Weekly Rundown: The 5 Stages of a Bubble
Dear Friends,
Welcome to the Weekly Rundown. Many if you have expressed that you’re overwhelmed by the COVID-19 driven news cycle. It seems that every time we turn on the news, there’s a new financial storm in the market, a new bailout is issued, a candidate resigns, a new country closes their borders, and some new technological solution to the current crisis is proposed.
Starting today, I will send out weekly updates on some of the top stories and what they mean for you - so that you have more time to focus on what matters to you.
As always, I welcome your feedback. Ping me on twitter @tatianakoffman.
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Weekly Rundown 4.12.2020
All the data seems to indicate that we are in fact heading into another recession - but it’s not necessarily because of the coronavirus. Before this virus took over the planet, we had been seeing a slowing down in economic activity for at least 6 months.
The Fed had already lowered rates a whopping 3 times in 2019, BEFORE the first known case of COVID-19.
August 1, 2019 - lowered from 2.5% to 2.25%
September 19, 2019 - lowered to 2.0%
October 31, 2019 - lowered to 1.75%
This was the Fed telling us that economic growth was slowing and that we could be heading into a recession. GDP growth had slowed to 1.9%, there had been a decrease in business investment by 3%, and factory spending had dropped by more than 15%.
To learn more about how the Fed works, check out the full explanation in my Forbes article here.
As with all previous financial bubbles, the last decade of recovery followed what economists call the ‘5 Stages of a Bubble’ (originally introduced by historian Niall Ferguson).
Displacement -a new opportunity/technology/financial asset is born
Euphoria - expectations of rising profits lead to a rapid growth
Mania - prospect of easy money attracts naive investors
Distress - insiders realize the assets are overpriced and decide to sell
Revulsion or discredit - prices fall, outsiders run for the exit, bubble bursts
Bubbles demonstrate the obvious information asymmetries that exist in business, and that timing, well, truly is everything. This bubble was led by a decade-long bull run in ‘convenience’ technologies, such as AirBnB, Uber and Amazon. The next bull run will likely focus on humanities’ necessities and be led by technologies in healthcare, education, communications and finance.
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This Week By The Numbers
We’ve seen a rise across assets, except for oil, which saw a bullish run mid week before tapering off.
Top Stories of the Week
Bernie Sanders Drops Out, taking with him hope of universal healthcare for many.
Senator Bernie Sanders of Vermont ended his presidential candidacy on Wednesday, concluding a quest that elevated him as a standard-bearer of American liberalism and clearing the way for a general election between the presumptive Democratic nominee, Joseph R. Biden Jr., and President Trump at a time of national crisis. Read Full Story.
We Almost Had an Oil Deal...
Saudi Arabia and Russia agreed in principle Thursday to lead a 23-nation coalition in massive oil-production cuts after a month-long feud and a drop in demand due to the coronavirus crisis devastated oil prices. But following more than 11 hours of negotiations, Mexico abruptly exited the talks, jeopardizing a final pact. Read Full Story.
US weekly jobless claims jump by 6.6 million and we’ve now lost 10% of workforce in three weeks
That brings the total claims over the past three weeks to more than 16 million. If you compare those claims to the 151 million people on payrolls in the last monthly employment report, that means the U.S. has lost 10% of the workforce in three weeks. Read Full Story.
And yet, S&P 500 surged 12.1%, capping off its best week since 1974
The Federal Reserve detailed a bevy of programs to support the economy during the shutdowns from the coronavirus pandemic. Wall Street’s weekly surge came amid increasing hope that the situation around the coronavirus was improving. Read Full Story.
Federal Reserve announces another $2.3 trillion stimulus
This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic. The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year. Read Full Story
Twitter’s Jack Dorsey Vows to Donate $1 Billion to Fight the Coronavirus
Mr. Dorsey said he would put 28 percent of his wealth, in the form of shares in his mobile payments company Square, into a limited liability company that he had created, called Start Small. Read Full Story.
U.S. surpasses Italy for most confirmed coronavirus deaths
As the United States passed Italy on Saturday for the most confirmed Covid-19 deaths in the world, with more than 20,000 fatalities. The president has now approved disaster declarations in all 50 states and the District of Columbia, along with the territories of Puerto Rico, Guam, the U.S. Virgin Islands and the Northern Mariana Islands. Read Full Story.
Apple and Google announce new coronavirus tracking tool
Google and Apple are using Bluetooth LE signals for contact tracing. When two people are near each other, their phones can exchange an anonymous identification key, recording that they’ve had close contact. If one person is later diagnosed with COVID-19, they can share that information through an app. The system will notify other users they’ve been close to, so those people can self-quarantine if necessary. Read Full Story.
This Week’s Reading
As we sit at home week after week, it is important to keep our minds, hearts and souls healthy. This week’s read is IN-Q’s new book Inquire Within. A short read, I checked it out on Audiobooks on my morning walk and it gave me all the feels. Using poetry to explore issues of love, loss, forgiveness and more, this book is like a hug you didn’t know you needed, at a time when hugs are banned.
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Wishing everyone a happy holiday weekend,
tatiana@tatianakoffman.com
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Disclaimer: This email does not contain financial advice and was created solely for informational purposes.