Answering Your Questions About the Unconomy, Markets, and More!
The American unemployment rate just hit 14.7% according to the Labor Department’s report this morning.
That’s more than four percentage points higher than unemployment hit during the financial crisis. And there’s still a lot of uncertainty as to whether unemployment has peaked or will continue going higher.
Still, the broad stock market has continued its march higher.
How can the American job market be so troubled, and the stock market be so strong?
It all goes back to the “unconomy” that we’ve been talking about for a few weeks now.
Thanks to trillions of dollars in government stimulus, many of the things that we look at to judge the health of the economy are simply turned upside down.
For instance, unemployment is typically a bad thing for the economy. But in today’s world, many of the unemployed are getting paid more to stay at home than they were getting paid to work.
And looking to the future, this means these consumers will have more cash to spend, helping to fuel a rebound in the economy.
There will certainly be unintended consequences to all of this additional capital flowing into the economy. And there’s still a lot of uncertainty about how long and how deep this coronavirus crisis will be.
But as investors, it is important that we look beyond just the headline number to see what’s actually happening in this “unconomy.” That way, you’re able to protect and grow your wealth, even through this turbulent and uncertain time period.
As we wrap up another healthy week in the market, let’s open up the mailbag and get to some of your emails.
(As a reminder, you can send me your feedback throughout the week by emailing EdgeFeedback@StPaulResearch.com. My team and I read every email and feature many of your questions and comments in our weekly alerts.)
The Case for Investment Real Estate
This week Herb Z. wrote in with a question I’ve been thinking a lot about…
What will happen with investment rental real estate?
Thanks for the great question Herb! I’ve been wondering about this myself!
When it comes to real estate, the age-old phrase is that real estate is about 1) Location, 2) Location and 3) Location!
In other words, real estate in one area may perform dramatically different than other areas.
I currently own one rental house that my family used to live in. Instead of selling it when we moved to a bigger house (to accommodate our family of 9), I decided to keep it and rent it.
There have been some good years and bad years, but overall it has been a sound financial decision.
Today, demand for homes is high and low interest rates are driving prices higher. I expect these trends to continue. Which means now may be a great time to purchase residential rental real estate (in the right location).
Another thing I’ve been thinking about is real estate tied to vacation communities. Like a beach house, a condo near a theme park, or even a Las Vegas property.
With so many tourist areas of the country shut down or operating at low capacity, some property owners may be forced to sell. And I anticipate that prices will drop for a time, before rebounding.
I don’t think you need to be in a hurry in purchasing vacation properties because there will likely be a period of adjustment before prices start to rise and rental rates return.
But it’s not too soon to start shopping and putting together some numbers to see if a rental property might be right for your financial situation!
Keeping an Eye out for Dividend Cuts
Ann E. had a good question about the dividend stocks that many investors rely on for income.
What companies do you see cutting dividends? Who else besides Disney?
Hi Ann! Yes, this is a big issue in today’s market and one that my team and I have been watching very carefully.
Disney made headlines when the company cut its dividend. But it makes sense when you think about it.
Unfortunately, the company is being hit on many different sides of its business. Theme parks have been shut down, sports broadcasts have been cancelled, and few people are shopping at retail stores selling Disney-licensed products.
Of course the company’s Disney+ streaming service may be healthy right now. But that’s a small part of the company’s overall business.
Other companies are also cutting dividends.
Ford and GM both suspended their dividends as demand for new vehicles dropped and production dropped off so employees could social distance.
We’re seeing dividend cuts at energy companies, hotel chains, and manufacturing firms. These companies are focusing on conserving their cash so they can stay in business.
In most cases, it’s a wise move for the companies, but a big disappointment for us as income investors.
The good news is that companies who continue to pay dividends — and even grow their dividends will become even more popular with investors who need that income.
So if you’re holding a portfolio of dividend stocks that match up to our Three Pillars of Income Investing, (Safety, Growth and Income), your shares will be all the more attractive to investors, helping to drive the price of these stocks (and your overall wealth) higher.
Differing Opinions on Social Distancing
I’m sure you’ve seen the debates on how our country should be responding to the spread of Coronavirus. Here are a couple samples of feedback I’m getting from your fellow Daily Edge readers…
Dr. Jay had some good thoughts on protecting our communities…
Until we get medicine to cure the infected and vaccines to prevent this from occurring in the first place anything short of rigorous social distancing and/or isolation is irresponsible, dangerous, subjecting the entire world’s population to this virus.
And yes this will take a toll on our global economic health. I am not willing to sacrifice precious life for increasing the GDP. The thought of infecting those in places of high density to put people back to work or play is unconscionable – unbelievable!
At the same time, Tom P. has some thoughts on personal freedom and opening our economy…
It was never justified to suspend Constitutionally guaranteed liberties. Consider the small business owner who invested everything, and went into debt, to build his dream. He may lose everything. Who has the moral right to do that to him?
The economic costs of the “shutdown” will be many orders of magnitude worse than the effects of the virus. Including more deaths and health problems.
Thank you both for your candid thoughts and perspectives.
The thing I love about this discussion is that both sides are coming at this problem from a perspective of compassion.
No one wants to see more people infected with the virus. I know I’m concerned about my own family and I’m trying to be very careful to protect their health.
At the same time, our hearts go out to people who are literally in the process of losing everything they’ve worked so hard to build. This is a real cost (and not just a matter of “greed” or “evil corporations.”)
I’m thankful that I don’t have to be the one making decisions for the entire country. Even figuring out what my own family will do or will not do has been difficult.
My takeaway from these emails this week is that we all need to have patience and a measure of grace for our friends, neighbors and leaders who think differently than we do.
There is much to gain from a thoughtful debate about these issues. But there is also much to be lost if we allow these discussions to be divisive.
On a Lighter Note…
Annette T. wrote in with a comment about my office…
Glad to see that you are getting some artwork on your office wall. I love the airplane.
Thanks Annette! I’m assuming you saw the airplane painting from one of our recent videos.
By the way, would you guys like to see more of these videos? Less? Any particular issues you’d like us to cover?
The airplane picture is pretty special to me. You guys already know that I’ve always loved aviation, and I’ve got a soft spot for old WWII vintage planes.
My sister Katherine is a portrait artist and I’ve always been impressed with her talent. (For some reason, the art gene skipped me entirely.) She painted the plane for my 40th birthday (a few years back) and I love having it in my office.
Katherine is a great example of someone who took a talent she loves, and turned it into a way to generate reliable income.
There’s a lot more to running a business than just painting beautiful pictures. But Katherine has worked hard to build her skill at growing a business while still keeping her passion for the art she produces.
She’s an inspiration for many who are finding new ways to generate income during these uncertain times.
That’s all for today, but I hope you’ll continue sending me your questions and comments.
I really do enjoy hearing from you every week and look forward to the opportunity to discuss what’s on your mind. As a reminder, our email here at The Daily Edge is EdgeFeedback@StPaulResearch.com.
Here’s to growing and protecting your wealth!