It’s not just the United States who is in desperate need of financial support. It is a worldwide problem, according to the Organization for Economic Cooperation and Development (OECD). Their newly released “Economic Outlook” report for 2021 reveals a dismal future for the world economy.
“The recovery will be uneven across countries and sectors and could lead to lasting changes in the world economy. Countries with effective testing, tracking and isolation programs and where effective vaccinations can be distributed rapidly should perform relatively well, but a high degree of uncertainty persists.
…if public health or fiscal policy falters, then we would see a loss of confidence and a much more depressing outlook. The toll on the economy could be severe, in turn raising the risk of financial turmoil from fragile sovereigns and corporates, with global spillovers.”
So what is the United States of America going to do in order to prevent this outcome from happening?
It turns out that a new bipartisan bill is being drafted by Congress that will provide $908 billion in relief to the nation. If you remember anything about recent news, this is a far-cry from the $2.2 trillion stalemate proposed by House Speaker and prominent Democrat Nancy Pelosi. It’s also nowhere near the $1.8 trillion counteroffer proposed by Republican senators.
According to NBC News, here is a small preview of what’s to be included in the bill:
“The proposal includes $160 billion in aid to state and local governments, a priority for Democrats that Republicans have resisted. It includes liability protections for businesses and organizations from coronavirus-related lawsuits on a “short-term” basis.
The framework provides $288 billion in support for small businesses like restaurants, and $180 billion to renew unemployment insurance.
The plan would provide an extra $300 in unemployment insurance for 18 weeks, including for gig workers and people covered under the CARES Act.”
Sadly, you won’t find any mention of a second stimulus check for households nationwide.
But this bill was soundly rejected by Republican Senate Majority Leader Mitch McConnell, who stated that the bill must target all areas of pandemic relief while meeting the demands of the Republican Party.
Time is ticking on the clock for negotiations to conclude, as December 11th marks the final day to approve the legislation required to secure the funding. Otherwise, the federal government will enter a shutdown and the release of a second stimulus package will be even further delayed into 2021.
What do YOU think about the ongoing feud around the second financial aid package to tackle the COVID-19 pandemic? Will it ever come? And if it does, will it be a great disappointment? Reply to this newsletter and share your predictions with us!
A Good Start to December for the Financial Markets
It’s relieving to see that the final month of 2020 is starting off on a positive note. The gains made during yesterday’s trading session weren’t significant, but they are infinitely better than being in the red.
Here are the most important numbers you need to know about…
- Dow Jones: +0.6%
- S&P 500: +1.1%
- NASDAQ: +1.3%
- Tech stocks: +3.1% for Apple, +3.5% for Facebook
The gains are most likely explainable by the bipartisan proposal of the $908 billion COVID-19 stimulus package, despite its rejection by Mitch McConnell. And on some level, historical data shows that bull markets with the S&P 500 up by 10% or more in November tend to have some small gains in the following month.
UBS Global Wealth Management’s chief investment officer Mark Haefele had this to say about the immediate future of the financial markets:
“Investors have been prepared to look beyond the near-term continued rise in COVID-19 cases in many regions… They have focused instead on the potential for a return to normal social and economic activity based on the widespread roll out of effective vaccines in the first half of 2021.
We see further upside for global equities in this environment, but also expect market leadership to continue to shift.”
It’s possible the COVID-19 pandemic will last all throughout 2021, but it’s not unreasonable to foresee that we will be in a better place with respect to the health of our economy.
The Future of the Finance Industry in a Post-Coronavirus World
For some industries, it’s incredibly obvious how the changes being made will affect them once the COVID-19 pandemic is over, and which changes will remain permanent. But nobody has really asked this question about the finance industry. Unlike other sectors, they have benefitted massively from the stay-at-home movement.
Yet this doesn’t exclude them from the idea of change, as the pandemic has provided the industry with the opportunity to completely re-shape how activities are carried out. Bloomberg interviewed several high-ranking finance executives how they see the industry changing over the next 5-10 years, and their responses were quite intriguing:
Capway CEO Sheena Allen: “It will forever change the way we handle cash. We have been expedited into what was an already coming cashless economy.”
BNP Paribas USA CEO Jean-Yves Fillion: “There will be reduced need for a big headquarters space. Instead, [US banks will] have larger satellite offices and near-shoring locations close to where people live.”
Southern Bancorp CEO Darrin Williams: “While [digital] channels were always more convenient for the customer, the adoption has been seamless. These customers are not likely to utilize the branch as their main channel of communication with us in the future.”
Members Exchange CEO Jonathan Keller: “Recruiting has changed forever: the way you’re going to need to compete for talent, how you recruit people, and what you’re offering them.”
NICE Actimize’s Executive Vice President Chris Wooten: “Cloud-based technology exists that operates from anywhere to ensure our markets are managed effectively. Widespread use of cloud-based compliance technology has had, and will continue to have, the single greatest impact on market surveillance programs long after this crisis is a distant memory.”
Interesting insights! Let’s see if these predictions actually hold up. Because if so, they’ll make the big banks an even more enticing place to work at for young college graduates.
$1 Trillion: The Wealth Accumulated by US Billionaires During the Pandemic
One of the big themes of the COVID-19 pandemic and the year of 2020 as a whole is the ever-increasing wealth gap between the rich and the poor. While middle-class and low-income Americans continue to suffer, the wealthy will get exponentially more rich and powerful.
This has been made apparent by the Institute for Policy Studies and their latest research, which reveals some frightening data points:
- Since March 2020, US billionaires (650 people in total) have grown their wealth over 34% to a cumulative total of $1 trillion
- 29 US billionaires have managed to DOUBLE their wealth
- 11 US billionaires were removed from the list due to death or financial losses, while 47 NEW billionaires have been added to the list
- US billionaires now collectively own 3.5% of all privately held household wealth in the country (~$4 trillion)
- The wealth held by the bottom 50% of American households (160 million people) is still two times less than the collective wealth of US billionaires
It’s a sad but true story. And these figures have been made even more apparent by the news headlines highlighting these gains. Whether it’s Telsa CEO Elon Musk adding over $100 billion to his net worth, or Amazon CEO Jeff Bezos tacking on another $70 billion, it’s the type of money 99.99% of the human population will never get their hands on.
Really makes you think about who benefits from extended COVID-19 lockdown policies and restrictions!
If Money Is Tight, DO NOT Withdraw Funds from Your 401(k)!
Not everyone has the privilege to be working remotely while keeping their current salary. And even fewer of us have managed to increase our income during the COVID-19 pandemic. In fact, millions of Americans quickly found themselves out of a job in the first 3 months of the global health crisis.
However, the dumbest money move to make is withdrawing funds out of your 401(k) in order to make ends meet. Doing so will cause you to pay some serious tax penalties of up to 40% or more, depending on your individual tax situation.
Instead, Chris Hogan of The Chris Hogan Show suggests 3 alternative actions that we should take:
DO NOTHING: Leave the money in a plan if the employer allows it, and you can even end up with higher fees if you choose other options. You can’t contribute to it as you are no longer employed.
You could roll your money over into the new employer’s plan, but there are limits and rules regarding this. So it’s not the best option.
DIRECT IRA ROLLOVER: You are not touching the money. If you have an existing IRA, you can roll over the balance from your 401(k) right into the IRA. If you don’t have one, you can open one up.
BE AWARE OF 401(k) LOANS: That loan is payable within 30-90 days after you lose employment. If not fully paid within that time period, it is counted as a withdrawal and will be taxed. So if you have this loan, start communicating with the company to figure out how long you have before you have to pay it back (and what to do if you can’t pay it back).
With either option, you need to be proactive and lay out your attack plan for protecting the wealth you have built up in your 401(k). It’s a wonderful retirement asset when used properly, and a financial disaster when it is abused.
The Sofi Credit Card Gives You Cash-Back Rewards for Good Financial Behavior
2020 has seen an emergence of brand new credit card deals and plans. Whether it’s existing companies adding more benefits and making existing ones even better, or new companies releasing their first credit card, it’s a very interesting time for the finance industry.
The latest newcomer is SoFi, a personal finance company which has released a no-annual-fee credit card with a rather unique mechanism. Owners of their card get cash-back on all their purchases, with $1 giving you a single point that’s worth $0.01. Those points can be doubled if you use your rewards towards one of SoFi’s existing channels:
- Open up a SoFi Invest account to buy shares with the rewards
- Put the rewards in a SoFi Money account
- Use the rewards to pay off a personal loan from SoFi
The Motley Fool breaks down what the math looks like:
“Let’s say you’ve earned 500 points (worth $5) with your SoFi Credit Card. If you redeem those as cash to a SoFi Money account, SoFi will double them. That means you’d get $10 deposited to your account.”
Other benefits that come with the SoFi Credit Card include $5 in savings on any Postmates orders greater than $25, and cell phone protection in the event of theft or damage.
Not a bad option for the millennials who need an extra incentive to make good financial decisions!