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Bob’s Journal for 9/3

Published on: Sep 03 2020

It is the World War II era all over again as far as monetary and fiscal policy are concerned.

This week, the Congressional Budget Office confirmed that in 2020, the federal debt held by the public will exceed gross domestic product (GDP). This is the first time that’s happened since World War II.

In addition, Federal Reserve Chairman Jerome Powell confirmed that the Fed is following a long-term policy of keeping interest rates very low and not worrying about higher inflation. I told readers months ago that this was the policy for the pandemic.

Those who subscribe to my Retirement Watch Spotlight Series of online seminars received a detailed explanation of this in the April 2020 edition. I explained that, as during the Second World War, government spending would increase dramatically. The Fed, as it did at the time, would buy enough debt to keep interest rates low.

The federal government’s not going to worry about balanced budgets anytime soon. Similarly, the Fed’s not going to worry about inflation for a long time. (You can subscribe to the Spotlight Series by calling 800-552-1152 or through

We don’t have to change our portfolios, because these are the policies that we anticipated. That’s why we sold bonds some time ago and bought gold and global stocks.

Digital Currencies Could Be Here Soon

“Cash is trash” is an expression long used by investors and traders, but now central banks are joining the chorus.

The coronavirus pandemic and other developments caused key central banks to decide that their current tools and monetary systems are outdated. They are looking at developing official digital currencies known formally as central bank digital currencies (CBDCs).

The development of bitcoin and other cryptocurrencies first put the issue on central banks’ radars.

But the pandemic increased the level of interest. Consumers and businesses are less interested in handling cash, checks and even payment cards. Card companies have reported that contactless payment transactions substantially increased in 2020.

Central banks have also realized that their current systems are slow and inefficient ways to stimulate their economies, especially in a fast-moving situation such as the pandemic. Digital currencies could enable central banks to better target who should receive stimulus and deliver the stimulus much faster.

Reportedly, China is far ahead in developing mobile payments and a CBDC. It might test a CBDC in key cities sometime in 2020.

The Fed is moving more slowly. But it might be motivated to act faster by reports that one of China’s motives in developing a CBDC is to replace the dollar as the world’s reserve currency.

The Divided Economy Continues

In April, the National Bureau of Economic Research (NBER) declared that the U.S. economy entered a recession in February.

The NBER hasn’t declared an end to the recession, but the economic downturn clearly isn’t universal. As indicated by the data I discuss each week, the manufacturing sector has been recovering, with surveys from the regional Federal Reserve banks, the Institute for Supply Management (ISM) and the Purchasing Managers’ Index (PMI) all showing that the manufacturing sector is expanding.

In many of these reports, there was a strong bounce in August. The published comments from participants in the latest ISM manufacturing survey were particularly optimistic.

Yet, manufacturing is less than 20% of the economy in good times. The service sector accounts for much more of the economy, and large portions of it continue to suffer. You’ve seen the reports about businesses closing and employees being laid off in retail, hospitality, airlines, restaurants and other service industries.

That’s why some observers now are saying the economic recovery is best described as “K-shaped” instead of the “V-” or “U-” shapes that previously dominated discussions.

Almost the entire economy dropped sharply at the start of the recession. But some sectors recovered quickly as the economy reopened. Those sectors are represented by the upward arm of the “K”. The rest of the economy hasn’t recovered and is represented by the downward arm.

That’s why you can’t be bullish or bearish on the economy or stock market as a whole. You have to separate the surging sectors and companies from those that are continuing to languish.

The big issue over the next couple of months is whether the drag from the lagging sectors is strong enough to pull down the rest of the economy before Congress enacts new stimulus or a vaccine is developed.

The Data

New unemployment claims declined to 881,000 last week. That’s down about 130,000 from 1.011 million claims the previous week (which was revised higher by 5,000 in this week’s report). That brings the number of claims below one million again after two weeks above that benchmark.

The number of continuing claims declined by 1.24 million to 13.254 million. Both numbers are the lowest since the pandemic began.

But the number of applicants to the Pandemic Unemployment Assistance Program claims rose by 151,674 to 759,482. This program provides unemployment benefits to those who normally don’t qualify for unemployment assistance, such as the self-employed.

Personal income increased in July after declining for two months. Income rose 0.4% in July after sliding 1% in June. Remember that the extra unemployment benefits expired at the end of July, which will be reflected in the August number

Personal consumption expenditures increased 1.9% in July, compared to a 6.2% increase in June. That’s the third straight monthly increase despite the recession and high unemployment.

Factory orders increased 6.4% in July. That’s the third consecutive monthly increase. June’s boost was revised higher to 6.4% from 6.2%.

The ISM Manufacturing Index indicates the sector continued to expand in August. The index was 56.0 for August, compared to 54.2 in July.

The PMI Manufacturing Index was 53.1 for August, compared to 50.9 in July.

The Kansas City Fed Manufacturing Index increased to 14 in August from 3 in July.

Texas manufacturing activity expanded in August for the third consecutive month, according to the Dallas Fed Manufacturing Survey. The General Business Activity Index was 8.0, the first positive month after five months of negative readings. The Production Index was 13.1 in August. That’s down from 16.1 in July, but still indicates expansion.

The PCE Price Index increased 0.3% for July and is up 1.0% over 12 months. The core PCE Index, excluding food and energy, increased 1% for July and 1.3% over 12 months.

Consumer sentiment, as measured by the University of Michigan, was 74.1 at the end of August. That compares to 72.8 in the mid-August flash report and 72.5 for July.

The August reading is still near the pandemic low of 71.8 reported for April and a long way from the two-year high of 101 reported for February.

The Chicago Purchasing Manager’s Index was 51.2 for August, which isn’t much of a change from 51.9 in July.

The PMI Composite Flash Index shows the service sector improving as of mid-August. The services index improved to 55.0 from 50.0 at the end of July. The composite index composed of both manufacturing and services rose to 54.6 from 50.3.

But the ISM Services Index for August found a small reduction in the sector’s growth in August. The index was reported at 56.9, compared to 58.1 at the end of July. Both numbers indicate growth, but the August number indicates a slower growth rate than in July.

The ADP Employment Report continues to be volatile. The report estimated that 428,000 private sector jobs were added in August. But the July number was revised higher to 212,000 from 167,000. In recent months, the report has diverged significantly from economists’ expectations and from the government’s Employment Situation reports.

The Markets

The S&P 500 rose 2.91% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 2.74%. The Russell 2000 increased 2.74%. The All-Country World Index (excluding U.S. stocks) added 0.25%. Emerging market equities declined 0.35%.

Long-term treasuries rose 0.96% for the week. Investment-grade bonds increased 0.98%. Treasury Inflation-Protected Securities (TIPS) added 0.47%. High-yield bonds gained 0.45%.

In the currency arena, the U.S. dollar declined 0.24%.

Energy-based commodities lost 1.95%. Broader-based commodities rose 1.10%, while gold declined 0.32%.

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 Seriesclick here.

A recent five-star review of my book on 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 author’s page.

I’m a senior contributor to the blog. You can view my contributor page here.



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