Apple reports earnings this Thursday, April 30, 2020 at 2 PM Pacific. It’s expected to be a pretty dismal earnings report. Apple was one of the first retail stores to close down in the U.S. (on March 13, 2020). Since their phones and products are made in China, they were also one of the first to be affected with supply chain disruptions at the Foxconn factory closures. We first reported on this on February 14, 2020, when the Apple share price was still trading at $325/share. On February 17, 2020, Apple warned that they would miss their previous revenue guidance for the quarter ending March 31, 2020.
As early as February 27, 2020, there were signs that the worldwide economy was entering a recession. The only question was how deep, long and pronounced it would be… We offered four warnings about the bad advice that was circulating, alongside 6 ways to protect your wealth and income, and realign your budget. I’m highlighting this because if you wait for the headlines, it’s too late to protect your wealth. Since the February 19, 2020 stock market highs, the Dow Jones Industrial Average has lost as much as 35%. There are typically a series of unfortunate events, over a 12-24 month period, during a correction. Plateaus and mini-rallies in between the knife-like drops are common, even when the general trend is down.
So, Wall Street is expecting a pretty bad earnings report from Apple on Thursday, after the markets close. On Wednesday morning at 5:30 am PT, there will be bad news as well, when the 1st quarter 2020 earnings report – a contraction – will be announced. Not surprisingly, the Dow Futures today (Sunday) are slightly down. The informed insiders typically start their move before the general announcement.
Everyone’s eyes will be on the Apple buyback and dividend announcements. Many companies have announced suspensions of one or both in their earnings calls this quarter. Since Apple has had the most aggressive share repurchase plan on Wall Street by far – at $81.7 billion in 2019 – a cutback or suspension of their buyback plan will not be welcome news. Over the past few years, Apple’s share repurchase plan has helped the entire stock market rise. As Liz Ann Sonders, the chief investment strategies at Charles Schwab Inc., advised us in an interview last August 2019, “How have we had a 10-year bull market? It’s not been hedge funds, pension funds, foundations and endowments or individual investors. Corporations have bought back stock.” Apple has topped the list of corporate buybacks, with the nearest competitors (lots of banks) repurchasing about one-quarter of Apple’s.
What Does All of This Mean for You?
The world has changed. Once the Stay at Home orders are phased out, there will not be a return to the way things were a few months ago. There is far too much unemployment. Consumer spending can’t return to normal. Many industries, including airlines, oil and gas, hospitality, retail and travel, are also in a crisis. Both sides of the aisle are going to try to politicize the situation. But it’s important for you to know the facts.
The economy was very overleveraged before this crisis. There were liquidity issues well before the pandemic, as well. The first behind-the-scenes banking rescue happened last September 2019. Ford bonds were downgraded to junk by Moody’s on September 9, 2019. Nobel Prize winning economist Robert Shiller has been warning that stocks were in a bubble since 2018, as has Alan Greenspan. Warren Buffett said that bonds should come with a warning label in 2018. Over half of corporate bonds have been at the lowest rung, just above junk bond status, for well over a year. Muni bonds were even more leveraged.
Prior to the current crisis, insiders knew we were at the late stage of the business cycle, which is Wall Street jargon for, “We are close to a recession.” But that’s not the entire story. As you can see in the chart below, real estate and stock asset bubbles had formed and were more bubblicious than they were before the Great Recession. Consumer debt was also higher than before the Great Recession. Debt was astronomical.
Stocks lost more than half in the Great Recession. The real estate contraction was nationwide, with over 10 million homes in distress. There are still 3.5 million homes that are underwater, even now, with home prices near all-time highs.
Low Interest Rates Create Asset Bubbles.
Leverage has been an area of concern for the past few years. Legacy corporations were borrowing from the bond market to buy back their own stock and pay dividends (benefitting the insiders), while allowing their credit rating to fall to the lowest rung of investment grade. There was really no incentive to keep a higher credit score when even the lowest investment rating was still borrowing at 5%. Unicorns like Uber, Lyft, Snap Inc. and The We Co. swam in easy capital from the venture capital pool to fund their growth, even with massive losses.
These two groups were flying dangerously close to the trees. The bond market continued to fund high leverage because their investors wanted some yield. (Never reach for yield.) The venture capital market began asking for a “clear path to profitability.” Unicorns were congregated in small-cap growth, while the debt-laden legacy companies took up shop in the large-cap value funds.
We Are in a Recession
We are in a recession. That will not be officially declared until July 29, 2020, when the advance report of 2nd quarter 2020 GDP is announced. It will be a severe contraction – up to 40% year over year and -12% lower than the 1st quarter 2020, according to Fitch Ratings and the Congressional Budget Office. The economy is predicted to contract -5.6% for the full year 2020.
What is Your Best Strategy?
It’s never market timing. Selling everything you’ve got is not a good strategy, particularly in today’s world when bonds and money market funds are vulnerable to capital loss. However, overweighting safe and acting your age is. If you have wealth to protect, then you must know what you own now. Do not rely upon your financial advisor to do this for you, particularly if s/he has advised you to ride it out, or buy on the bounce, or if you lost more than 25% in the Great Recession. Call our offices at 310-430-2397 for an unbiased 2nd opinion. Once you know what you own, and how much at risk or how safe your assets are, you can determine how best to proceed – with an easy to follow action plan.
There is a simple time-proven strategy that can protect your wealth and position you best in a post-pandemic world. Beware of trusting politicians, bankers, and even the chief economist of your particular trade association. Everyone has an agenda, and even more so these days. If you would like to join us at our Financial Empowerment Retreat this weekend, where you will learn how to protect your wealth, position yourself best going forward and even learn how to save thousands annually with smarter big-ticket choices, call 310-430-2397 or email info@NataliePace.com. You can get additional information on the flyer at the homepage at nataliepace.com.
Join our free Natalie Pace Live Video Conference this Thursday at 5 pm PT. Email info @ NataliePace.com with VIDEOCON in the subject line to receive the log-in instructions. Watch the video back at Natalie Pace’s YouTube channel.
Stay safe. Be well. I look forward to seeing you this weekend.
What’s my agenda? It is simply to add a splash of green to Wall Street and to transform lives on main street. It’s something I’ve been doing since 1999. I love my job. If you’d like to read testimonials from some of the hundreds of thousands of people who transform their lives using the strategies please email email@example.com or call 310-430-2397.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.