FINSUM

FINSUM

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(New York)

Yes, you read that right, Bank of America is forecasting a 35%+ GDP fall for the YEAR, not just Q2. The bank thinks the Coronavirus downturn is so bad that the US economy will shrink 7% in Q1, 30% in Q2, and 1% in Q3, a cumulative 35.55% for the year. The downturn would be the worst to ever strike the US.


FINSUM: This is by far the bleakest projection we have seen. Goldman, for instance, sees 19% growth in Q3. So if the economy shrinks 35% this year, what is fair market value for the S&P 500?

(New York)

Goldman Sachs, who has been a leader in putting out new research n the economic effects of the current lockdown, has issued new guidance on this week’s pending jobless claims. The bank thinks jobless claims will increase to a whopping 6m this week. If that happens, it would mean this week’s figure would exceed the record that stood until last week by a whopping 9x. The coming release will cover the week from March 22-28th. “Jobless claims will be the timeliest hard data point for assessing the depth of the recession and catching the start of the recovery”, says Goldman.


FINSUM: The period the release covers is not even likely to be the worst. There is probably still a few weeks before the full scale of the layoffs becomes apparent and the numbers peak.

(New York)

Fixed index annuities, like other annuities, have developed somewhat of a bad reputation for poor sales practices over the years. Many agents sell fixed index annuities by saying things like “7% annual gains, no downside”, which in reality is a gross misrepresentation of how income riders work. So why should one buy annuities, and how in turn should they be sold responsibly? The reality is that fixed index annuities are best bought for what they guarantee, not what they might offer. That means CD-like returns with full principal protection. Any upside gains are a bonus, but should not be the core reason for buying the annuity, or the principal way they are pitched.


FINSUM: This will obviously be second nature to those experienced with annuities, but there are plenty of advisors whose clients are starting to ask them about the product (given the environment), so this is just a reminder for those dealing with unfamiliar inbound requests.

Thursday, 02 April 2020 13:00

Oil Prices Spike on Rumored Deal

(Houston)

The sole bright spot in markets today is the big jump in oil prices. US oil rose about 10% earlier today on an announcement by President Trump that a deal between Russia and Saudi Arabia was close. The two parties have ben locked in a price war, which alongside the virus, has conspired to bring oil into the teens from a high of around $63 per barrel in January. Trump says a deal could happen within a “few days”.


FINSUM: Oil hit an 18-year low this week. In our opinion it is only a matter of time until oil producers come to an agreement to try to fix prices higher.

(New York)

Citibank is pitching a convincing and optimistic view of the economy, and it is a refreshing take in an otherwise bleak landscape. The bank says the big influx of tests that will become available may allow the economy to open much sooner than planned. Their argument is that the growth in tests will allow 60% of working-age US individuals to be tested by the end of April, and 95% by the end of May. As workers are tested, they can head back to work, quickly re-opening the economy. Accordingly, by the end of this month 90 million Americans may be back at work. “While potential therapeutic strategies for COVID-19 seize headlines, we believe diagnostics rather than therapeutics are far better positioned to materially change the economic and even medical outlook for the current COVID-19 pandemic”, says Citi.


FINSUM: Honestly, this sounds like more of a plan than a forecast, but it is a very good one, and does lend some useful optimism.

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