The hits keep coming. In the news it seems there is never a dull moment yet at the same time it feels as though our lives and time are frozen. Life during the time of Covid-19 is different from any time in our lives before. The expectation of change is constantly in the air. This too shall end although we don’t know when and we don’t know how it will alter our routines like shopping, eating out at restaurants, going to the office and most importantly in-person school attendance. Not to mention inequality of income and racial justice whatever all that means.
Accept that these are difficult times. Think about how you will feel when this ends and you look back at life during covid-19. Make sure when you look back you can point to not wasting the extra time. It is easy to waste time as the days turn into blurrrsday and blurrrsmonth. Take advantage of the gift of time. Take an online class, clean your closets, get to know your neighborhood better, get takeout to support your local restaurants, learn new recipes, appreciate your food as well as your family. Have grace on ourselves while also easing into new learnings and new routines where and when we can. Do these things and stay true to the mantra: be cautious, wear a mask, social distance, stay away from large groups especially indoors, and wash hands frequently. Our community and our country depends on each of us acting together for the greater good.
Back to markets and financial planning.
The value of the US dollar does not attract as much attention as the stock or bond market, but movement in the value of the US dollar is a very important indicator of macro and global trends. Currency movements are complicated. The value of a currency is generally based on the world view of the strength in that currency's economy compared to other economies.
After the financial meltdown in 2008-2009, and in particular from 2011 forward, the US dollar strengthened vs. major currencies including the Euro, Yen, and British Pound. The Chinese currency, the Yuan/ Renminbi fluctuated very little because of Chinese central bank intervention.
Why does currency value matter and how does it impact markets? With a weaker domestic currency, domestic manufactured goods are cheaper when exported so it helps companies that export to other countries. On the other hand it makes purchasing imports more expensive so it encourages domestic purchase of domestic manufactured goods. A lower value US dollar encourages stock market investments in those companies which derive a higher share of their business from overseas.
Another factor contributing to the decline of the US dollar is the increasing federal debt resulting from geometrically increased borrowing by the US Treasury to fund economic triage from the current recession. With interest rates at a historic lows foreign interest in US Treasury securities is also flagging. The result is the perception that inflation might increase as indicated by the increase in the price of precious metals as well as the increase in interest for Treasury Inflation Protection securities (TIPS). We have been adding TIPS to SAS portfolios in response to these trends.
The divergence between the stock market and bond market continues with the bond market indicating more pessimism on the economic outlook than the stock market. Again, it is worth considering refinancing any debt such as a mortgage as interest rates are at historic lows. Contact your SAS advisor for guidance.
Pandemic Response, Legislation
Right now, Congress is negotiating with the White House over an extension of the CARES act. It is hard to follow the ebbs and flows of these talks but there is consensus among economists that more aid is needed in a big way. This includes the Chairman of the Federal Reserve and economists on the right and left.
News released Tuesday night, stated that there would be some type of agreement by the end of the week. Stocks are rising in anticipation of a signed deal. The assurance by the Federal Reserve that it will do whatever is necessary to save the economy is encouraging stock investments. With interest rates at historic lows investors are forced to turn to the stock market to get any return on their investments even with the much higher risk. Finally, do not fight the Fed is ruling the day.