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Week Ending September 11, 2020

Volatile week
All of the major indices were down last week with the Nasdaq composite having the largest percentage drop of -4.06%. Most of this was due to a pullback of the tech sector with giants like Apple, Tesla, Microsoft and Amazon all dropping by no less that 4.5% and as much as -10.9%. 10 of the 11 sectors were in the red with Materials having the only positive increase at .84% The 2nd round of COVID stimulus stalled last week and the government can seem to come to terms with what is appropriate.
Economy Overview
The U.S. economy is recovering from the coronavirus-related downturn more quickly than previously expected. Business and academic economists polled by The Wall Street Journal expect gross domestic product to increase at an annualized rate of 23.9% in the third quarter. That is up sharply from an expectation of an 18.3% growth rate in the previous survey. A rebound in the third and fourth quarters isn’t expected to make up for ground lost earlier in the year—projected growth in the third quarter would recoup about half of the output lost in the first half of the year. To return to the previous peak recorded in the final quarter of last year, the economy would need to grow at a roughly 24% rate again in the fourth quarter of this year. Economists see that as unlikely. Source https://www.wsj.com/articles/wsj-survey-overall-economy-is-recovering-faster-than-economists-expected-11599746400

Inflation not really happening 
The pandemic has caused massive shifts in consumer behavior. The consumer price index numbers demonstrate just how confusing things are during this unique environment. 
Inflation typically indicates whether there is too much—or too little—money and credit relative to society’s productive capacity. 
Inflation is a useful signal only if the mix of goods and services people consume doesn’t change that much from month to month or year to year.  Changes in the price of any individual good or service (or asset, for that matter) move around all the time for a wide range of reasons that have nothing to do with the state of the broader economy. The CPI over the last 3 months rose 5.1% however the prior 3 months were deflated by 2.4% (annualized). But COVID rules have cause manufacturing to limit production hence lowering supply while demand increases and prices rise. 

The pandemic and the Fed has caused Americans to change their spending habits. While total consumption spending is down by about 5% some areas are up significantly. With all of the money provided by the government many Americans had more money than they ever had before to make purchases they could not have previously afforded. This drove demand and prices up in certain segments. An example are Core prices which are up 1.7% versus a year ago. One of the biggest drivers of this number was used cars and trucks, where prices rose 5.4% as dealers had lower inventories due to fewer trade ins. The meat industry has spiked because social distancing rules have limited output. Keep in mind the GDP is simply a function of money x velocity (the number of times a dollar circulates) Since we have been printing more Money the velocity has dropped which offsets the increase in Money by the fed and the real GDP https://www.barrons.com/articles/inflation-appears-to-be-picking-up-but-the-pandemic-has-blurred-the-picture-51600099201

An alphabet soup of economic predictions
If you have been listening to any of the media’s response to the U.S recovery from the COVID-19 recession, you have heard a number of people discuss the recovery in the shape of a letter, first it was a V shaped recovery, (a quick bounce back) then others predicted a U shaped a long downtime with a sharp upswing). Some used the letter L to say the economy would flatline or go sideways. Then W to say we would go up then down, then back up based on another wave of COVID cases. So why are they using these symbols. It’s because most analysis spend their time in a room looking at graphs and plotting data points based on trends and historical data to make predictions. They are trying to create a narrative. That narrative is mostly geared toward their agenda. Especially since this is an election year with a polarized society. Some will say that the K shaped symbol, means that the wealthy benefit, while the rest suffer. Isn’t quite so accurate. It really refers to some sectors (like technology) increase, while others struggle. So, what’s my point? First, most of these symbols are used by academics and they are excellent at looking at the past to explain what happened and why. Academics really lack vision and creativity that entrepreneurs use to make things work. Adapt improvise and overcome. Be flexible and openminded to possibilities. Business owners, especially small business owners, do not sit at a desk all day looking at the past. They are problem solvers; they get their hands dirty by digging in. Most are resilient, we’ve all heard stories of people that failed several times only to come back and see extraordinary success.   
Right now the restaurant industry is struggling, because of the limited amount of patrons they can serve indoors, so they started serving customers on the street, in parking lots and as winter and fall approach they will embrace the challenge and add tents, heaters or whatever is necessary to accommodate their customers, and keep their business open and employees safe. Profit is not top of mind for many business owners right now, survival is.!   
We really need to be aware of the narrative “any more” or “never”. The media is interested in one thing, triggering your emotions. People are not going to health clubs “any more”, People are not going to work in offices “any more”, People are “never” going back into the big cities. etc. etc. etc. No one knows what the future will bring. But trends have changed for the time being and for now they are different than what we are used to. Some public companies benefit from these temporary trends and some will struggle. If you want to know how people are behaving just pay attention to your own community. If businesses close in your community it’s because the community is not supporting them. If you are in a position to support local businesses, (restaurant, health clubs) do it now, because if you wait, they may not be around when you’re ready to go back to them.


When you reopen your office these links may help
Below are some links to government websites with helpful information
https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html
https://www.osha.gov/Publications/OSHA3990.pdf
https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws

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