The Capitalist Investor - Episode 20

Some weird things are happening in the economy—unemployment rates are climbing, but the stock market is performing. There is a complete disconnect happening. Why is that dangerous? The market has gotten ahead of itself. We don’t want our listeners diving back into stocks headfirst only to get blindsided when we see a nosedive in the market again.

So who are the winners and losers? Where do you need to keep your eye on the ball? Listen to this episode of The Capitalist Investor as Derek, Nate and I chat about the industry as it stands right now, where we see things going, and who will see the most pain. Stay informed—listen now.

Outline of This Episode

  • [2:17] The US Economic News Release
  • [5:24] eCommerce is the net winner
  • [7:19] Oil + Energy will continue struggling
  • [8:23] How the travel industry is being impacted
  • [10:26] Regional flights will likely suffer
  • [12:23] Real Estate: winners and losers
  • [14:44] Will the unemployment rate lower soon?
  • [17:45] Paint a realistic picture of the stock market

Unemployment rates continue to climb—and will persist

According to the Bureau of Labor Statistics, in the month of April, the unemployment rate increased by 10.3 percentage points to 14.7%. They state: “This is the highest rate and 

the largest over-the-month increase in the history of the series”. It’s not exactly a rosy outlook, and it also doesn’t include the last few weeks of numbers. 33 million people are on unemployment benefits.

Many people are hopeful that the unemployment rate will lower as the economy reopens—but it won’t happen anytime soon. Treatments, vaccines, and cures don’t happen overnight. We wiped out all of the jobs we added over the last 10 years in only 6 weeks. Unfortunately we will likely see a longer impairment on the economy than what the stock market is saying.

It will take years to sort this out. It’s being projected that there will be 7% permanent job destruction from the pandemic. It’s far worse than normal economic shock.

Threats of bankruptcy continue in many sectors

J. Crew and Neiman Marcus have filed for bankruptcy. Nordstrom is closing 16 stores, teetering on the edge of bankruptcy. Hertz may soon follow suit. Norwegian is going to need a bailout. We think this is the first of many reports of bankruptcy filings, and it will continue to grow as the effect of the COVID-19 pandemic snowballs.

Which Industries will experience the most pain?

Some industries will fare better than others. Here’s where we see negative effects continuing:

  • Retail: We’ve already established many retail stores are filing bankruptcy. It will likely continue. The retail sector has gotten hit hard.
  • Oil + Energy: Roughly 50% of energy companies can’t make money when a barrell is below $50. At our last check, barrells were hovering around $25—HALF of what’s needed to start making a profit.
  • Travel Industry: Travel is going to be struggling for a while. Airlines, hotels, rental cars, cruise lines—they’re all taking a nosedive. Norwegian claims if they don’t get a bailout they’ll be a sinking ship.
  • Real Estate: Anyone in office space and retail space will see a lasting effect. Companies with unnecessary office space are going to cut their losses as soon as their lease is up.

Are there any clear winners?

The list of “winners” is far shorter right now in these uncertain times:

  • eCommerce: Anyone in eCommerce is coming out on top of this pandemic. Consumer demand has still been strong for anything that can be purchased online and delivered to your doorstep.
  • Real Estate: Anyone investing in data centers, eCommerce warehouses, and multi-family rentals will likely be on the winning side of this economic downturn.

We are trying to paint a realistic picture. The market has gotten ahead of itself and things aren’t as rosy as they seem. It’s straight line up from the bottom isn’t going to continue. Be tactical with your entry point, understand your blind spots, and make strategic decisions.

For the full discussion on the ongoing impact of bankruptcy and unemployment rates on the stock market, listen to the whole episode of The Capitalist Investor.

Resources & People Mentioned

Connect with Nate Fischer

Connect with Derek Gabrielsen

Connect With Mark Tepper

Send your questions and comments to us at info@SWPConnect.com

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Keep Listening to The Capitalist Investor:
Episode 23:
Elon Musk, Michael Jordan, and Capitalism, Ep #23
Episode 2:
Is the Stock Market Overvalued?
Episode 3:
Impact of a Bernie Sanders Presidency
Episode 4:
Coronavirus, Pandemics, and Your Money
Episode 5:
What We Consider A Smart Investment Strategy, Ep #5
Episode 6:
Why Investing In IPOs Is Not A Good Idea, Ep #6
Episode 7:
How a Joe Biden Presidency Will Impact Your Portfolio, Ep #7
Episode 8:
Special – Coronavirus and the Economic Shutdown, Ep #8