(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.

(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.

(New York)

The term “hybrid annuity” gets thrown around in casual conversation all the time, unfortunately including in sales pitches to clients. However, one would be better off calling it what it is—a fixed index annuity. “Hybrid annuity” gives a false sense of the product, lending the impression that there is full principal protection AND unlimited upside. The reality, of course is that while principal protection full exists, there is quite limited upside that is constrained by the annuity contract.

FINSUM: A contractually limited 4% max annual upside via an option contract on an index is not unlimited upside.

(New York)

Goldman Sachs issued a bleak revision of its earlier estimate for the looming second quarter recession. When the pandemic first struck, Goldman called for a 9% decline. It then proceeded to increase that forecast to 20% as the lockdowns began. Now it has reissued guidance, calling for a 34% decline in GDP and a rise in the unemployment rate to 15%.

FINSUM: This is a profound forecast and speaks to the scale of the pending downturn. The good thing, though, is that Goldman thinks there will be a 19% recovery in Q3.