Fun Fact: The Unemployment Rate is Really 16.3%, Not the Widely Reported 13.3%.
Due to unemployed workers being falsely classified as employed by survey takers, the actual unemployment rate in May was approximately 16.3%, with 25.7 million unemployed (not 21 million unemployed, at 13.3%). The incorrect data was cited at the top of the Bureau of Labor Statistics news release, but was corrected at the bottom of the same news release in the fine print. The agency wrote that they didn’t correct the data because: “to maintain data integrity, no ad hoc actions are taken to reclassify survey responses.” Huh? (Click to read the press release for yourself. Just scroll to the bottom.)
In fairness, there was an increase in employment in May, though many (40%) of the jobs were part-time, and thus lower-pay. (How many people do you know who are filling up shopping carts at grocery stores for stay-at-home customers?) The same false-classification issue was at play in the April 2020 report, which also wasn’t corrected. The April Employment Situation press release stated that 23.1 million Americans were unemployed, for an unemployment rate of 14.7%. In the fine print, the agency admitted that the rate of unemployment should be almost 5% higher – for approximately 19.5%, and over 30 million Americans, unemployed.
Hopefully, statisticians and economists make the necessary corrections for the history books. However, when investors act upon false information it can be a very costly mistake. (Imagine trying to sue the BLS for misleading you into buying high.)
So, what other important details are you missing in the headlines, by not reading the fine print?
Ten Dollar Avocados. And Other Wall Street Shopping and Cooking Secrets.
See below for 11 money traps to be aware of and avoid.
The Smart Money Always Moves 1st
The Cramer & Motley Fool Affect
We Are in a Recession
That Unemployment Surprise on June 5, 2020
Financial Engineering is not Real Growth
Buybacks and Dividends
EPS: Massive Misses
Junk Bond Issuance
Airlines: Prepare for Massive Layoffs on October 1, 2020
And here is a little more information on each point.
$10 Avocados. Stocks are trading at very high multiples. It’s like buying an avocado for $10/each. Price matters. As Warren Buffett noted in his CNBC interview of February 25, 2020, stocks are bonds can be good buys or bad buys. “It depends on the price,” he said. Learn more in my blog and video conference interview with the Senior Index Analyst of the S&P500 ® Howard Silverblatt, and in my GDP Report of April 29, 2020.
The Smart Money Always Moves 1st. The markets dropped 35% between February 19th and March 23rd of this year – before most Main Street investors knew what was really going on. In the meantime, interest rates were slashed to zero and the liquidity for money market funds, mortgage-backed securities, Treasury Bills and even the U.S. dollar had dried up. In March, the Federal Reserve Board stepped in with trillions in relief. So, if you’re getting an email to act now or miss out, whether it is from your “financial advisor” or a hot tip from a friend, be careful. Stocks are trading high. These tips are typically agenda-related more than data-informed. Learn more in my blog, “It’s Never a Crash.”
Marketing Nooses. Whether it is the BLS hiding the real data in the fine print, or your bank or insurance company doing the same with regard to the risk of your bond, money market, annuity or other bank/insurance product, beware of sales-speak that lures you into a seemingly safe or income-producing products. When interest rates are at zero, banks and insurance companies have a difficult time earning. We wouldn’t even have banks and insurance companies if most hadn’t been bailed out in 2008. Learn more in my blogs on FDIC-insured cash, bonds, REITs and money market funds.
The Cramer & Motley Fool Affect. If you wait for the headlines, it’s always too late. You want to be picking your winners before Cramer or Motley Fool does. That way, you ride the tide up and can sell high, rather than buying high and watching in horror when the knife-like drop slashes your investment. In my Artificial Intelligence blog, I mentioned “one AI company, which is trading near its 52-week low, that is partnered with Microsoft on face recognition.” Attendees of the February 7, 2020 Stock Master Class and all of the retreats since then (there have been four) have watched Veritone’s share price soar from $2/share to $14/share. Learning how to pick stocks with a Stock Report Card is much easier and far more rewarding than chasing headlines. Join me at my June 13-15, 2020 Investor Educational Retreat to learn how. Call 310-430-2397 now with your questions and to register.
We Are in a Recession. A recession doesn’t become official until two quarters of sequential contraction occur. The 1st quarter of 2020 had a contraction of 5%. The 2nd quarter of 2020 is predicted to drop another 12% sequentially and perhaps as low as 40% year-over-year. The 2nd quarter 2020 GDP announcement occurs on July 30, 2020 and is finalized on September 30, 2020. Learn more in my blogs, “The Recession Will be Announced on July 30, 2020” and “We Are in a Recession.”
That Unemployment Surprise on June 5, 2020. One of the most astonishing examples of lies, damn lies and statistics turned out to be the most recent unemployment report that was misquoted all over the news, with few orgs bothering to read the fine print and correct their reporting. See the first paragraphs of this blog above for details.
Financial Engineering. Corporate share repurchases increase the earnings per share and decrease the price to earnings ratio – something that investors like, but bondholders and investment banks are not fond of. Financial engineering is not real growth. At the end of the day, sales and income predict how well a company is doing. The 2nd quarter of 2020 is predicted to hit historic lows on both accounts. Learn more in my blogs, “The Recession Will Be Announced on July 30th” and “Financial Engineering.”
Buybacks and Dividends. Companies set another buyback and dividend record in the 1st quarter of 2020, at $198 billion and $127 billion, respectively. However, many companies and most of the mega-banks have suspended their buybacks. 42 S&P500 companies have also suspended their dividends, with another 19 cutting the dividend. Many corporations that have borrowed Federal money, such as airlines and auto manufacturers, have agreed that the cash will not go toward share repurchases, dividends or executive bonuses. Without the support of corporate buybacks, and with dividend stocks not providing ample income to investors, can the stock market continue to trade near its all-time high, at prices that Howard Silverblatt says are a nose-bleed? Learn why May/June is a good time for rebalancing in my blog.
EPS vs. Recession. The average earnings per share for the 1st quarter of 2020 in the S&P500 was predicted by Wall Street analysts to be $34.33/share. The S&P Dow Jones Indices gave a more modest prediction of $20/share. The actual earnings were $12.56/share – for a massive miss on both predictions. That kind of earnings miss is rare, and is directly correlated to difficult times. The 2nd quarter could easily be far worse, as the Street is predicting $23.58/share, with the S&P Dow Jones Indices agreeing at $23.66/share. Economists forecast that the 2nd quarter 2020 GDP will likely be a -12% contraction over 1Q 2020, and could be as high as -40% year-over-year. If that is the case, that could easily put earnings per share closer to $11/share.
EPS forecasts and reported earnings typically stay pretty close together, except in recessions, when they can diverge dramatically. By example, the 4th quarter of 2008 offered the only negative earnings quarter in S&P500 ® index history, per Howard Silverblatt. Wall Street analysts had predicted $7.35/share earnings, with the S&P Dow Jones Indices believing the contraction would be limited to -$0.09/share. The results were -$23.25/share. The 2nd and 3rd quarters of 2008 were also big misses. The same trend held true in the Dot Com Recession. The first big miss was in the 4th quarter of 2000, when EPS dropped from $13.71/share to $9.07/share, sequentially. The 2nd, 3rd and 4th quarters of 2001 and 2002 were all big earnings misses, as well. As you can see in the charts below, when earnings implode, Wall Street plunges.
Junk Bond Issuance. The Federal Reserve Board offered emergency liquidity to bonds, money market funds, mortgage-backed securities and even Treasury Bills in March 2020. However, many of these programs are set to expire on September 30, 2020, unless they are renewed. With over 50% of S&P500 companies at the lowest rung above junk bond status (or already downgraded to speculative status), there’s a lot of risk in bonds, with very little reward for taking on that risk. In addition to capital loss, you also risk that your bond becomes illiquid. Learn more in my Bond blog.
Airlines: Prepare for Massive Layoffs on October 1, 2020. The CARES Act provides payroll support to over 750,000 airline personnel through September 30, 2020, according to a statement from Airlines for America President and CEO Nicholas E. Calio. However, with passenger travel down 97%, to levels not seen since 1954, and with 2,400 parked aircraft and burning through $10-12 billion a month, what happens to the airline industry on October 1, 2020? Travel bans around the world are further complicated by the new trend of Working from Home. Learn more in my blog.
This may seem like a lot to keep track of. However, if you have an easy system that protects you from losses and allows you upside in bull markets, then all you have to do is rebalance annually, for a buy low, sell high system on auto-pilot. With a time-proven plan, you can actually take a vacation from having to mainline financial news, which is always late and many times can be misleading. The plan itself protects you best. Just like a well-designed home protects you from storms (so that you don’t have to listen to the weather channel 24/7), a well-designed financial home protects your money and wealth from the financial storms on the horizon. Wisdom is the cure. The time is now. Join me next weekend, June 13-15, 2020, for a 3-day Financial Empowerment Retreat that will change your life and relationship with money forever.
If you don’t know what you own, or how protected your wealth and retirement are, the retreat or an unbiased 2nd opinion can offer you the information and wisdom you need now. Call 310-430-2397 or email info@NataliePace.com to learn more now.
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Other Blogs of Interest
It's Never a Crash.
Work From Home and Intergenerational Housing.
Biotech Races for a Coronavirus Cure.
Are You Worried About Money?
May is a Good Time for Rebalancing.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
Why Did my Bonds Lose Money?
Recession Proof Your Life. Free Videocon Monday, May 10, 2020.
The Recession will be Announced on July 30, 2020.
Apple Reports Terrible Earnings.
We Are in a Recession.
Unemployment, Rising Stocks. What's Going On?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
21st Century Solutions for Protecting Your Home, Nest Egg & Job.
Wall Street Insiders are Selling Like There is No Tomorrow.
Why Are My Bonds Losing Money?
Tomorrow is Going to be Another Tough Day.
Price Matters. Stock Prices are Still Too High.
Should You Ride Things Out?
7 Recession Indicators
Corona Virus Update.
The Bank Bail-in Plan on Your Dime.
NASDAQ is Up 6X.
CoronaVirus: Which Companies and Countries Will be Most Impacted.
Is Tesla Worth GM and Ford Combined.
Artificial Intelligence is on Fire. Is it Time to Buy S'More?
Take the Retirement Challenge.
2020 Investor IQ Test.
Answers to the 2020 Investor IQ Test.
The Cannabis Capital Crunch and Stock Meltdown.
Does Your Commute Pollute More Than Planes?
Are Health Care Costs Killing Your Budget?
2020 Crystal Ball.
The Benefits of Living Green. Featuring H.R.H. The Prince of Wales' Twin Eco Communities.
What Love, Time and Charity Have to do with our Commonwealth. Interview with MacArthur Genius Award Winner Kevin Murphy.
Unicorns Yesterday. Fairy Tales Today. IPO Losses Top $100 Billion.
Counting Blessings on Thanksgiving.
Real Estate Prices Decline.
Hong Kong Slides into a Recession. China Slows.
They Trusted Him. Now He Doesn't Return Phone Calls.
Beyond Meat's Shares Dive 67% in 2 Months.
Will There be a Santa Rally? It's Up to Apple.
Will JP Morgan Implode on Fairy Tales and Unicorns.
Harness Your Emotions for Successful Investing.
What the Ford Downgrade Means for Main Street.
The Dow Dropped Over 1000 Points
Do We Talk Ourselves into Recessions? Interview with Nobel Prize Winning Economist Robert J. Shiller.
Ford is Downgraded to Junk.
From Buried Alive in Bill to Buying Your Own Island.
The Manufacturing Recession. An Interview with Liz Ann Sonders.
Gold Mining ETFs Have Doubled.
The Gold Bull Market Has Begun.
The We Work IPO.
The Highs and Hangovers of Investing in Cannabis.
Recession Proof Your Life.
China Takes a Bite Out of Apple Sales.
Will the Dow Hit 30,000? A Check Up on the Economy
Red Flags in the Boeing 2Q 2019 Earnings Report
The Weakening Economy.
Think Capture Gains, Not Stop Losses.
Buy and Hold Works. Right?
Wall Street Secrets Your Broker Isn't Telling You.
Unaffordability: The Unspoken Housing Crisis in America.
Are You Being Pressured to Buy a Home or Stocks?
What's Your Exit Strategy?
It's Time To Do Your Annual Rebalancing.
Cannabis Crashes. Should You Get High Again?
Are You Suffering From Buy High, Sell Low Mentality?
Financial Engineering is Not Real Growth.
The Zoom IPO.
10 Rally Killers. Fix the Roof While the Sun is Shining.
Uber vs. Lyft. Which IPO Will Drive Returns?
Boeing Cuts 737 Production by 20%.
Earth Gratitude This Earth Day.
Real Estate is Back to an All-Time High.
The Lyft IPO Hits Wall Street. Should you take a ride?
Cannabis Doubles. Did you miss the party?
12 Investing Mistakes
Drowning in Debt? Get Solutions.
CBD Oil for Sale.
The High Cost of Free Advice.
Apple's Real Problem in China: Huawei.
2018 is the Worst December Since the Great Depression.
Will the Feds Raise Interest Rates? Should They? Learn what you're not being told in the MSM.
Why FANG, Banks and Your Value Funds Are in Trouble.
Russia Dumps Treasuries and Buys Gold
OPEC and Russia Cut Oil Production.
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.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. 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.