals who have exhausted all other benefits – posted a small decline, the first since mid-November. (Only 19 states currently offer these benefits.)
Federal Budget Deficit Continues to Widen: It is no secret that our federal government has been spending enormously, dramatically increasing its budget deficit. The extent of that increase is something we imagine is less known to the average American and deserved attention. The monthly deficit widened to an estimated $165 billion in January. Compare that to $33 billion in January 2020, and $144 billion in December. The first four months of the 2021 fiscal year (started Oct 1) the federal budget deficit rose 90% to $738 billion. This was largely driven by the direct stimulus checks and $25 billion in rental assistance grants to state and local governments. The rationale for this, according to the Biden administration: it would cost more not to take these measures.
(Source: Deficit Tracker, bipartisanpolicy.org)
UK Biggest Contraction in 300 Years: In the wake of the pandemic, the UK marked a 9.9% GDP contraction in 2020. (The US marked 3.5%.) However, it started to experience growth in the fourth quarter last year. Despite the new Covid strain ripping through the UK, Prime Minister, Boris Johnson, sounds optimistic 2021 will be different given the rates of vaccination, which ought to permit consumers to get back out and spend.
Hospital Transparency Obligation Kicks In: Last September, Former President Trump issued an executive order obliging price healthcare pricing transparency. The first phase of that order initiated in 2021. (Healthcare plans and issuers will eventually be compelled to release pricing as well.) Hospitals across the nation are releasing the secret rates they negotiate with insurers. “It is shining a light on the insanity of U.S. healthcare pricing,” said Niall Brennan, chief executive of the Health Care Cost Institute, a nonprofit that analyzes medical costs. “It’s at the center of the affordability crisis in American healthcare.” The Wall Street Journal covered the subject, and studying the recently released pricing data found caesarean sections priced anywhere from $6,241 to $60,584. Total U.S. expenditures on private health insurance have increased 50% in the past decade through 2019, according to federal figures. The hope for all this transparency is that it compels competitive pricing, narrowing price disparities.
Fiduciary Obligation is Real: A recent $19 million arbitration came through in favor of a grandmother who sued her two financial advisors—her grandsons—for unauthorized trading in her accounts. The ruling came through after 18 months and 43 hearings. The lesson: the responsibilities of a fiduciary hold at all times—be it among professionals, friends, or even family. If you’re curious to read the full story, just google “Beverley Schottenstein”.