After three days of endless gains in the stock market, fueled by a surge of positive news around the economy and the possible availability of numerous COVID-19 vaccines, we’ve finally had a losing day.
Here are the most important numbers you need to know about yesterday’s trading session:
- Dow Jones: -0.58% (now below 30,000)
- S&P 500: -0.16%
- NASDAQ: +0.47%
What could have possibly caused us to stray away from what may be the best-performing November we’ve seen in decades?
For one, we have had two straight weeks of increases in the number of weekly jobless claims. Last week saw the number of people applying for unemployment benefits sitting at 778,000 (versus projections of 733,000) and it was 742,000 in the prior week.
According to Jefferies’ money market economist Thomas Simons, Wednesday’s results were not surprising in the least:
“There was building evidence that claims were going to hit a near-term bottom and the downward momentum (which was already slowing) that had been intact for months would reverse… The data of the past two weeks emphatically confirms these expectations.”
We also have the minutes from the latest Federal Reserve meeting that were just made public, showcasing that officials view an increasing likelihood of COVID-19 spread continuing and the economy taking a slight dip.
Last, but certainly not least, yesterday was the last trading session before the US holiday of Thanksgiving taking place today.
So as a friendly public service announcement to our readers: US markets are closed today, and the trading hours on Friday will be shortened from 9:30am EST to 1pm EST.
What do YOU think about Wednesday’s stock market performance? A small correction before the Dow Jones breaks through the 30,000 level again, or a sure sign that the bull market is starting to become bearish? Reply to this newsletter and share your predictions with us!
Personal Income in America Is DOWN but Consumer Spending Is UP?
Another arguable reason for the stock market’s dip yesterday has to do with some economic data points that don’t make sense at first glance.
I say this because the US Commerce Department released their data for the month of October and it doesn’t exactly paint the best picture for the American economy…
- Consumer spending: +0.5% (projection was +0.4%, and was +1.2% in September)
- Personal income: -0.7% (projection was 0%, and was +0.7% in September)
There is a lot more to these numbers than what you see here, and Breitbart did a phenomenal job of breaking down their implications…
- The decline in financial benefits from the federal government explains the personal income results (which includes government payments and wages)
- This is the sixth month in a row where consumer spending has increased
- Government salaries are down for the second month in a row
- Private salaries, however, have gone up in October
What we have here is the setup for an inevitable economic breakdown. Lockdowns are becoming more restrictive and those deprived of the ability to make a living aren’t getting the monetary support they need.
At this rate, I don’t see how this is sustainable. That is, unless Americans are putting themselves into an insurmountable level of debt…
The Average Time for People to Pay Off Student Debt Loans Is 18.5 YEARS
If you had to rank debts in order of most crippling to least crippling, I don’t imagine I would get much resistance from saying that student loan debt easily takes the #1 spot.
And the statistics back me up on this claim: According to a survey of 2,000 American adults done by New York Life, the average person will start paying off loans at age 26 and FINALLY end their financial slavery at the age of 45. That’s ~18.5 YEARS when you do the math!
The picture gets worse when you break the data down by age category:
- The number of student loan borrowers between 35 and 49 is 14.2 million
- The number of student loan borrowers older than 62 is 2.3 million
What’s even more shocking about all of these statistics are the EXPECTATIONS for paying off federal student loans… apparently, the “standard” repayment plan lasts 10 years. And it’s almost backwards to think that people are taking twice as long as what is officially recommended.
Sure, there’s the old-as-dirt advice of making minimum payments to avoid negatively affecting your credit score, aggressively saving up and managing your finances with a budget, and every other generic trope you’ve heard thousands of times.
But I think these numbers reveal a MUCH deeper problem with the existence of student loans in the first place, only made possible by the astronomically high tuition rates for a 4-year degree…
Why Debt Should NOT Prevent You From Investing
Chuck Sletta, a contributor at The Motley Fool recently argued that people who are in debt should not use it as an excuse to avoid investing your money into the markets. And he’s saying this as someone with $112,165 worth of debt to pay off (credit card balances, mortgage, etc.).
And he puts forth a number of reasons why anybody – and everybody – should start consistently investing at a young age, no matter your financial situation:
- As long as your debt has low mandatory payments, a low interest rate, and is for a constructive purpose (ex. a home, a car, an education), it won’t hold you back from achieving your investment goals
- If you have credit cards, you can get a slightly NEGATIVE interest rate by paying them off in full each month and signing up for a cash-back program
In short, Sletta is arguing that debt is not inherently bad as long as it doesn’t result from bad decision-making and it is managed appropriately. If you can achieve his three conditions for debt, while keeping to a tight budget, you can still have some money left over for building up your retirement portfolio.
What do YOU think about Sletta’s case for investing while paying off debts? Is it smart to do both at the same time, or is it better to pay off 100% of your debts before you put a penny in the stock market? Reply to this newsletter and share your thoughts with us!
More Parents Are Paying for Their Adult Children’s Lifestyle Than Ever
One of the most worrisome facts about Millennials, and the upcoming Generation Z kids soon turning into adults, is that they are more financially reliant on their parents for money than any other generation in existence.
FP Canada recently conducted a Leger poll surveying 1,557 Canadian adults and the extent to which they are helping their adult children cover basic living costs. As bad as these numbers are, I have a scary feeling that it’s even worse in the USA:
- 35% of respondents are helping their kids pay off rent
- 36% of parents with kids under 18 years old intend to help their kids pay rent
- 24% of parents have chipped in to help their kids purchase their first home
- 48% of parents with kids under 18 years old intend to help their kids buy their first home
CIBC’s deputy chief economist Benjamin Tal had this to say in response to the results:
“Rent is extremely expensive, and we see parents helping… The first way was parents helping with kids buying a house. We see a record high number of young people relying on their parents for a down payment.”
It’s a mix of numerous factors, if you ask me. On top of things such as an incredibly unforgiving job market, rising home prices, and sky-high tuition rates, Millennials and their predecessors are NOT being equipped with an elementary level of financial education and responsibility.
Put all of those things into the same pot, and you have a complete disaster. It’s just a matter of time before Millennial parents will be in a position where they are unable to raise their children. So it’s no wonder more people are opting out of starting families nowadays…
Moderna Will Make ~$13 Billion in 2021 From Their COVID-19 Vaccine Alone
As much as the COVID-19 vaccines will serve as a net positive for humanity, you have to wonder exactly what the pharmaceutical companies are getting out of it. Fame and prestige isn’t enough – they wouldn’t work tirelessly to create a vaccine of this nature unless there was a serious ROI from doing so.
Goldman Sachs analyst Salveen Richter knows this better than anybody else. If the final data from Moderna’s Phase III clinical trial for their COVID-19 vaccine maintain the “90% effective” promise, 2021 is looking like an incredibly profitable year.
In effect, they will go from ZERO product sales in 2020 to over $13 billion generated in 2021. All from a single medical treatment, with no other drug developments required. To put this into perspective, keep in mind that Big Pharma companies will spend around $1 billion and take 10 YEARS to put a single drug – not a vaccine – onto the market.
Richter provided further comments about how this prediction of success will directly benefit Moderna’s shares:
“Using conservative assumptions for unit sales and price, Richter estimates that Moderna could sell 20 million doses of the vaccine in the December quarter for about $300 million in revenues, and then 750 million doses for $13.3 billion in all of 2021.
The sales wave would lift Moderna from an expected loss of $1.20 a share for 2020 to earnings per share near $8.70 for 2021.”
Imagine that. A single vaccine that compensates for the equivalent of numerous drugs being sold nationwide. They should consider themselves incredibly lucky to have gotten to where they are today without any significant setbacks.