“It Was the Best of Times, It Was the Worst of Times, It Was the Age of Wisdom, It Was the Age of Foolishness, It Was the Epoch of Belief, It Was the Epoch of Incredulity, …” – Charles Dickens, A Tale of Two Cities

Hopefully, Charles Dickens will forgive my use above of his famous quote from A Tale of Two Cities, although written in 1859 it seems to readily apply to today’s feeling in the U.S. As we move quickly into the, supposedly, “merry” holiday season, I began wondering why so many people have such a bad attitude nowadays. We have so much to be thankful for this year, even with all its problems and concerns. In my opinion, the list of things that are just great far exceed the things that are just bad. However, for reasons unclear to me, the public seems to have such a bad attitude about virtually everything. You have to think that from a stock market perspective, this lack of optimism is a true indicator of better things to come. 

I decided to write this blog and try to remind you of all the good things that are going on, as compared to the bad. I sat down and made a list of the things I could quickly think of as positives and the negatives hardly create even a list. This has been nothing short of a fabulous investment year, yet all we hear about are the negatives in the media about things for which we had no control. So, I decided since no one else will do it, I will give you the list of positives I see in the current economy. 

Dakota and Ava looking at a wonderful Christmas light display

Additionally, I visited the Pro Football Hall of Fame in Canton, Ohio recently and I thought I would share my thoughts on that famous building. Also, just to point out, much of the memorabilia we have here in our office is sports related, but we have other pieces that I think you would find of interest as well. I could not write about all of these things without also commenting on the progress with COVID-19 and the incredible successes made by the government in trying to control this terrible virus. I know it is a lot to cover in four short pages, but I thought I would at least give it a try. Always seems like plenty to discuss. 

Before I jump into those more interesting topics, I must reflect upon what was just a fabulous investment period during the month of November. I wish I could even quantify the number of clients that told me they did not want to be invested during the election month. I tried to explain that regardless of who wins the election, economics would win, and the economy was strong and getting stronger, and the earnings were high and getting higher. This almost assuredly would outweigh the political influence of who wins the election. The results for November soundly supported my conclusion and led to record gains in the month of November. 

The Standard & Poor’s Index of 500 stocks was up 10.9% during the month of November. Year-to-date in 2020, it is up double digits at 14%. The increase in this index is 17.5% for one year and, on average, 14.2% over the 10-year period. The Dow Jones Industrial Average was up 12.1% in November and is up 6.1% for the year 2020. The increase for this index is 8.1% for one year and 13.5% for the 10-year average. The NASDAQ Composite was up 11.9% for the month of November and up a sterling 37.1% for the year 2020. The one-year total return is 42.1% and the 10-year average is 18.5%. 

Just for purposes of comparison, the Bloomberg Barclays Aggregate Bond Index was up 1.1% in November, up 7.8% in the year 2020, the one-year total return is 7.4% and the 10-year average return in the bond index is 3.7%. As you can see, any three of the major market indexes is three to four times higher than the bond index over the last 10-year period. Even as I dictate these returns, I think it is important that you realize that the year 2020 has been a stock-pickers paradise. Even though the S&P 500 Index is up double digits through November, virtually all the best managed mutual funds are up two to three times higher than the S&P 500 Index. It is years like this where highly qualified stock-pickers can vastly beat the index returns. This year virtually all well-run mutual funds with qualified managers have returns far in excess of the indexes noted above. 

I thought I would just make a list of all the things that are going well in 2020 as you may not get this information anywhere but here. We have enjoyed a fabulous stock market in 2020, which has turned out to be one of the best total return markets of all time. The United States led the world in developing a vaccine for COVID-19 in a period of a little over six months and now this vaccine is rolling out in the United Kingdom and the U.S. beginning this week. Not only was this vaccine developed in record time and with a new and novel approach, but its efficiency level is also at a historic high, believed to be greater than 95%. I will comment further on the current state of the virus later in these writings. 

Corporate earnings have recovered and for the third quarter of 2020, were actually higher than they were in the third quarter of 2019. Who would have thought, given the depth of the recession that we suffered due to governmental shutdowns, corporate earnings would recover and even be higher than the previous year? We have record low interest rates, fueling a huge increase in home values and making refinancing available to everyone. Not only are interest rates low, but the Federal Reserve has promised to keep interest rates low for another 2-4 years. 

A beautiful Florida sunset

We have an inept Congress that is split totally on an ideological basis, which can be nothing but good for investors. The less Congress does, the better it will be for investing. If it were not for a split Congress, the newly elected administration most assuredly would try to increase tax rates, making profits lower and, by definition, the stock market would be less robust. We are thankful to have the inept and mixed Congress, so as they are not likely to do that much harm. 

We have a great economy in the U.S. that has rebounded completely from a recession back to a booming economy. Corporate profits are increasing, and entrepreneurs are able to issue stock on new and exciting ideas at record prices. As the stock market goes up, citizen’s 401(k)s are increased, increasing the likelihood of strong retirement years. GDP for all of 2021 is forecasted at 4.2%, excellent. 

In just a few short years we have seen the conversion from internal combustion engines to electric cars. Even a decade ago, it was a wild dream to think that someone could produce an electric car that was efficient and have a daily mileage limit that would be useful. These cars now exist, and every major car manufacturer is falling over themselves to produce them. As more electric cars are on the road, we solve one of the great problems of America; air quality and the very destructive production of fossil fuels to create gasoline for automobiles. You do not have to look too far in the future to see that electric vehicles will be prominent in the decades to come. Notwithstanding their inability to do anything useful, there is a high likelihood that Congress will pass an additional stimulus bill which will help many small businesses get back on their feet and open for business. 

If you go back and read the blogs I wrote in March and April of 2020, I implored you to avoid all the headlines and, as is often quoted from Jerry Maguire, “Show me the money”. Since I have studied basic economics all my life, the one thing that we absolutely know for sure is that if you inject cash into the economy, eventually that cash will show up as commerce that will eventually find its way to investing. During March and April of 2020, the Federal Reserve, along with the CARES Act and its buying bond program, ejected roughly $3 trillion into the U.S. economy. If you understand the velocity of money, which argues that money is spent seven times before it is saved, that would imply an injection of capital of $21 trillion over a 90 day period. Just to put that into perspective, that amount of GDP is greater than the annual GDP of China, which is the second largest GDP country in the world. 

Treasure Island, FL, a view that never gets old

I argued at that time that there is no way that $21 trillion worth of stimulus would not create a better economy. Almost immediately we saw businesses employing people and retail opening to the public. As the economy strengthened due to the governmental money the stock market came roaring back and recently the Dow has passed the 30,000 level and all major market indexes have hit all time highs early in December 2020. You might ask how I felt so confident about that turn around. It has nothing to do with politics, but it has everything to do with money. If you put money in the economy, people will spend it to create commerce and eventually they will save it to create higher stock prices. It is estimated still that there is $4 trillion in cash sitting on the sidelines waiting to be invested. If you knew no other number other than that one fact, you have to feel good about the stock market going forward. 

I am often asked what my projections for the future are regarding the market and what would be the driving forces of the market’s advances. It is pretty simple to look up the expected earnings of the S&P 500 stocks. It is estimated that the earnings for 2020 will be $156/share. In 2021, that number is supposed to be $182/share, a 16% increase and in 2022, $200/share for another 10% increase. A couple of those excellent numbers, with the pledge of the Federal Reserve not to increase interest rates for the next two years, and you can see that the potential gains on the market could be substantial over the coming two years. Given that interest-sensitive investments (bonds and CDs) at the current time appear to be a loss leader, higher interest rates will not draw money out of the stock market, but rather low interest rates will force money into it. Given that scenario, it is highly likely that stock prices will continue to go up over the next two years. 

So, while we sit around for all of 2020 feeling sorry for ourselves and bemoaning the fact that we cannot go on vacation, eat in restaurants, or go to movie theaters, what has happened to the net worth of Americans? Due to the strong effects of the stock market and the housing market, the effects have been electric for household wealth. During the 3rd quarter of 2020, household wealth went up by a cool $3.8 trillion. If you say it did not happen to you, you just have not thought about it recently. With the strong gains in the stock market, your 401(k) went up significantly and the value of your house increased due to the strong housing market. 

It is now estimated that the net worth of the households in the United States is $123.52 trillion, as estimated by the Federal Reserve last week. Roll that number around in your mind awhile and realize we are talking about trillions of dollars that is spread through the 338 million residents of the United States. It is estimated that residential real estate went up by a cool $30 billion in the latest quarter alone, and that over the course of this year in 2020 due to the abnormally low interest rates and strong housing market, the net equity in real estate by all Americans will have gone up by $1 trillion by the end of the year. So, I guess it could be said that while you were sitting around feeling sorry for yourself in 2020, your net worth went up substantially without you working too hard to increase it. Are you starting to feel wealthier now? 

Carter and Ava enjoying a day at the park

I really get irritated sometimes when I read the talking points about how the stock market only affects the wealthy and not the average American. It is now estimated that over 100 million Americans save in a 401(k) plan. Back in 1990, that number was 19 million, so it has gone up five times over the intervening 30 years. In addition to 401(k) plans, there are many savers in IRAs, 403(b)s and 529 college savings plans. Before, it could be said that roughly one out of every three Americans have a direct link to the stock market and the success of the stock market but I see this changing in kids coming out of college today. They all understand the value of saving early and often, unlike their parents who waited until later in life. Considering a large portion of the population are minors, if you broke it down into households, it is more likely one out of every two households were directly invested in one of these investment vehicles, which would be their primary form of income once they reach retirement age. When President Trump took office on election day in 2016, the S&P 500 stood at 2140. Right before the market plunged due to the coronavirus shutdown, the market had increased close to 60% during the intervening three and a half years. As I write this, the S&P 500 is at 3700, a 73% increase. 

Think about the wealth that was created during this time period due to the increase in the stock market valuations. Also understand that this increase will lead directly to better retirement years for senior citizens and a better way of life for Americans in retirement. Those that argue that stock markets are only related to the rich clearly do not understand the broad appeal of 401(k) plans today. Any plan to increase taxes to the detriment of stock prices would have a detrimental effect on 50% of Americans and clearly would have a detrimental effect on their potential retirement. 

You cannot help but read the articles everyday regarding the current impact that COVID-19 is having on Americans. Of course, I am a skeptic of these articles because I really cannot understand what their motivation is. For instance, as of today, there are 16.5 million cases of coronavirus in the United States, according to the famous website on the subject. How exactly does the fact that 16 million cases, many occurring back in March, April, and May, provide us any additional information now that these people are well. What is a more important consideration is how many active cases are there today and where we stand in connection with protecting the public’s health. Based on this website, there are roughly 6.6 million active coronavirus cases today. You have to keep in perspective that that is only 2% of the population in the United States. Therefore, if you had a room with 100 people, only two of those 100 people, on average, are likely to be infected. 

Pro Football Hall of Fame in Canton, Ohio

What we also know now is that the governmental actions to limit the spread of the virus were totally ineffective. I look back over this time period and wonder exactly what someone could have done to help the matter. I hear so many outspoken critics say that the U.S. completely mishandled the virus to the detriment of Americans. I do not hear any of these critics saying what they would do differently. It seems to be a common trend that these critics argue that the only way to snuff out the virus would have been to have a complete and total shutdown of the U.S. for a prolonged period until the virus was gone. Economically, that is complete and total nonsense. 

Economically, you could never have shut down the American economy for that period without severe economic consequences. And it does not appear to have even worked anyway. If you look at California and New York, which suffered through very long government-enforced shutdowns, it really has not helped their situation. California has banned indoor dining, sporting events, theme parks, or any type of public gathering however, their number of virus cases continue to grow at the highest level of any state in the United States. New York once again has shut down indoor dining, creating devastating effects on millions of hospitality workers, yet their virus numbers continue to grow. How well did that work? 

So, if we agree that shutdowns are ineffective, what exactly could we have done to stop the virus in America? It seems to me that what we did was exactly the right thing. We used the government’s money to fund the creation of a vaccine in record time in order to vaccinate the public. When I was growing up, we used to have what was termed “polio days.” We would have an outbreak of polio in the community and people would stay home from school to avoid polio. Vaccinations have eliminated polio in the United States. Vaccinations are the answer for many diseases such as the elimination of smallpox, chickenpox and the measles as well. 

The issue was how do we get vaccinations to the public as quick as possible, and the government did an excellent job in providing the money necessary to make that happen. What went wrong in this process is that local governmental officials thinking they knew more about public health than they obviously did and forced absolutely crazy rules on businesses, creating economic strife for families and industries. In retrospect, I doubt very seriously that the results of this virus would have been much different if we had not shut down at all. 

A concert ticket, song list and book of 

The Beatles from their show in Atlanta

I hear people all the time saying, “let’s follow the scientists and determine what they say.” If we had followed the scientists that forecasted over two million deaths in America, think about how bad of economic consequences we would have today. It is true today after almost nine months of the coronavirus that if you are under the age of 40, you have a statistical zero chance of dying from this virus. Yet, to this day we still have shut down our colleges and public school systems to accommodate a fear of death that absolutely does not exist. I am not arguing that this is not a terrible disease that many people have died from. All I argue is that it was such an unknown that I really doubt anyone could have done any better to prevent the consequences that we see today. But with the hope of vaccinations, we will lead to normalcy by spring. 

I happened to be in Cleveland, Ohio recently and decided to go by the Pro Football Hall of Fame in Canton, Ohio. I guess I have heard about the Hall of Fame my entire life and I have never been in the area or never wanted to make a special trip to see it. First off, Canton is pretty much out of the way and the area where the Hall of Fame sits is not a booming economic metropolis. After paying my $25 to get in, I walked through the exhibits for several hours. What I found was that, for the most part, their idea of “exhibits” was jerseys of famous players during their eras. I think I have more signed jerseys in my office than they do in the Hall of Fame. 

For the most part, these jerseys that are on exhibit at the Hall of Fame can be purchased from virtually any source. They do not even have a Joe Namath signed picture, but I do, several in fact. Sometime when you are in the area, maybe you could take a tour of our offices. We have other pieces other than sports memorabilia. In 1965, The Beatles actually played in Atlanta at the old Fulton County stadium. They played 11 songs that night and were on the stage for 21 total minutes. I actually have the program from that concert, the original ticket from the concert, and the playlist posted in my office. You could have bought that ticket to see that concert in 1965 for $5.50. See above. 

The Beatles right after their famous Pan Am flight

In 1963, The Beatles came to the United States for the first time. Their famous landing at LaGuardia Airport on a Pan Am flight was legendary. One of my clients was the original beat reporter for Life Magazine on the tour of The Beatles when they first toured the United States in 1963. I have a picture posted in my office that was in the original Life Magazine of The Beatles in the Pan Am plane that was taken by her. I also have the trademark of Life Magazine that indicated the picture belonged to them. We have many other interesting memorabilia pieces that you are welcome to view on your next visit, including a picture of the Enola Gay signed by the captain, Paul Tibbets. 

In summary, as bad as 2020 has been for all the reasons above, it has been a quite spectacular year financially. Virtually all Americans have increased their net worth, even with the hardships imposed upon them by ill-informed governments. I am very excited about 2021 and 2022 economically. If we can avoid governmental intervention and an ill-informed Congress, there is a high likelihood that we will set additional stock market records in both 2021 and 2022. You will not set any records sitting in cash.   

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,

Joe Rollins 

“Don’t Gamble; Take All Your Savings and Buy Some Good Stock and Hold It Till It Goes Up, Then Sell It. If It Don’t Go Up, Don’t Buy It.” – Will Rogers

You may have noticed that I took a couple months off from writing my monthly blog.  During the highly debated election season, I opted to just take some time off rather than create any unrest due to the friction of the election process.   Now that it is over and we are ready to move forward, I can get back to discussing some of the things that I find of interest without any political overtones. 

In this blog I want to reemphasize again the strength of the American economy which I have been discussing all year.  Contrary to what you hear in the media, the economy is strong and is getting stronger.  No question about it, there are weak spots and there will continue to be weak spots for months to come.   But clearly, there is light at the end of the tunnel, and it is time to position our portfolios for bigger and better gains.

Ava, Age 9, as a magician 

for Halloween this year

I also would like to discuss some of the impressions I have regarding the change in the environment of investing over the last decade.  Things have shifted so quickly the past ten years it is hard to believe that some of the companies that were once leaders are now laggers.  I will try to cover some of those events for you.  

Much has been said regarding the economy due to the election and what would happen if we had a “blue wave” in the Presidential election.  That clearly did not happen and in fact there is much positive news from the election whether you want to believe it or not.  I will try to point some of those items out for you, as well. 

Before I do all that, I must explain the month of October.  It was basically a down month, but mainly due to the final week of October leading into the election.  For that week, the market was down 5%, basically wiping out all profits for the month.  The real positive news came in November.  

The Standard & Poor’s Index 500 stock was down 2.7% for the month of October, but is higher for the year 2020 by 2.8%.  The NASDAQ Composite was down 2.2% for the month of October but is up a very satisfying 22.5% for the year 2020.  The Dow Jones Industrials was down 4.5% for the month of October and is down 5.4% for the year 2020.  And just for comparison, the Bloomberg Barclays US Aggregate Bond Index was down 0.5% for the month of October, but is up 6.4% for the year 2020.

Harper Wilcox, Age 11, as an Arctic huntress

 and Lucy Wilcox, Age 9, as Harry Potter  

While certainly October was a disappointing month from an investment standpoint, there is clearly strength in the financial markets; albeit it is difficult to identify given the avalanche of negative news related to the pandemic and election.  Just as an example, the one-year total return for the S&P 500 is 9.7%.  The NASDAQ Composite is up 32.9%.  Even the Dow Jones Industrial Average is up a little bit at 0.3% for the one-year period there ended.    

If you go back and read the blogs I have written for all of 2020, you will notice that I have consistently advocated that you stay invested at all times.  The unfortunate truth is that the only people that lost money during the pandemic sell-off of March and April 2020 are the people that actually sold.  I do not know how many ways we can say, never try to time the market, but yet there is always some investor that believes they have the absolute answer to market timing.  They could not be more wrong.  

The numbers above reflect the returns of the S&P 500 Index.  Quite frankly, for this year, actively traded mutual funds are significantly higher than the S&P 500 Index.  In many cases, the better managed funds have rates of return that are more than double the Broad-Based 500 Index.  It is all about stock picking.  The nest mutual funds have the best fund managers and we pick the best of the best.  It is often said only 10% of the mutual funds outperform the S&P 500 Index.  Yes, that may be true, but 10% of 6,000 available funds is over 600.  We invest in less than 50 mutual funds throughout our entire portfolio.  

For this entire year I have been emphasizing to you that the economy was much stronger than you realized and much stronger than is represented by the media. It has become a national embarrassment that so much of the media is now tainted by its own political bias and reporting of the news has become as obsolete as the buggy whip.  I long for the days when Walter Cronkite would just read the news to me.  I had no idea of the political leanings of Walter Cronkite until long after he retired.  Who would have ever suspected that Walter Cronkite was very much a liberal-leaning person? You would have never known it from hearing his news reports.  He should be the model for how all news reports should be handled today.

Reid Schultz, Age 5, working 

for NASA this Halloween   

For those of you who thought I was delusional for thinking that the economy was better, the news this month documented that reality.  For the 3rd quarter the GDP was up 33.1% on an annualized basis.  If you break it down to a quarterly basis that is roughly a 7.4% increase.  That is the highest increase in one quarter ever in the history of American finance.  Yes, I fully recognize that on an annualized basis the GDP is still down, but it is working its way back to zero.  As I write this, the Atlanta Federal Reserve is forecasting an increase in GDP for the final quarter at 3.2%.  If that quarterly increase becomes true, we will be at a very near breakeven for 2020.

Evidence of the increase in the economy is everywhere, but you don’t hear it in the news.  The Institute for Supply Management has said its manufacturing index rose 59.3% last month.  Incidentally, that was the highest since 2018.  How could manufacturing be so strong in the face of such negative financial news?  In addition, the forward-looking component of new orders for manufacturing was the highest it has been in over 17 years.  This is extraordinarily good news for the economy going forward.

The unemployment picture is improving.  Even with many states continuing to restrict their workers from their jobs, the unemployment rate fell to 6.9% during the month of October.  While certainly it is a high rate by recent standards in the U.S, it is a vast improvement over just four months ago and the components of unemployment were extraordinarily encouraging.  Much of the improvement in unemployment is related to hospitality and restaurants, which are just starting back to work.  

Finally, businesses are going back to work and putting their employees back on the job.  I forecast as we move forward, we will see greater improvements in these labor reports.   What is very surprising to most people is that the U.S. consumer is strong.  Retail sales have now risen in five straight months - the highest they have been even prior to pre-pandemic level.  Credit card spending is actually up, while credit card balances are down.  The average consumer credit score is at the highest level in the history of the U.S. Don’t you find it astonishing that the media is forecasting the demise of the average consumer, yet the economic facts are completely different?

The news on the vaccine is nothing short of remarkable. Pfizer reported their preliminary results of the vaccine with an over 90% effective rate.  The FDA had forecasted an effective rate of 50% to 60% on these proposed vaccines, but a 90% rate is beyond anyone’s anticipation.  When you get a 90% effective rate on a vaccine, you are talking about an effective rate similar to that of measles, smallpox and chicken pox.  Those particular viruses have a vaccine rate in excess of 90% and this vaccine holds the same promise of success.  As we roll out the vaccines over the next 12 months, you will see America return to normal.  People will no longer be in fear of crowds, travel, staying in hotels or even eating at their favorite restaurants.  I forecast that by this time next year, this will all be a bad dream. 

 

Caroline Schultz, Age 6, as

 a colorful butterfly    

The government has done an extraordinary job of funding and expediting the technology for these vaccines.  They have pre-funded roughly two billion doses for the vaccine, not only for the U.S but for the rest of the world.  Four to five vaccines could be fully authorized for emergency use prior to the end of 2020.  As these vaccines work through the population, you will see corporate America gear back up to its pre-pandemic strongest economy ever.  Remember we only need 50% of the population to get vaccines to reach mass immunity – very exciting.  

The year 2020 will be looked at as an extraordinary year in many regards.  But one thing that I think will clearly be proven is that the shutdown of the American economy was a serious mistake.  Admittedly none of us knew exactly what might happen and what the effect would be.  What we are finding out though is that as the economies that were shut down have begun to reopen, the virus is spreading through areas where it had not been before.  We are now seeing a serious rise of cases in the Midwest, which previously had avoided any major virus spread.  The state of Georgia was one of the first states to reopen and to this point the pandemic has been under control.  The economy continues to strengthen in Georgia as we move forward with virtually all segments of industry now open.  

The reason I think we will look back on this time period with regret of shutting down the economy relates to the $3.5 trillion the Federal Reserve had to borrow to stimulate the economy.  It will take generations to pay off this much debt, which will be a drain on future Federal budgets.  I fully recognize that without this deficit spending the economy could have been much worse, and the outcome could have been different. However, the economy was shut down by governmental agencies as businesses that could have and wanted to work were prevented from doing so.  Even to this day many states are not open for their economy.  While there is some evidence that their infection rates are lower, I wonder whether anyone can justify the economic cost of these shutdowns.  The issue for school closings is complete nonsense – I will not go there this month.    

Erik Kramschuster’s dog, Knox,

 as a mighty lion

While certainly it is a tragedy that people continue to die of the virus, I personally think that the deaths of this virus is well overstated.  While certainly it is true that deaths recently are averaging at about a thousand a day, many of the experts contend that these deaths are mainly older people at the end of their life.  There is very little evidence that younger people are dying; the closing of schools is doing much more harm to the kids than the exposure of the virus. You do not hear about it too much in the press, but even before the pandemic roughly 7,000 people/day die in the U.S., and that is always a tragedy.  Whether the pandemic increased these numbers dramatically is debatable.  What is not debatable is that the shutdown had dire financial circumstances to the people prevented from working which may take generations to overcome.

It is now time for us to move forward and put industry back to work with the anticipation of a vaccine in the very near future.  It is forecasted that 20 million Americans will get vaccinated each month going forward.  There is light to be seen at the end of the tunnel.  

As a commentary of the election, those who forecasted a “blue wave” throughout the United States were clearly wrong.  There is a great deal of positivity in these election results that the average person does not even consider.  All the polls showed the Democratic party winning vast majorities in virtually every state.  However, that was not the case, and, in fact, they lost ground in many regards.  Even though the Democratic party won the White House, they did not win the Senate and they lost ground in the House.  

A divided Congress is truly great for stock market investing.  The biggest shock in this election was that the majority party in the House actually lost ground.  How could the polls have been so wrong when it came to the election results?  By losing six seats in Congress, it appears that the voting public is becoming more conservative rather than more progressive.  The wild forecast of the defunding of the police and lawlessness in some states led to a backlash of conservative voting.  

The face of education in America today   

How could you possibly explain how the state of Florida, with its elderly population, could have possibly voted for a President that the media solely blamed for the pandemic?  Throughout the voting in the United States it was clear that conservatism outweighed progressive causes.  That is very much a positive for the financial markets.  A Congress without any ability to increase taxes, increase regulations or slow the growth of business with progressive actions is very much pro-stock market.  Therefore, all the dire projections of a negative regulatory environment under a “blue wave” government will not happen for another two years at least.  

I was sitting around thinking about the changes that have occurred over the last decade and how extraordinary some of those have been.  When I first started in the business, the two giants of the American industry were General Electric and ExxonMobil.  If you have followed their stock prices, you would notice that they are no longer dominant.  GE is barely above survival and Exxon is cutting back while trying to protect what was once the most profitable company in the world.  No longer do the oil companies control the price of oil and, therefore, while the consumption of oil is down, the price of oil has plummeted.  Additionally, there have been so many other changes that you have to look at from a bigger perspective.  

Who would have ever thought that Netflix, which was a company that used to rent DVDs by mail, could now be bigger than all the broadcast networks combined?  Who would have ever thought that we would see CBS, NBC and ABC overtaken by a total streaming company? 

Who would have ever thought we would see the cab industry basically eliminated?  Uber and Lyft now control the ridesharing business and are putting many of the cab companies completely out of business.  Here in Atlanta, virtually no cab companies are profitable.  

Rollins & Van Lear, P.C.’s Morgan Miner

 enjoying a sunset on the coast   

Over the last decade, we have seen the explosion of Google.  They built the better browsing service and now are hugely profitable.  Would anyone prefer to own Proctor & Gamble with a 25 multiple as compared to Google with a 29 multiple?  That would be an easy selection for me.  Who had ever heard of the company Facebook 10+ years ago?  Can you even fathom that 1.8 billion people log on to Facebook daily around the world?  If it is true that there are over 7 billion people on this planet, then more than 20% of those people log on daily to this simple software application.  When you consider that a large portion of that population does not even have computer applications, that makes that number even more stunning.

There is so much criticism of Amazon today by people that really do not understand the significance of that company.  They have singlehandedly created a third-party manufacturing platform for small businesses to sell their goods.  Yes, they are a dominant company, but they provide an extraordinary service that has taken the place of shopping at brick-and-mortar.  I would never even consider driving to a mall to buy something when I could buy it from Amazon and have it delivered within a couple days.  

Oftentimes, when you go to the store, they do not even have what you want.  That would not be the case on Amazon since they have virtually everything.  The people that criticize Amazon truly do not understand the positive economic benefits it brings to the economy.  I was reading an article last night that forecasted that both Amazon and Apple would have sales in excess of $100 billion during the fourth quarter of 2020.  Here is Amazon, which was hardly a company at all 10 years ago, and Apple 10 years ago that was virtually bankrupt.  The past decade has been nothing short of breathtaking.  

Those who expressed concern regarding the government interfering with Big Tech really do not understand how ineffective any challenge would be.  First, technology is forever changing and you only have to look at IBM to understand that.  At one time IBM was the most powerful tech company of them all.  Today, it is an afterthought of a shrinking market taken over by entrepreneur-type companies.  Who would have ever thought a company like Apple, making consumer goods, could become, by far, the most profitable company in the United States?  If challenged by the Justice Department, it would take decades through the court system; you only have to look at Microsoft’s history to understand the impact.  

My bird friend visiting my deck in Florida 

Even though the Justice Department challenged Microsoft on antitrust, anticompetitive grounds, for over 10 years during that same time period Microsoft stock increased over 10 times the price that it started.  However, none of these tech companies are immune from new technology.  As new companies develop better and more technology, the names we know today as Tech Barons are likely to pass by the wayside.  

There is no question that the last 10 years have been an extraordinary time in American finance.  Things have happened that no one could have ever forecasted or believed.  I also believe that these are the types of changes in technology that will keep the American economy strong.  We have the best technology in the world and there is no one even close to second.  As long as we channel that American Spirit and increase the economy by creating new jobs with new technologies, no amount of governmental interference or regulation will slow that down.  We now have an opportunity for the next several years to build the economy back to where it was and growing again.  I think we are only a short time away from that happening.  If you want to be part of growing your retirement dollars for retirement years, you need to be fully invested in the American growth economy, which today is so clearly represented by technology.  

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,

Joe Rollins 

The Economy Continues To Improve, Not Withstanding The Media's Attempt To Talk It Down

The month of July 2020 will clearly be one to look back on in financial history as an important month. After an avalanche of negative publicity regarding the economy and the prospects for the U.S. to pull out of the pandemic, the economy continued to strengthen and the stock market reflected that strength. It has been absolutely amazing that for all of the negative headlines we have read regarding the economy and the spread of the virus, that the stock market has dramatically improved over four straight months. July was an extremely strong month for all financial assets.

I have a lot I want to discuss in this posting and some of it is quite valuable information. I want to explain why the stock market is not likely to have a major downturn due to negative real rates of return. I also want to rebut the so-called “pundits” that argue that the rise in the stock market is a bias against the working class and mainstream. Obviously, they do not understand, as do I, the Wealth Effect which I will explain later in this posting.

Partner Eddie Wilcox and his wife, 

Jennifer, walking the beach

 
Most of the general public has completely missed the implication of Zero-Sum economics. They just do not understand that if one segment of the economy suffers, by the effect of Zero-Sum, some other segment of the market must be strong. That has proven so clearly true in these very difficult times. The most important real-world example I can give you is from the famous comedian, George Carlin, as he described why this country became so fixated on germs. Even though this famous comical dialogue was recorded 20 years ago, it is so very true in today’s economy. I will give you his thoughts.

Before I launch into those fairly interesting subjects, I need to cover the markets for July which were excellent. The Standard & Poor’s Index of 500 Stocks was up a sterling 5.6%, during the month of July. Year-to-date this index broke into the positive 2.4% and for the one-year then ended in July, it is up 12%. In the first couple trading days of August, this index is now less than 1% below its all-time high level. The NASDAQ Composite continues to be the forerunner in all the indexes, up 6.9% during July and year-to-date is up 20.4%. The one-year return on this index is an almost unbelievable 32.8%. This index has outperformed mainly because it is where so many of the young tech companies reside. If you think this is just a flash in the pan, the ten-year return on this index is an excellent 18.2% annually.

The Dow Jones Industrial Average was up 2.5% during July but continues to be down 6.1% for the year. The one-year return on these 30 largest stocks is, however, positive at 0.8%. Just for purposes of comparison, the Bloomberg Barclays Aggregate Bond Index was up 1.4% for the month of July, up 8% for the year 2020 and for the one-year period up 10.2% for the period ending July 2020. While this was an excellent year so far for the bond index, a couple things are truly interesting.

Ava and her mask social distancing

Most times the stock market and the bond market move in opposite directions. If stocks are up, bonds are down and if bonds are up, then stocks are down. However, this year those stocks and bonds have rallied significantly so far. That is not normally the case, in that the ten-year annual returns for all the stock market indexes are double digits. The ten-year return on the bond index is a meager 3.8%. I will explain later in this posting why one of the major reasons the stock market continues to go up in an otherwise negative economy has much to do with the real-world effect of negative normalized rates of returns.

Almost every day I am confronted by an investor asking with great anger and disbelief, “How can we continue to be invested in stocks when the valuation is absolutely crazy at the current time? As of the end of July, the 12-month trailing P/E for the S&P is 26.8 versus 18 at the end of March.” They give me this example with the conviction that this level of P/E earnings is unsustainable and is at a historic height. I am always confused why investors always look at the past and never the future, which is much more important.

There is absolutely no questions that based on the disappointing earnings for 2020, that stocks are historically high. However, history will always rate 2020 as an outlier. What good information do we have in valuing stocks at a 26 multiple when we know that earnings are depressed - but earnings are likely to improve. It is now the current projection of the S&P, that earnings over the next 12 months should improve by over 48%. If earnings are to improve, as suggested, at 48% should you evaluate the market based on the trailing price earnings or evaluate it on its prospects? Clearly, anyone who has been investing for any period of time knows that whatever has happened in the past is in the rearview mirror, but what we should all be considering is not the past, but the future. Based on future earnings, the market is more closely valued at its March levels than its July levels. Some segments will see greater than 48% – think airlines and hotels.

The Schultz family at Sea Island

The evidence that the economy is improving is virtually everywhere, but you just have a hard time evaluating it because the media is so negative on the economy. In reading the news over the last couple of weeks I picked out items that were clearly positive for the economy, yet seemed to be ignored by the public. The State of Georgia recently announced that their collections of income tax and sales tax for the month of July was 17% higher than the month of July 2019. Take into perspective that analysis. All of us will acknowledge that in July 2019 the economy was very strong and the population was almost fully employed. However, during the month of July 2020 unemployment was high and the economy sputtering. But the reason should be fairly clear.

Retail sales have taken a major move up since the lockdown. Part of this, of course, is pent-up demand, but yet retail sales have come back a lot quicker than anyone expected. I will explain this phenomenon later on based on Zero-Sum economics. Also, even though there were huge amounts of the population not working in July, that doesn’t mean that they weren’t being paid. Due to the massive Federal Reserve influx of money, most of these unemployed were making similar amounts of compensation unemployed as they were making employed. People forget that unemployment benefits are taxable and withholding is required. Once again, even though the media would like you to believe the economy is completely in a state of disaster, the facts belie such headlines.

There seems to be a general lack of knowledge of Zero-Sum Economics. I have clients come in all the time and complain to me that it is impossible for the market to go up because all we have to do is look at the restaurants, airlines, cruise industry and retail to know that the economy is in shambles. Yes, no question, those statements are true, but where did the dollars that would have been spent on those industries actually end up?

Harper Wilcox, age 10, getting

some fresh air at the beach

In a Zero-Sum Economy, if money is not spent on one item, but gets spent on another item, then the economy is at zero. If a family does not spend money on going out to restaurants, going on cruises, flying in airplanes or taking vacations, that is clearly a loss to those industries. If, however, that money is spent somewhere else, the economy does not suffer or, just as good, a family saved more. That is exactly what we are seeing today. Do you believe that there are not shortages in certain aspects of the economy? There clearly are, you see them every day, but you just do not realize it.

Why do you think the grocery stores cannot keep up with toilet paper and paper towels? Those industries are clearly booming as others fail. New car sales have been at historic highs recently. Does that not mean that the manufacturing industry of cars is working overtime to meet the demand? It is my understanding now that golf courses are overwhelmed with people wanting to play and golf equipment and golf clothes reached all-time highs during the month of July. Once again, those dollars are being shifted from one segment of the market to another. One client reported to me that they had ordered a brand-new golf cart for their vacation home but there is such a backlog of orders that delivery has been postponed. Everywhere in the economy you see a negative, you need to look at the other industries in the economy that show strength. While certainly restaurant sales are down, pizza deliveries are skyrocketing. It is everywhere, but due to the negative influence of the media you just cannot see it. What is so clear to me has been largely ignored by the media, is there a reason the media emphasizes the negative and not the positives?

As mentioned in previous postings, the Federal Reserve and Federal Government have dumped over $3 trillion of money into the economy. If anyone understands the velocity of money, then you understand what $3 trillion dumped into the economy over 90 days does. The acceleration of spending must occur or there would be a huge savings component. In real dollar terms, that means if you received this money you had two options. If you elected to spend it, the velocity of money being at 7, would generate $21 trillion of economic growth. However, in times of great uncertainty with the unknown future of your job and family security, the other possibly was that you just saved the money for a so-called “rainy day”.

It is now reported that the American economy has over $5 trillion in cash sitting in checking accounts in banks and other places. Given that this savings rate would be deteriorating daily with the level of inflation, it is a pretty good bet that this money will either be spent or invested over the next 12 months. If spent, then the economy will continue to grow and if saved the financial markets will continue to go up.

As stability occurs in the economy, a greater percentage of this money will be spent creating a higher economy. Rather, if invested it will create a higher stock market going forward. One of the reasons that the stock market held up in this recent crazy time is the argument that there is really just nowhere else to put the money. Already the 10-year Treasury Bond is trading at 0.5% and is at a negative real interest rate. If you calculate the cost of inflation, the rate of return on that bond is likely negative at 1% per year. That means that every day that you hold that bond, you lose money after the cost of inflation. It is the same if you hold money with cash. You are losing money every day against inflation.

Lucy Wilcox, age 8, playing in the sand

Cash may give you a warm and cuddly feeling by having it on hand but the fact that every day you hold that cash you are losing the value of purchasing assets since the rate of return is now negative. So, the argument must be that I will hold bonds because I believe they will appreciate it the future because I know that they do not pay any rate of return. Remember that a $100,000 bond generates roughly $500 a year in income and every year that income is less than the cost of inflation.

But now we have come to the point where bonds have actually run out of basis points to decline. The ten-year treasury is at 0.5%, it does not have much further it could fall. Couple that with the fact that the Federal Reserve is in an all-out war to create inflation. By virtue of the Federal Reserve, flooding the economy with money is a clear reason to try to increase inflation to increase the economy. Nothing could be clearer than recently the price of the U.S. dollar has fallen as the price of gold has gone up. Gold moves inversely to the U.S. dollar since most of the gold is held outside of the United States. But these are clear signs that the Federal Reserve’s effort to increase inflation is working. With a very low return on bonds and a very real possibility of increased inflation, you are locking in real-value losses by holding either cash or bonds. This is one of the reasons why the market continues to be held up, notwithstanding the avalanche of negative publicity.

Three or four times a day, I am approached by investors saying “What if the Democrats were to win the election in November. Won’t the stock market suffer a major decline?” While certainly no one knows how the election will turn out, you must be prepared on all fronts. If the Democrats do win the election, and certainly if they win the Presidency and both bodies of Congress, I expect the market would decline, but not appreciably. The reason why it will not decline appreciably is for the reasons above - what are your alternatives? You may be in cash temporarily, but you will eventually migrate back to stocks. Will that period be a week, a month? Certainly, no one knows. However, it will not be long-term and certainly the period of time when the correction occurs would certainly not be worth the effort to trade around it.

I get so very tired of hearing the pundits criticizing the stock market as being only for the wealthy. Their argument is that the average person’s life is not improved by the value of the stock market and, therefore, any attempt to make it go higher is only focused for the rich and not the middle class. Obviously, those people are not very well educated in economics or the wealth effect.

First off, the general public is very much invested in the stock market. It is believed now that $2 billion per day flows into 401(k), 403(b) and 457 Plans which flow directly into the stock market. Fidelity Investments, the largest holder of 401(k) money, reported that during the March 2020 selloff, the 401(k) investors made little or no changes to their asset mix. This is the way it should be. Long-term investors should never react to short-term market fluctuations. It seems that 401(k) investors are becoming better educated on how to deal with huge market fluctuations that are principally controlled by market manipulators.

However, these pundits do not really understand the wealth effect. The wealth effect happens when the market goes up and money is withdrawn from those profits and spent on other things. Almost every day we have a client withdrawing money from their account to buy or construct something. It may be to buy a new car, it may be to go on vacation, but more times than not it relates to improving their home.

Reid and Caroline Schultz watching 

the sunset on the water - ages 4 and 6

When money is withdrawn from the stock market and used to add an addition to your house, suddenly that money employs people. It employs people from the Main Street economy for both the construction workers and the people who build the materials. If a client takes money out of the stock market to buy a car, does that not put money in the pockets of the people who manufactured that car? There are so many examples of money coming out of the market to create liquidity to Main Street, for those pundits to argue that it is immoral to advocate stock market performance have, by the definition of the wealth effect, been proven incorrect.

Every day we see the effect of low interest rates improving the economy. Housing sales are booming, and construction workers are working at maximum levels. As clients take money out of the stock market and benefit from lower interest rates to refinance their mortgage or add additions to their house, they create wealth, as almost assuredly inflation will positively impact the value of their home ownership. Every day we see the wealth effect taking place as the market moves up.

The exact opposite happens as the market moves down. What you see are people who are invested that are less likely to take profits since the profits are lower and, therefore, there is negative wealth effect. It is not that investors use their excess cash to invest, but it is rather that they do not withdraw from their investments in a period of a down stock market. Over the last four months we have seen extraordinary gains in the stock market, and we are seeing extraordinary withdrawals to buy consumer goods. I do not understand how you could argue that this is anything but good for the economy.

Since there is virtually nothing to watch on T.V. nowadays except for Major League Baseball, in my case, I often drift into old YouTube comedy routines. During my era, one of the most famous was the comedian George Carlin. I ran across a couple of his concerts over the last few weeks and enjoyed his complete “off the wall” look at his neighbors and the American economy. One that I found terribly interesting was his analysis of the fear of germs. In his way of thinking, this country has become completely neurotic, with the population in the U.S. obsessed with security, safety, crime, drugs, cleanliness, hygiene, and germs. His words, not mine. But clearly, he has a point since we have, in my opinion, so grossly overreacted to this pandemic that it warrants further discussion. My favorite example is how we have become so neurotic with germs that even in prisons they swab the prisoner’s arm with alcohol before giving him a lethal injection! Think about that for just a second. For a person that they are clearly trying to put to death, they are concerned that he might get an infection. Overreaction – no question.

Each time I read the statistics of the pandemic, I wonder whether it is political in nature. Why are some states more restrictive than others when it comes to allowing the population to go back to work? In New York, as an example, they have still not even reopened their indoor dining rooms, yet they have announced that schools will be open in the fall. So, how does that even break down in economic terms?

The famous comedian George Carlin

If you analyze the various states for joblessness claims and those that are receiving benefits, it should be clear which states are abusing those rights and those that are not. In the most recent employment report dated July 18, 2020, 18.1% of all workers in the state of California are receiving unemployment benefits. In New York, that ratio is 16.3% and in Connecticut it is 15.2%. If, however, you compare it to other states, 3.6% of the workers in Iowa are receiving benefits, 4.5% in Utah, and 4.9% in Alabama. You do not have to be a mathematical wizard to see the contrast between those states that would prefer a change in administration as compared to those states that are likely not to want a change. Political – who knows?

The evidence is everywhere that the economy is improving, notwithstanding the horrific headlines you read daily. It is also fairly clear that earnings next year will rebound to normalized levels and, therefore, the value of the stock market is not overvalued, but is at a reasonable level. I do not expect a major downturn, but if there is, it will quickly recover and your long-term investment goals should be reached. This virus is a terrible plague on the economy, but it is time that all of us recognize what the risks are and move forward. We turned loose the American spirit and put Americans back to work at home, now we need to turn loose the American spirit and have the public eat in restaurants, fly on planes, stay in hotels, and move on with the rest of their lives.

The month of July also brought another recognition for Rollins Financial, Inc. It is a very humbling thought that for three years in a row we have been selected as one of the Top 300 Registered Investment Firms in the United States. That is really hard to contemplate given the scope of that recognition. To put it into perspective, there are probably 300 companies in the Greater Atlanta area alone that classify themselves as Registered Investment Advisors and we were in those that were selected out of all of the firms in the United States. I guess you can always say that it wasn’t an overnight success, since it took us 30 years to get here. When we received the recognition back in 2015 by CNBC TV as being the 20th best Registered Investment Advisors in the United States, we had $272 million under management. Today we manage for clients’ roughly ¾ of a billion in assets. Obviously much of our success is from the willingness of our clients to let us help them in planning for their retirement, but all of us should acknowledge the fact that we continue to grow and get referrals when clients make money. No other attribute is more important in the growth of a firm like ours. If we have not said so recently, we certainly appreciate all our clients that we help to reach their goals.

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,

Joe Rollins

Rollins Financial, Inc. Named to 2020 Financial Times 300 Top Registered Investment

Rollins Financial, Inc. is pleased to announce it has been named to the 2020 edition of the Financial Times 300 Top Registered Investment Advisers. This represents the third year in a row Rollins Financial, Inc. has been included in this exclusive list, which recognizes top independent registered investment adviser (RIA) firms from across the U.S.

This is the seventh annual FT 300 list, produced independently by Ignites Research, a division of Money-Media, Inc., on behalf of the Financial Times. Ignites Research provides business intelligence on investment management.

Registered investment adviser (RIA) firms applied for consideration, having met a minimum set of criteria. Applicants were then graded on six factors: assets under management (AUM), assets under management (AUM) growth rate, years in existence, advanced industry credentials of the firm’s advisers, online accessibility, and compliance records. There are no fees or other considerations required of registered investment advisers (RIAs) that apply for the FT 300.

The final FT 300 represents an impressive cohort of elite registered investment adviser (RIA) firms, as the median assets under management of this year’s group is $1.9 billion. The FT 300 Top Registered Investment Advisers represent 39 different states and Washington, D.C.

The FT 300 is one in a series of rankings of top advisers by the Financial Times, including the FT 401 (DC retirement plan advisers) and the FT 400 (broker-dealer advisers).

Joe Rollins, the firm’s founder, said, “Since founding my CPA practice, Rollins & Van Lear, P.C., in 1980 and my registered investment adviser (RIA) firm in 1990, I have always worked diligently to ensure the members of our team place our clients' interests above our interests. This philosophy has served our clients well and now, 30 years later, we are both excited and honored to announce that we have, once again, been named to the Financial Times 300 Top Registered Investment Advisers – making the list in 2018, 2019 and 2020.”

https://www.prweb.com/releases/rollins_financial_inc_named_to_2020_financial_times_300_top_registered_investment_advisers/prweb17300768.htm

Best Regards,
Joe Rollins

Rollins Financial Named to the investor.com 2020 Top Firms in Georgia List

During the last several months, many Americans have faced financial uncertainty. However, for those looking for financial guidance, how do they know who they can trust with their hard-earned money?

That’s where investor.com comes in.

A consumer advocacy project with the mission of serving Americans as a trusted resource for researching and comparing financial advisors, investor.com analyzes 28 million data points from 690,000 financial professionals and 16,000 firms across the country on a monthly basis to determine which firms can be trusted and which ones have red flags consumers should know about.

“Our goal at investor.com is to make it easy for Americans to find a firm and advisor they can trust,” said Blain Reinkensmeyer, investor.com’s co-founder. “My grandparents spent over $100,000 on excessive fees alone, working with a financial advisor they thought they could trust, and I don’t want to see that happen to anyone else. In fact, Americans lose billions of dollars to excessive fees and overly expensive financial products each year, so we truly want to highlight fiduciaries—those who have a legal obligation to be unbiased and to put the interests of their clients first.”

Today, investor.com is making it easier for residents to find an advisor they can trust, with the release of its 2020 Top Firms in Georgia list, which includes Rollins Financial, Inc., a Registered Investment Advisor (RIA) headquartered in Atlanta.

Joe Rollins, the firm’s founder said, “Deciding whom to entrust with your finances can be a daunting task. The last thing you want from your financial advisor is investment advice driven by paid sales commissions. Fee-only advisors act according to the fiduciary standard, a responsibility to act in their clients’ best interests. Therefore, fee-only advisors have fewer inherent conflicts of interest, and can provide more comprehensive, unbiased advice. I founded the firm 30 years ago on this premise and we continue to work diligently to deliver comprehensive, unbiased advice to each client.”

investor.com’s Trust Algorithm combines both publicly accessible data from the Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) as well as proprietary information such as the security of a firm’s website.

Joe Rollins has said, “When I started Rollins Financial in 1990, my goal was to serve the investment needs of the clients of my CPA firm. We continue to serve many of those clients, as well as many who come to us seeking only investment services. We are honored to be included in the 2020 Top Firms in Georgia list.”

 https://investor.com/financial-advisor-firms/georgia

Best Regards,
Joe Rollins

Worst Stock Market / Best Stock Market In The Last Two Decades, All In The First Six Months of 2020 - Bye Bye Recession

I would be lying to you if I did not emphasize how difficult the first six months were on the Stock Market. We have been overwhelmed with bad information and exclamations of concern regarding the pandemic and there seems to be a real shortage of people who look at the real numbers. In the midst of March, many were forecasting, not recession in the United States, but downright depression. Looking back over my notes it is hard to fathom that so many people have been so wrong about this economy.

As we sit here today, it is fairly clear to see the U.S. is not going to shut down again and almost all of the developed countries in the world have passed through the pandemic and are now gearing their economies back up. There is so much I need to discuss with you and go over in this posting. It is fortunate that my prediction regarding the economy was correct and that those that sold out in March were clearly incorrect. It never pays to go against the Federal Reserve and their enormous printing presses that can make money out of thin air. So many investors forgot that most important axiom in investing and sold out in March, leaving them uninvested in one of the best quarters for Stock Market investing in the last two decades.

 Dakota, Carter, Josh, Ava and Joe at Josh and Carter’s wedding

Before I launch into all that very interesting information, I must report on the month of June which was actually a very good month for investing. During the month of June, the Standard & Poor’s Index of 500 Stocks was up 2% yet remains down 3.1% for the year 2020. The other important consideration is for the three months ending June 30th, that index was up 20.5% and for the one-year period it is up 7.5%. Once again to emphasize, if you had stayed invested in this index during the last one-year period, you still would have had a return greater than three times the rate of inflation in the U.S. today.

What was interesting about this first six months is that the major market indexes, for the most part, well underperformed the actively traded mutual funds. While the NASDAQ Composite was up the most, the other indexes were either down or flat. The well-run stock picking actively traded mutual funds for the most part enjoyed double digit gains through the first six months of 2020. It has been a long time since the actively managed mutual funds have significantly outperformed the indexes, but it just illustrates again that passive investing is not the answer but picking the right investments is.

The NASDAQ Composite had a great month up 6.1% for the month of June and was up 30.9% for the three months ending June 30th. The one-year performance on this index was 26.9%. The Dow Jones Industrial Average was up 1.8% during June, but continues to be down 8.4% through June 30th. The one-year return on this index is -0.5%. The one asset class that cannot get any type of traction has been the Russell 2000 Small Cap Index. While it was up 3.5% in June, it is down year-to-date 13% for the year 2020. The one-year return on the Small Caps is at -6.6%. Just for purposes of illustration, the Bloomberg Barclays Aggregate Bond Index was up 0.7% in the month of June and is up 6.5% for the year-to-date. The one-year return on this index is a 9% return.

 Carter and Josh sharing their vows

   So those of you who are observant will note that the bond index for the one-year period was actually higher than most of the market indexes. However, if you compare the 10-year returns on each of the indexes, you will see the dramatic difference between investing in equities and investing in bonds. The S&P 500 Index 10-year return is 14% annually, the NASDAQ Composite is 18.3%, The Dow Jones Industrials is 13% and the Russell 2000 is 10.5%. As you can see, all these indexes were up double digits while the Bloomberg Barclays Aggregate Bond Index for the 10-year period was a meager 3.8%. Also, with interest rates at almost historic lows, you have to think that the investment in bonds will either be flat or negative over the next one-year period. In most cases, bond indexes being flat would be a positive sign. Yet a 10-year Treasury Bond today is yielding less than 0.7%, which to quantify, on a $10,000 bond is $70 income to you per year. Holding a 10-year bond with such low potential for returns hardly raises a discussion in the area of investing. It is not likely to get better for years.

Almost every day I am confronted by a current client or prospective client in how I square the economic world around me today with my comments to stay fully invested. They wonder what I saw in March that they did not see and what I see in early July that they cannot believe. The common exclamation by prospective clients is that I look around and I see pain and destruction everywhere around me. How could you and the Stock Market forecast better things to come given the dire economic conditions that surround me? My answer to that exclamation is that they are not actually seeing the real economy. They are only seeing what is around them and not examining the underlying figures. It reminds me of Groucho Marx in Duck Soup saying, “Who you gonna believe, me or your lying eyes?” You should have believed me.

One of the things that is most misunderstood by the investing public is that the Stock Market does not reflect the past or the present, it reflects the future. To properly evaluate where stocks will be, you do not worry about where we are, but rather where we will be. Anyone invested in the Stock Market should not be particularly concerned about the economy today but should be more concerned about the economy a year from now. Do you really think that this panic regarding COVID will be around a year from now or do you think that by that time it will have passed?

You do not have to go back very far to understand how great the economy was in February. We were at a 3.4% unemployment in February and today we have an unemployment rate of 11.1%. A huge turnaround in only a four-month period, but those numbers are so truly misunderstood that I thought I would take a second to explain.

Ava, Josh and Carter enjoying the wedding festivities

A large percentage of those people reported as unemployed are actually still being paid. As the Department of Labor pointed out, if you are still on payroll but not employed, you are considered to be unemployed. Even those on unemployment will receive an extraordinary benefit of $600 a week funded by the federal government in addition to the state benefits. While certainly it was true that close to 20 million people, at its height, were unemployed, it is also true that the vast majority of those unemployed were being compensated while not working.

The market was stunned in May when it was announced that 2.7 million new jobs were created. Imagine their total outrage when they realized that another 4.8 million new jobs were created in June. Therefore, over a relatively short period of time, 7.5 million jobs were created in the economy. You do not need to be a rocket scientist to understand this phenomenon. During the 90-day period in the second quarter, the Federal Reserve system in the United States dumped $3.5 trillion into the economy. By most definitions, $3.5 trillion is a substantial sum of stimulus. Not only were there the famous Payroll Protection Plan payments, but also unemployment stimulus and direct loans by the SBA, Small Business Administration. Those investors that were forecasting the demise of the economy just could not understand the benefits of this economic stimulus. Unlike 2008 when the Federal Reserve refused to give money directly to taxpayers, this Federal Reserve bent over backwards to keep the economy stable. The Fed’s work saved the U.S. economy.

As we go into July and the end of the Federal subsidy of unemployment, you will see more jobs created. These jobs will not necessarily be new jobs, but rather the unemployed will be called back to work. With the change in the PPP Loan Program, there was no reason to call these employees back to work quickly. The Congress accommodated them by extending the forgiveness period and allowing employers to bring back their employees as their business returned.

Josh stealing a look at his bride, Carter

I have consistently said that the second quarter will be a disaster from an economic standpoint. I stand by that projection since we have not received the numbers yet, but they will be bad. I forecast the third quarter GDP as being virtually break even and the fourth quarter as positive. All of that is very interesting information but does not account for the huge run up in the Stock Market over the last quarter. Yes, it is true that the market fell 35% during the first quarter but gained 41% since late March; huge swings by anyone’s definition. The winners of the investment game of the first six months were not the investors that tried to time the market by selling and getting back in, but rather were those that maintained their investment philosophy during the six months and did not panic. I read every day about those traders that made millions by buying bankrupt companies, such as airlines, cruise ship lines and retail. That is not investing, that is speculation. Even if you had been in the poor performing market indexes, such as the S&P 500, your loss would have been quite marginal. Market timing has never worked, yet many keep trying!

Over the next month we will see earnings for the second quarter and they will be terrible. Volatility on the market will reach new levels as each company reports their earnings and projections. You will see the active traders move the market dramatically, percentagewise, over this 30-day period. While I am warning you that this is going to occur, I also recommend no changes to our portfolios. At the end of the day, the value of stocks is driven by their future earnings not their past earnings. It is very clear that the vast majority of companies are actually operating at near full capacity and certain segments of the market are not operating at all.

Why the S&P 500 is not performing well in 2020 is relatively simple. This index represents a large block of stocks that represent different segments of the economy. Some are doing extraordinarily well, such as technology, health care and biotechnology, but then others are doing very bad, such as oil, banks, hospitality, airlines and cruise ships. I do not think I have ever seen a quarter with a bifurcation between the growth and value of stocks that has been so great. Growth stocks are up double digits, while value stocks are down double digits. The swing in the composition of stocks has been dramatic. The key is to be in growth stocks, not value stocks at this time. Those that have not looked at their investments lately, need to evaluate where they sit as compared as to where actively managed mutual funds have performed this year.

Every day I read the national headlines on my iPad and shake my head in bewilderment. I really do not clearly understand exactly where we are in this country as it relates to the pandemic. There is no question that there is a huge group of Americans behind the “COVID-shame” mentality. In reading these extraordinary articles, I am just trying to understand their position rather than to argue with them. I guess it could be said that the “COVID-shame” advocates basically do not want America to ever go back to work. In reading the harsh comments regarding Disney World reopening, I find it hard to fathom that people have this much hate. If you are so concerned about the health of the people going to Disney World, the answer is clear. Do not go.

Carter and Ava having fun at the reception

There are many in the media that say the negative comments from the “COVID-shame” people are totally political. While maybe that is the case and their desire is to shut down the economy so that economically we can elect a different president. However, that really defies common sense. Would anyone be so vain and self-centered that they would want all Americans to suffer to meet their political goals? I try to think positively about most people, but I cannot believe that anyone would be so naïve to desire that the country fail economically just so they could change their political agenda. Maybe I am wrong?

COVID-19 is a very serious illness and should not be taken lightly. Everyone should do everything within their power to stay healthy and avoid the virus. However, the situation is far from as dire as the news would like you to believe. In recent weeks there has been a large increase in cases in certain states, however, those cases almost universally are with the young. No one ever actually reports how many of those cases are asymptomatic and how many are actually serious. From day one the reason for the lockdown was so that we did not overwhelm the hospital system. While I read every day of the terrible plight of certain hospital workers, I am less convinced.

As we sit here today, there are 2,200 cases of COVID in the hospitals in the state of Georgia. Certainly, a personal tragedy for those people, but in a state of 10,200,000, it’s hardly a meaningful percentage. No one ever actually reports the active cases versus the cases where people got well. You pick up every newspaper and it says that 3.3 million cases in the United States. However, no one reports the actual active cases. As I write this article, there are 1.7 million active cases in America with a population of 332 million. As you can see, 1% would be 3.3 million, so there are ½ of 1% active cases in America today. So, the critics (or the less informed) would say we only diagnose 1 out of 10 cases, therefore potentially 17 million active cases or roughly 5% of the population. Percentage wise – still very low.

Joe and Ava sharing a coat for the night

Do you remember only four or five weeks ago when the press was proclaiming Europe, and especially Italy, were destined for complete shutdown due to the virus. Has anyone reported lately that Italy today only has 13,300 active cases in the entire country (a country of 60.5 million)? Germany has only 6,194 cases in the entire country (a country of 84 million). In both of those cases almost none of those cases are serious. As it relates to the hospitals, the number of people hospitalized for COVID in the U.S. has never exceeded 60,000. Today the number of hospitalizations for COVID is around 45,000 and, more importantly, the number of people in ICU related to COVID is less than 6,000 nationwide. I need to remind you that in the United States, there are 790,000 hospital beds and over 100,000 ICU beds. As mentioned above, there are less than 6,000 COVID patients with ICU issues. When you look at the numbers, it is hard to fathom just exactly what the media is telling you and why. Do they have the facts?

You read almost nowhere that the number of deaths from COVID are falling and are averaging less than 1,000 per day. To put it in perspective, the fact that almost 8,000 people die every single day in the United States from natural causes, doesn’t seem to be a meaningful number. Due to the U.S. government’s infusion of capital into biotechnology, there is a strong likelihood a vaccine will be available before the end of 2020. Almost assuredly a vaccine will be widely available early 2021, as the government is funding the process.

The drugs needed to help patients have dramatically improved and the period of time people need to stay in the hospital has been significantly reduced. None of this seems to make it to the headlines, only the states, cities and counties that have an increased percentage. I am not suggesting that everyone should not be as careful as possible as to not get sick. What I am saying is that there is a lot of people that will get sick, but will get well. The young people, being younger and stronger, will weather the disease quickly and will return to their normal life. In the meantime, America needs to quit figuring out a way to avoid commerce and quit making everything political and needs to get back to work.

I wrote a few months ago about the unbelievable American spirit that would overtake the economy and bring it quickly back. We see it every day around us, people working from home and not driving to work. The building in which I am in is almost totally abandoned from workers, but I suspect all are paying their rent. Many of the so-called “economic forecasters” gave us the explanation that there would be huge home foreclosures during the pandemic. In fact, the opposite is true. There is an economic explosion of house buying from people that want to get out of the cities and move to rural areas. Homeowners’ interest rates are at all-time lows and homebuyers are everywhere. Yes, it is true that certain industries are not coming back as quickly, but as I drive home every day, it is kind of funny to see the cars lined up and down Peachtree Street to enter Lenox Mall.

DeNay of Rollins Financial taking a horseback ride through the trails  

What I know is that the American spirit is certainly working and as we start the third quarter, it will be up and down but progressively higher. Because unemployment benefits are running out in July, people will go back to work because they have to. But have you checked the vacancies at beach towns lately? Hotels and rental units are reporting maximum utilization even during this pandemic. Does anyone really think that the vast majority of Americans would be going on vacation if we were in a recession and not being paid?

Every day I read some “so-called” expert, who exclaims in almost hysteria, that the market is so grossly overvalued that we should see a 25% reduction almost any given day. I am not exactly sure how they define overvaluation, but if you assume my prediction is correct then the market is a long way from being overvalued. If we assume that earnings come back in 2021 and 2022 as they were in January of 2020, the market is not overvalued but in fact trades at a reasonable valuation. If we assume that the American population will be either exempt from COVID by herd immunity soon or because a vaccine has been made available to the general population, the economy will come back in a rewarding fashion. With the amount of governmental stimulus and historically low interest rates, we are already seeing the first leg of the market up.

It is not unheard of that the traders will try to push the markets around and try to force you out of your position in the third quarter. It is believed that currently $5 trillion in cash is sitting in investment accounts waiting to be invested. While a pullback in the market over the short term seems tragic to your finances, it actually may be the very catalyst that pulls this cash back into the market. At some point the people that sold out in March will feel an obligation to reinvest and will come roaring back. It will happen.

Dakota, Joe and Ava following the ceremony

My current projection from an investment standpoint is that the third quarter will be either flat or marginally negative and the fourth quarter will be up significantly. I see by the fourth quarter of 2020 that the economy will begin again to expand, and employment will be once again in short supply. We will not reach full employment by the end of 2020, but should once again be fully employed by the summer of 2021.

None of the current living economists have ever witnessed a stimulus package like we have seen over the last six months (mainly since it has never happened before). $3.5 trillion of government money has been poured back into the economy and to think that that stimulus would not bring commerce was naïve. I reflect now on those terrible days during March when one professional after another forecasted a period of time worse than the Great Depression. However, we have already come back to a market that is essentially even for the year and this great recession, as forecasted by these “so-called” experts, may only have lasted one calendar quarter; the last one, not the future ones.

As we go forward, I expect the market will fluctuate wildly on days, but the trend is most assuredly up. I forecasted at the beginning of the year that the markets would enjoy a 10% gain in 2020. While we have seen movement all around that projection, I still think it is reasonably possible we could have a return as good as 10% in 2020.

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,

Joe Rollins