(Berlin)

Germany has been very successful over the last three decades with a fiscal stimulus strategy that helps to offset mass unemployment during economic downturns. The tactic is called “kurzarbeit”, or short work, and a policy by which instead of getting laid off, workers go on shortened hours and the government pays a portion of their salary to offset costs for the company who employs them. A typical example would be a factory that needs to cut a group of workers’ hours by 80% as demand shrinks. In this case, the employer would pay 20% of the previous wage, with the government covering something like 60%. This leaves the worker with 80% of the previous wage, and the prospect of still having a job so that when the economy improves, they just go back to full-time.

FINSUM: Our team has family in Austria and Germany that are currently on a kurzarbeit program and have done so in the past (during the European debt crisis nine years ago). It works very well and is something that the US should seriously look at right now. That said, Germany has some advantages that make it more feasible—it has lower property rents, and it is a nation of savers, meaning there is more margin for error in household budgets.

(San Francisco)

Investors have made cash the only thing that matters in markets. The Dollar is surging and investors are fleeing assets in favor of cash. Cash is a scarce and valuable asset in this downturn, and which companies have a ton of it—tech companies. While the Silicon Valley giants will take a hit from lower consumer spending, the reality is that the shutdown of normal life is pushing things ever more online—their domain. As this crisis eventually abates, giants like Apple, Microsoft, Google, and Amazon, have huge cash reserves (currently $350 bn) that will help them attract shareholder capital, and also grab market share as competition gets weeded out.

FINSUM: Tech is probably going to be in a stronger position in a year than it was six weeks ago. Their fortress balance sheets will be key.

(New York)

One of the most commonly asked client questions about annuities is “what is the best age to buy one?” The answer, as advisors know, is that there isn’t one; it depends on your financial goals and circumstances. That said, there are a couple things to bear in mind. Firstly, those in their mid-40s or younger should almost certainly not consider annuities (outside of some variable annuities) because they have the time to take additional risk (and get the additional growth) of direct exposure to the market. On the other end, annuity availability for those 80 and older declines rapidly. Accordingly, depending on circumstances, the sweet spot is likely in that range.

FINSUM: Annuities seem to be best bought for what they guarantee, not what they might offer, as downside protection and income protection are truly the name of the game.

(New York)

If anything is becoming clearer about coronavirus’ effects on the economy, it is that job losses are going to be staggering. But what will be the knock-on effects? One of the many looks likely to be a serious credit crunch. Without income flowing in, many borrowers are going to be late or default on payments, which means lenders will run short on money and everyday companies will not get their normal cash flow. Not only will this hurt earnings and weaken credit ratings and corporate solvency, but it will likely cause a serious decline in consumer credit scores that will have a lingering effect on credit for years.

FINSUM: Everyone seems to be trying to mitigate this threat. Banks are suspending mortgage payments, credit bureaus say they won’t report delinquency etc. This is unprecedented, but it remains to be seen how it plays out (and for how long).

(New York)

This week has a very worst-case-scenario vibe to it, and thus we wanted to examine what the worst economic effects of the coronavirus outbreak might be. With a recession seemingly a foregone conclusion at this point, the question on economists’ minds is whether a depression could occur. A depression is an economic contraction that lasts for a long time, as in years, not a couple quarters. Since 1854, there has been 33 recessions and only one depression—by 1933 the US economy was only half the size that it was in 1929.

FINSUM: Many factors led to that huge downturn, and it takes a perfect storm for them to lead to a depression (e.g. the Fed raising interest rates at the same time as a huge drought in the Midwest). That multitude of factors does not seem to be in place right now.