dsmWealth May 21, 2020

Chris Cook, chief investment officer at West Des Moines-based wealth adviser Gilbert & Cook.

Moving Beyond the 'Great Compression'

BY STEVE DINNEN

If there’s a bright side to the economic fallout of this pandemic, it might be that we’re not the United Kingdom. The Bank of England has just reported that the economy there will contract the most since, honest, 1709.

We aren’t that bad. But we’re not in great shape either, as confirmed by Fed Chairman Jerome Powell and his observation that we will not shake this pandemic mess off our economic backs until 2021. Meanwhile, we’re facing a double-digit decline of GDP in the current business quarter.

Chris Cook, chief investment officer at West Des Moines-based wealth adviser Gilbert & Cook, has, with others, nicknamed this the Great Compression. It unfolded overnight, shuttering restaurants and every strip mall in America and ballooning our unemployment rate to levels not seen in 90 years. (Iowa Workforce Development reported a rise of 1,193% in initial jobless claims between February and March.)

It’s difficult to draw much wisdom, or guidance, from prior downturns, Cook said. The 2008-09 meltdown was a financial crisis that spilled into home mortgages, which the current crisis has not (yet). The Depression of 1929-33 predated government jobless benefits and government insurance on deposits in failed banks. Past downturns did not mandate a dead stop to schools, restaurants and most retail activities. The nation’s supply chain of food and material was not disrupted.

We may not see the quick snap back to normal that President Donald Trump yearns for. But dire consequences have been somewhat blunted by the CARES Act. Banks in Iowa reported processing $3.75 billion worth of federal loans (which can be forgiven) by mid-April, and unemployed workers are getting a $600 weekly bump in their jobless benefit.

Ironically, Cook said it helps that there’s just about no place anyone can spend money. You’ll be hard-pressed to book a vacation, or take in a movie, or even congregate at socially distancing taverns and restaurants. More importantly, though, he sees an economic bounce-back as contingent upon people returning to work.

“Are these jobs in hibernation, or are they gone?” he said. Already there are signs of a return to normalcy: Auto manufacturers are reopening their plants, and closer to home Winnebago Industries has restarted its production line.

We’ve lost some jobs, especially in retailing, that won’t come back. But Cook says recessions “always squeeze out marginal performers.” They also spawn new ways of doing things – Zoom, anyone? Home office, anyone? – that will, moving forward, make for a more productive, efficient workplace. We just hope sooner rather than later.

Local Perspective on Wild Market Opportunities

BY STEVE DINNEN

Some spectacular fortunes have been made – and lost – since COVID-19 made landfall. The market shrank by 40% in just a few weeks from its all-time high reached in February, only to battle is way back by some 40%.

Recreational vehicle maker Winnebago Industries, of Forest City, is a case in point. Its shares slumped 67% between Feb. 20 and March 18. Anyone who bought Winnebago on that low day has by now notched in a 167% gain.

There are other tales of wild swings. But as the economic reality of the pandemic settles in, Kent Kramer, chief investment officer of West Des Moines-based investment advisory firm Foster Group, says he’s focusing on broader, more diversified forays into the market. He’s especially keen on ETFs, such as iShares Edge MSCI Quality Factor ETF (QUAL). This is a position in solid, blue-blood growth companies; Johnson & Johnson, Microsoft and Apple are its biggest positions. Large cap and growth stocks will perform best in this challenging environment, he believes.

Among mutual funds, Kramer says he is drawn to U.S. High Relative Profitablity, DURPX, an institutional fund that likewise counts Microsoft and Apple as major holdings.

“I prefer to buy big baskets of stocks with common metrics,” he says. Current metrics include ability to weather the ongoing storm.

3 Mindsets That Build Wealth
BY NIKLAS GOKE FOR THE LADDERS.COM

Robert Kiyosaki says he had two dads as a child: his own father and the father of his best friend.

While he loved both, they were very different when it came to dealing with finances. Robert learned what not to do from his own dad and what to do from the other. One helped him avoid staying poor, the other helped him get rich.

I know it’s controversial and often heavily criticized, but "Rich Dad Poor Dad" is a modern classic of personal finance. It’s one of my favorite finance books. The story through which Robert Kiyosaki delivers his lessons is captivating. If it weren’t, the book wouldn’t have sold 32 million copies.. >> READ MORE

Airlines Say Massive Job Cuts Are Inevitable
FROM CNN BUSINESS

U.S. airline workers have been largely spared from the carnage that's pushed the country's unemployment to record highs since the start of the coronavirus pandemic. But those same workers — roughly 750,000 pilots, flight attendants, baggage handlers, mechanics and others — will soon be among the most at-risk for losing their jobs.

The federal bailout for the airline industry barred layoffs, involuntary furloughs or pay cuts for employees. But executives have been blunt that job cuts are coming once that prohibition lifts on Oct. 1, with estimates that up to a third of the sector's jobs could disappear.

The airlines have already requested that workers take voluntary unpaid or low-paid leaves. About 100,000 workers at the four largest carriers — American, United, Delta and Southwest — have done so, equal to about 26% of those companies' staffs at the end of 2019.

But even with that level of voluntary leaves, and $25 billion in grants and low-interest loans from the federal bailout known as the CARES Act, airlines are hemorrhaging millions of dollars a day. The first-quarter losses in the industry topped $2 billion. The second quarter will be much worse. >> READ MORE