Coronavirus Check-Up: We have not visited the overall cases and deaths from COVID-19 in some time and thought it may be helpful to check in. We can see an up-tick in cases on a 7-day average basis, as Fall activities have resumed. Cases in the US approach 7 million, about 22% of cases worldwide, though the US represents only about 4% of the global population. Deaths from COVID-19 have now crossed over 200,000, about 21% of deaths worldwide.
The following data was compiled by Johns Hopkins University:
Global cases: More than 31.9 million
Global deaths: At least 977,452
U.S. cases: More than 6.93 million
U.S. deaths: At least 201,920
Slowing of the Economic Recovery from JP Morgan: August retail sales rose by 0.6% relative to July, marking the slowest monthly increase since sales troughed in April, when most of the economy was shut down to stop the spread of COVID-19. As shown in this week’s chart, sales in sectors such as groceries and non-store retail (primarily composed of online retailers) were boosted by stay-at-home restrictions and are above pre-pandemic levels. By contrast, while sales in restaurants and bars rose a strong 4.7% last month, reflecting a gradual resumption of their activities, they remained below levels seen in February. This suggests the services sector is still under pressure from social distancing behavior. On a year-over-year basis, retail sales are up 2.6%, but momentum slowed in August, coinciding with the expiration of the $600 extra weekly unemployment payments. While consumer spending on goods should continue to look healthy in the months ahead, services spending will likely remain depressed until we see the widespread distribution of a vaccine. This should contribute to a general slowing of the economic recovery, suggesting that long-term investors should continue to focus on portfolio diversification.
An Impending Auto Loan Debacle?: According to the article from ARK Invest, much is in flux in the car industry. The percent of auto loans delinquent by 90 days or more has been rising for almost four years and is approaching levels last seen during the Global Financial Crisis (GFC) in 2009, as shown below (black line). During the GFC, most consumers and businesses prioritized the servicing of auto loans over their mortgages, because, in the absence of ride-hailing, they relied on vehicles to keep their jobs and businesses going. Now working from home, they seem to be prioritizing mortgages and home equity (HE) loans over auto and credit card debt.
Interestingly, it appears the coronavirus crisis also caused a surge in used car sales as people opt out of public transportation. ARK believes this short-term spike in demand is not the harbinger of a long-term trend, especially now that ridesharing offers an alternative to car ownership. Soon autonomous ridesharing will make the negative case for used cars even stronger.
Because of their performance during the GFC, the industry seems to have been lulled into believing auto loan delinquencies will top out at roughly 5%. In our view, however, they could double or more, approaching the level of mortgage loans or even credit cards in 2009-2010.
To make matters worse, investors may be overestimating the value of the collateral underlying auto loans. While most used vehicles are gas-powered and human-driven today, the shift to electric and, ultimately, autonomous vehicles is likely to depress the residual value of used vehicles significantly.
Planning Corner: As September draws to a close, we hope it’s not too late to capture some of the magic this month can provide. This article from Inc.com, “Why September is the Perfect Time to Start That New Routine”, shares scientific research about the engrained feeling we have for this time of year, associated to childhood with the start of the school year. As noted author Gretchen Rubin writes, “For many of us, September is the other January—time to make a fresh start.”
With this in mind, we wanted to share a useful chart that we at Compass Ion Advisors like: the “6 Core Values A Good Financial Planner Provides” (below). At this particular time of year we often see special interest in the first core value: organization.
One of the powerful outcomes of working closely with a financial advisor is the discipline to pull together and make sense of your financial life, whatever form it is in. We motivate people to do things like: pull together statements from neglected accounts; close or consolidate unused accounts; rollover old 401(k) accounts; build a statement of net worth; understand your cash flow; create a sustainable budget; map out insurance policies and summarize your estate planning documents, among plenty other things.
If you’ve had this “September feeling” of motivation to get your financial house in order, we’d be happy to help.
What We’re Watching: You may have already watched or heard about this new documentary on Netflix called The Social Dilemma. It may end the month as the most popular movie on all of Netflix for September, the first for a documentary on the streaming service. The irony is we often talk in this space, about the enormous size, growth, scale and impact of the so-called big tech “FAANG” stocks from an economic and investment perspective.
This documentary is more concerned with the impact, particularly of the social media companies (Facebook, Google, Twitter, and the like) on the very fabric of our society. Even if you are familiar with the concept of these companies morphing from nice platforms to share pictures of your pets or family, to big-data, attention/eyeball grabbing advertising platforms, we think you’ll find this documentary alarming. The filmmakers, based out of the Center for Humane Technology, go to great length to portray that while these sites and their founders may have started with respectable and admirable goals to bring people together, as they evolve it’s important we know what they’ve become and what we’ve become along with it – especially for young people. If you have time and a Netflix account, give it a watch. We’d love to hear what you think.