Bob’s Journal for 5/14/20

Some Notable Events That Grabbed My Attention This Week

Many Americans seem to expect a fast economic recovery, but the data indicate the downturn already is steeper than many people realize.

Most respondents in surveys seem to expect a “V-shaped” recovery once the stay-at-home orders are lifted or eased.

For example, the Small Business Optimism Survey from the National Federation of Independent Business (NFIB) found that most owners of businesses expect quick financial performance improvement and a short-lived recession.

In fact, business expectations for the next six months were the only one of the 10 segments of the survey to improve in April, and it jumped sharply compared to March. The expectations component is at its highest level in 18 months.

Another survey reported that 78% of all unemployed Americans expect to be rehired within six months.

But a study of small businesses concluded that at least 100,000 of them have closed permanently since the end of March, amounting to 2% of all small businesses.

Further, about 3.5 million small businesses could close in the next two months and 7.5 million in the next five months under current conditions, according to Main Street America, an association of small companies.

The National Restaurant Association says 3% of restaurant operators have gone out of business.

Yet, the optimism held by a majority of Americans is apparent. A survey by Harris Poll found 23% of Americans were net buyers of stock in the last month, while 19% were net sellers. About 45% made no changes in their portfolios.

The hibernation economy is new enough that people still are trying to figure it out. Most people seem to be hoping that this will be a short-lived experience, but the data indicate the economy already has sustained serious damage and it will take some time for it to recover.

The End of Dubai, Inc.?

The Emirate of Dubai established a long-term plan that was designed for a different environment. The emirate could struggle economically for a long time.

Dubai’s leaders concluded some time ago that the country didn’t have enough oil reserves to rely on that natural resource the way other members of the United Arab Emirates do. Instead, the emirate decided some years ago to foster growth by establishing itself as a hub of the worldwide movement of trade, money and people.

To that end, skyscrapers were established in the city of Dubai. A major global airport and port were built. A network of state-controlled or influenced businesses, including banks, an airline, construction firms and more, aided the economic boom.

The emirate and its affiliates sponsored major international sport and entertainment events. Business in the emirate was booming, until recently.

The emirate already was starting to feel the effects of a slowing global economy and trade wars. Real estate values in Dubai declined 30% following 2014.

The coronavirus pandemic sent the emirate’s economy tumbling. The international movements of people and goods ground almost to a halt. The future of globalization is in doubt.

In the meantime, the emirate and state-linked businesses are due to pay billions of dollars in debt during the next few years that had been borrowed to finance the building boom.

There are enough reserves in the United Arab Emirates to bail out Dubai and its related firms, which happened after the financial crisis. But the United Arab Bank (UAB) is hurt by the crash in oil prices and might be less willing to part with the reserves. It is likely to be a rough few years for Dubai.

A New Medicare Advantage Open Enrollment Period

Normally, there is a second open enrollment period, Jan 1. through March 31, for those who want to change decisions regarding Medicare Advantage plans.

The Centers for Medicare and Medicaid this year created a special enrollment period running from March 1 through June 30. Individuals who weren’t able to make an election because of either a weather-related disaster or the COVID-19-related emergency can make a change through June 30.

The Special Election Period applies to both enrollment and disenrollment elections in Medicare Advantage plans.

Insurers and others aren’t allowed to advertise this Special Enrollment Period. But it’s available to those who know about it and want to make a new Medicare Advantage decision. You have to contact Medicare to establish that you are eligible.

Details about who is eligible for the program and how to take advantage of it are on the Medicare website at this link.

Time Is Running Out to Grab Long-Term Care Insurance Discounts

As I alerted you two weeks ago, insurers are raising the cost of long-term care insurance (LTCI). Both traditional LTCI and the popular hybrid policies are due for substantial premium increases.

By acting now, you can get in my top LTCI recommendation at the current rates. Plus, you can lock in that cost for life. If you wait until June 1 or later, you’ll pay 20% more.

This life insurance policy with long-term care (LTC) coverage is the most powerful way to ensure there is money to pay for any LTC needs you have.

For more details about my recommended LTCI, contact David Phillips, of Phillips Financial Services, at 888-892-1102. Or click to complete an Analysis Request Form.

The Data

It is no surprise that last Friday’s Employment Situation reports set records. The unemployment rate rose to 14.7%, and payrolls were reduced by 20.5 million. These are the worst numbers going back to 1939. Just a few months ago, the same numbers were near 50-year lows.

Average hourly earnings increased by 7.9%. That probably reflects that the vast majority of job losses were among lower-paid workers, while higher-paid workers were able to work from home.

As bad as they were, the reports probably understate the rise in unemployment. People continue to report having trouble filing for claims through state websites and telephone systems. Also, a number of people reported themselves as leaving the workforce instead of as losing their jobs.

The numbers will become worse, because new unemployment claims for the latest week increased by 2.981 million. The weekly amount has declined each week for six consecutive weeks. The total of new claims during the pandemic is 36.5 million.

Optimism among small business owners continues to fade, according to the Small Business Optimism Index from NFIB. In April, the index declined by 5.5 points to 90.9. That follows a historic one-month decline in March and adds to a two-month decline of 13.6 points.

Only one of the index’s 10 components improved in April. The index held up better than most analysts expected. That’s probably because the small business owners expected the economy to improve over the next six months.

The deflationary effects of the loss of economic activity are clear. The Consumer Price Index (CPI) declined by 0.8% in April and is up only 0.3% over 12 months. Excluding food and energy, the CPI declined 0.4% for April but is up 1.4% over 12 months.

The Producer Price Index (PPI) declined 1.3% in April and is down 1.2% over 12 months. Excluding food and energy, the PPI was down 0.3% in April and is up 0.6% over 12 months.

The Markets

The S&P 500 declined 0.93% for the week ended with Wednesday’s close. The Dow Jones Industrial Average lost 1.71%. The Russell 2000 fell 2.39%. The All-Country World Index (excluding U.S. stocks) added 0.97%. Emerging market equities gained 1.68%.

Long-term treasuries rose 1.29% for the week. Investment-grade bonds increased 0.09%. Treasury Inflation-Protected Securities (TIPS) added 0.43%, while high-yield bonds gained 0.09%.

In the currency arena, the U.S. dollar eked out a gain of 0.04%.

Energy-based commodities fell 0.79%. Broader-based commodities lost 1.70%, while gold rose 1.61%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I am a senior contributor to the Forbes.com blog. You can view my contributor page here.