Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc, a broker dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors, Inc. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate. I got James joining me again. Third week in a row, James, social distancing doing the call in show. End of April, kind of a weird time, and hard to believe we’re already to this point already in the year.
James Nelson:
Oh, I know. The year is flying by already and yeah, we’re doing another show remotely. We never thought we’d be doing this, but here we are.
Nate Kreinbrink:
Kind of getting good at this, which I don’t know if it’s good or bad, but. This time of year’s also, I mean as we get to the end of April, starting to see some of these earnings seasons come out as far as reports or whatever, a big number that has kind of been in the news and kind of shows kind of where the economy is and where we’ve been, where we’re going is the unemployment rate. Maybe talk a little bit about this as far as unemployment rates and then how that’s shaped up and obviously changed over the past month or two, but we’ve been kind of experiencing this pandemic.
James Nelson:
Yeah, so I mean the coronavirus has obviously brought the economy to a screeching halt. And the last three weeks of unemployment claims have been unprecedented. They’re really off the charts. So this past week we saw 4.4 million people file initial claims. That’s down from the week before that, was right around five million, and that’s down from the first week, where this really started taking off, jobless claims were above six million. So this is by week, we had a six million week, a five million week, a 4.4 million week, and this coming week’s probably not going to be much better.
James Nelson:
So yeah, we’re losing jobs left and right. It’s kind of turning into a mad dash to get economies and states and the country opened back up, because a lot of these numbers haven’t been so favorable here and we fear the worst if this continues. But as we see in the news, it’s been a fine line for state and local governments to do this and it’s certainly been a topic. Now to put things in perspective, the great recession of 2008 and 2009, the initial claims were just over 600000, so we thought that was a huge number back then, but that is nothing in comparison to what we seen the last three weeks from, from the jobless claims and that’s why a lot of people are fearful that we could approach 20% in unemployment.
James Nelson:
So yeah, it’s been a crazy time. And hopefully things settle down here, but unemployment’s not the only number that we look at. We also look at yield curves and several other leading indicators. Nate, I think you were going to touch on the yield curve a little bit.
Nate Kreinbrink:
Yeah, I think the yield curve is definitely important for people to look at and obviously people thinking about curves now they think about the flattening of the curve as it relates to the coronavirus outbreak, but NelsonCorp and what we’ve been kind of looking at over the past, I would say probably almost 12 months here, is the US treasury yield curve. And we started paying particular attention to that curve, probably the middle of last year, as the curve kind of began to flatten. When we say flatten we mean that the longer term interest rates and the shorter term interest rates started getting closer together.
Nate Kreinbrink:
And this is usually caused when The Fed kind of raises those shorter term interest rates while the longer term interest rates, which are set by the markets, either remain flat or even begin to fall a little bit. So then we fast forward to kind of the fall of 2019, that yield curve actually became inverted, which means that it went negative. So essentially the longer term rates were actually lower than the shorter term rates. Now historically when that has happened, it’s suggested that the future trouble in the economy similar to a recession is likely to happen within six months to a year following that event. So we got that signal back in the fall of 2019.
Nate Kreinbrink:
Now we fast forward to where we currently are and I think you can obviously say that we’re in a recession type environment, although it just hasn’t been quite defined yet. So I think understanding and then being able to look at some of these different metrics, understanding historically what has happened when certain indicators have been met, I think maybe gives you a little insight as far as what will happen. I know we’ve said it in past shows or whatever, that history doesn’t always repeat itself, but a lot of times it rhymes, and I think if you are able to take some of this information and being able to comprehend it gives you a little bit of an idea of what type of an environment we’re actually in.
Nate Kreinbrink:
And a lot of times these [inaudible 00:05:49] will give you information to kind of help predict where things are going to roll. And I think, James, you did a great job as far as going through those unemployment numbers, as far as how staggering they are, and what they’ve gotten to this point. Is there any sense as far as where things may kind of go from here, as far as what we’re looking at through the unemployment numbers, where they’re at right now, but what they’re may transition to in the future?
James Nelson:
Yeah, unfortunately things probably get worse before they get better, unfortunately. That’s kind of where we’re at. It doesn’t seem like all these jobs are going to come back immediately, and some aren’t going to come back at all. And that’s probably the scariest thing. The longer this gets drawn out, the harder it is for these companies to bring back those furloughed employees. If this drags out for prolonged period of time, companies have already adjusted to their new systems and new personnel. It’s tough to really imagine those furloughed employees, being offered their same job in six months.
James Nelson:
So yeah, unfortunately we’re probably going to go deeper. The jobless claims are going to continue to go up in the near term, still with a lot of things being shut down and even states like Iowa, that haven’t been totally shut down, and things sound like they’re going to start ramping back up, and allowing us to do a few more things, it doesn’t mean people are going to do it.
Nate Kreinbrink:
Right.
James Nelson:
That’s probably the scariest thing for these restaurants and gyms and whatnot where just because they’re open doesn’t mean all the people are going to come back, or anybody who’s going to come back. So, yeah, hopefully this can get taken care of and we can move past it quicker than a lot are anticipating. But that’s probably the biggest danger is the longer this goes, the tougher for those jobs to come back.
James Nelson:
Now I know with the yield curve, like you chatted about Nate, what it’s going to get the yield curve kind of back in check or back to it’s normal levels?
Nate Kreinbrink:
Well, I think, like I mentioned, as far as the indicator when the yield curve becomes inverted or turns negative is an as an indicator of leading into a recession, it’s also able to tell us kind of when we’re leading us out of a recession as well, that normal economy, the difference between the longer term rates and the shorter term rates has historically been 2%, we call that steepening of the curve. So when there’s increases and that spread becomes and hits that 2% mark, is usually an indicator that a normal economy is on the horizon.
Nate Kreinbrink:
I think it’s also important to keep in mind that historically, over the last two recessions, that steepening of the yield curve has been closer to 3%. So if you look at kind of where are at right now falling just below that 1% mark, I think it’s easy to see that we’ve got a little bit of a ways to go before we’re hitting marks where we can actually say that we’re back to, reflective of a normal economy of what that can be like. And I think as you said, there’s a lot of stuff that goes into whether it’s looking at the yield curve, looking at the unemployment numbers, looking at all this type of stuff, a lot of factors go into making the economy and doing all this type of stuff.
Nate Kreinbrink:
So there’s a lot that’s going on out there. Unfortunately it looks that a lot of it is yielding that it’s going to be a little bit more of the same before we get even better. And I think there’s a lot of stuff that goes into that through some of the things that you went over, James. The yield curve obviously is a big thing with interest rates, markets, overall economy, with that. But I think it’s understanding for people to, again, not necessarily understand all the stuff we went over, but understand that there’s metrics that are out there that people are looking at and to be able to use them in your behalf. I think it’s a good thing for everybody in trying to look at those things moving forward, as we try to get back to whatever that new normal is on the other side of all this that we’re going through.
James Nelson:
Yeah, exactly. I think another key point is just to know that a lot of the indicators that we mentioned are leading indicators. So the stock market has been fairly solid the last two to three weeks. Generally it takes a little bit of time for the stock market to be reflective of the economic data. So we’re still telling people to proceed with caution, and not jump the gun here because these things don’t always match up timing wise as even as we’d like. So stock market’s been fairly solid, and on solid ground here the last couple of weeks, but again the data continues to come out day by day and none of it’s looking very good, unfortunately.
Nate Kreinbrink:
It is. So questions on any of the stuff we went over, how it applies to your current allocations, investments, anything like that, feel free to give us a call. But I did want to mention real quick here before we run out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of April will be donated to the Clinton Public Library Summer Reading program.
Nate Kreinbrink:
James, as always, appreciate you joining me today. Always great stuff that you share with us and that we get to do on a weekly basis. So again, thanks for joining me today.
James Nelson:
Yeah, absolutely. Thanks for having me.
Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management bringing you this week’s Financial Focus. Thanks again for tuning in, and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc., a broker dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.NelsonCorp.com.