Record Consumer Wealth Ready For Pandemic Free 2021

Human nature is captivated by negative emotions more than positive. Perhaps it’s related to our innate flight or fight protective DNA that causes the media to sell disconcerting stories rather than the favorable news. In the financial world, we hear of scary individual debt liability levels hitting new records almost every year without considering asset values. The media warns us every year about future inflation and debt costs rising, yet personal savings are at record levels, borrowing rates have been falling for 4 decades and debt service obligations are the lowest on record. Current conditions are conducive for home buying and personal consumption as long as unemployment is falling and a COVID-free economy reopens in 2021.

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For 2020 and 2021 consumer spending and optimism are tightly connected to the fear of the COVID pandemic and the level of fiscal and monetary stimulus being applied to compensate for a demand shortfall until a full economic recovery can be realized. Normally when unemployment soars above 10% during a major economic contraction, incomes crater and consumer default rates surge. Thanks to trillions in handouts and record low-interest rates, individual car, and mortgage defaults actually fell to record lows during the COVID contraction, which is more indicative of a record expansion phase in the economy. Terminating Federal stimulus in the 2nd half of 2020, well before a vaccine allows the economy to open, is risky, but for now, the consumer is in good shape. 

The devastating Covid-19 shutdown of the economy in March of this year created the sharpest one-quarter decline of household wealth in history. Yet very little media attention has been focused on the sharpest rebound of wealth in history during Q2, due to federal stimulus. Not only are personal assets hitting new records, but personal savings are $2 Trillion above normal, waiting to be spent when the economy opens. We should expect a sharp continuation of this above trend wealth creation during Q3 before slowing towards trendline growth by the end of 2021.

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Disclaimer: This report may contain information on investments that are high risk and have substantial risk of principal loss. It is for informational purposes only. Statements in this communication ...

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