Friday, August 7, 2020

The Number One Lesson (Re)learned from the COVID Correction/Recession

Discipline might be the most important and most difficult principle for investors to follow. While the coronavirus pandemic progressed, financial markets experienced unparalleled volatility as the world faced economic shutdowns designed to keep the virus from spreading. A natural and justified human reaction to the uncertainty is to protect and preserve the resources you have. While this might be the right strategy in some respects, staying disciplined and invested is consistently the most productive solution for long-term savings like retirement accounts which are designed to provide decades long retirement income stream.

The S&P 500 experienced the best 50 trading days in history as markets recovered from the March 2020 swoon. The S&P 500 increased by a historic 37% from late March into June. This was immediately preceded by the sharpest correction ever, falling 35% late February into March. Missing out on those 50 best days ever, or even a few of the really powerfully positive days, could have put your long-term retirement plans in jeopardy.

The chart below illustrates the intra-year declines experienced during each of the past 20 full calendar years. In 11 out of 20 years, the markets fell by at least 10% at some point during the year.

Source: Morningstar Direct, as of 12/31/2019. Indexes are unmanaged, do not incur management fees, costs, or expenses, and cannot be invested in directly. Past performance does not guarantee future results

Financial markets are nearly impossible to time exactly right because investor psychology is unpredictable. Additionally, the financial markets typically recover from a shock or economic setback before the data suggests the worst is over. For instance, stock markets bottomed in March of 2009 in the wake of the housing crisis before recovering over 60% by the end of 2009 – even as job losses continued, foreclosures accelerated, and real estate prices continued lower.

During a severe correction or crisis, it’s not uncommon for us to receive client requests to sell investments and then wait for the situation to stabilize and reinvest. There are a few problems with this strategy: First, when we get this request, the markets have almost assuredly already reflected at least some of the uncertainty, so we are selling after some or most of the decline has already been suffered. Second, if you are lucky enough to not be selling at the bottom, there is little chance investors are going to be courageous enough to reinvest as markets continue falling. There is, however, a good chance that by the time the environment has stabilized, stock prices will be higher – possibly significantly higher. We often ask our clients, “Do you think market prices will be higher or lower when you feel comfortable investing again?”

The data below illustrates the unpredictable duration of past corrections. In some ways, the stock market recovery this year also feels premature as the virus persists and layoffs continue. So, to those who wonder if there’s a playbook that works for all corrections, we would say probably not; the irregular durations of prior corrections and the difficulty timing them reflect otherwise.

In the wake of the pandemic there was a remarkably swift policy response, which served to reduce the magnitude and shorten the duration of the stock market correction. No question, markets have benefited from government stimulus in the form of loans to companies, extra unemployment payments, stimulus checks and the like. These government transfers helped bridge the economy through the economic shutdown much of the country experienced the past several months.

The fiscal actions of Congress and money policy responses by the Federal Reserve and how markets react to these policy responses are also challenging to forecast ahead of time. Financial markets have reacted incredibly favorably to the government financed response to the economic damage across the globe since March. While we don’t know exactly how the pandemic will progress over the following weeks and months, we believe focusing on a disciplined investment strategy while taking advantage of some of the evolving investible themes is likely to produce a winning result.

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.

Best Regards,
Edward J. Wilcox, CFA, CFP
Rollins Financial, Inc.

Wednesday, August 5, 2020

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

From the Desk of Joe Rollins

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.”

Best Regards,
Rollins Financial, Inc.

Monday, July 27, 2020

Rollins Financial, Inc. Named to the 2020 Top Firms in Georgia List

From the Desk of Joe Rollins

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 comes in.

A consumer advocacy project with the mission of serving Americans as a trusted resource for researching and comparing financial advisors, 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 is to make it easy for Americans to find a firm and advisor they can trust,” said Blain Reinkensmeyer,’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, 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.”’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.”

Best Regards,
Rollins Financial, Inc.

Tuesday, July 14, 2020

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

From the Desk of Joe Rollins

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

Wednesday, July 1, 2020

Happy 4th of July!

In observance of Independence Day, the offices of Rollins Financial and Rollins & Van Lear will be closed on Friday, July 3rd. We will re-open for business on Monday, July 6th at 8:30 a.m.

Image result for 4th of july

If you have any pressing matters that require immediate attention, please do not hesitate to contact any of our staff.

Please be safe, and enjoy the holiday! 

Best Regards,
Rollins Financial, Inc.

Tuesday, June 9, 2020

I Learned Early On, "Don't Fight the Fed"; 2020 Is A Perfect Example

From the Desk of Joe Rollins

The whole world seems to be shocked that the stock market has made such a quick recovery. In the middle of March, the broader indexes were down 37% and the media forecasted that things would only get worse as the year progressed. How could we possibly put 25 million workers in America back to work and what would the economic ramifications of the COVID-19 pandemic be on business? Surely those forecasts that things would only progressively get worse meant we were facing another Great Depression.

Ava at her 9th birthday party

As I forecasted, their concerns were completely overhyped. In fact, in early June the Standard & Poor’s Index has made it back to breakeven, gaining more than 40% since its March lows. Further, there has been rapid and significant progress in the economy, which is putting Americans back to work and surprising even the experts. The May unemployment report was a huge surprise to these so-called “experts” but reflected exactly what you see with your own eyes. Americans are returning to work because they want to work, they need to work, and the economy will return to its normal self after this self-imposed lockdown.

In this posting I want to discuss all of the matters above including the remarkable rebound in the markets, the remarkable rebound in employment, but I cannot do so without discussing the grave and fatal mistake we made in forecasting the potential risk of the COVID-19 pandemic. I was lucky enough to run across a publication by Alex Berenson titled “Unreported Truths About COVD-19 and Lockdowns”. This is posted in essay form on It contains a lot of useful information regarding how badly the media has handled reporting this pandemic. I would like to give you, below, some of those facts and figures.

However, before I launch into all the interesting and useful information, I have to report again on the financial markets during the month of May. The month of May was an excellent month again following the excellent month of April. Over April and May, the S&P 500 has gained 17.6%; quite a rebound from the March 23rd lows. For the month of May, the Standard and Poor’s Index of 500 Stocks was up 4.8%. At the end of May that index was down 5%, but still had a one-year return of 12.8%. For the month of May the NASDAQ Composite was up 6.9% and is ahead year-to-date by 6.2%. That index has a one-year total return of 28.6%.

Carter, Josh, Ava and Dakota enjoying an outdoor meal
at Ava's birthday

The Dow Jones Industrial Average was up 4.7% in May but down year-to-date in 2020 10.1%. That index has a one-year total return of 4.8%. Just so that you can compare stocks and bonds, Bloomberg Barclays Aggregate Bond Index was up .4% in the month of May, up 5.8% for the year 2020 and the one-year total return on that index is 9.6%. I always believe that a 10-year average is much more informative than a one-month average. The S&P 500 has an average return over ten years of 13.2%. The NASDAQ Composite has a 10-year average 16.8%, the Dow Jones Industrial Average is 12.4% annually. The Barclays Aggregate Bond Index has a 10-year average of 3.9% and as you can see many multiples less than any of the stock indexes.

As I mentioned two months ago in this posting, you should never sell America short. As I indicated, if you turn loose the American worker, the “American spirit” will rise up. We have seen it every day since the lockdown. We have seen a host of new companies create interactive technology so their employees could work at home. I was shocked to see how well some of the technology companies did during the lockdown with almost no interruption of their business. Clearly, hospitality, airlines and other industries were significantly impacted, but technology was not. American ingenuity allowed those companies to continue to work even during the lockdown. Unemployment is still over 20 million Americans but is improving every day. So, the rebound in the stock market is not based on flawed philosophy, but on the realization that America is going back to work and when Americans go back to work the economy will recover.

It was quite a shock last Friday when the Bureau of Labor Statistics presented the employment report. The so-called “experts” had forecasted that during the month of May that 7.5 million additional people would be put out of work. Much to their surprise, not only were there no net decreases, there were actually 2.5 million new jobs created during the month. Of course, these are not new jobs, these are just people returning to their former jobs. As indicated, 1.4 million of this group was in the hospitality and restaurant industry. During May, only a few restaurants and hotels had opened, but in June more will open. In New York City, restaurants are not likely to open until July. So many more job gains are in the offering. We already see the signs of recovery. Hotel occupancy is up (40% compared to the 60% in January), airline flying capacity is up and homebuying is at record levels. How did we get from the level of despair that we were in in March of 2020 to the almost euphoria in June 2020?

Ava's 6th birthday with Liz Mercure, 
35-year client, at the Georgia Aquarium

There is no magic wand; what happened is clearly due to the effort of the Federal Reserve. Almost immediately when the crisis occurred, the Federal Reserve slashed interest rates twice to near zero between regular policy meetings. Not only did they agree to buy securities, if necessary, they never really got around to it, but the securities benefitted from the backstop of the Federal government. And oh yes, you cannot forget about the $3 trillion that the Federal Reserve has injected into the economy over a relatively short two-month period. Last month I explained about the velocity of money and that money is thought to be spent seven times prior to being saved. $3 trillion creates $21 trillion in potential GDP, which is almost 100% of the GDP in the United States in 2019.

So, when the unemployment report was reported, all the so-called “critics” came out of the woodwork to find fault. I must have heard from dozens of clients who wanted my input as to the inconsistencies in the report. I read the report in full and I guess I am less concerned regarding their inconsistencies. The Labor Department reported that many employee’s response to the survey was “employed, but absent from work”. The Labor Department can consider those people with that response as employed since they were being paid. The critics suggest that those people are not employed even though they are being paid and, therefore, the unemployment report is much worse. I have to agree with the Labor Department; it seems to me that if the employee is being paid, whether he is home or at work, to me the distinction means nothing. If he is being paid, he is employed, in my way of thinking. By the way, the 2.5 million new jobs were in a different survey altogether and was not corrected.

So, the unemployment rate fell to 13.3% in May, which, while terrible, was a huge improvement over he predictions. Yes, there continues to be 21 million Americans not working, but do not be surprised if the June employment report reflects 8-10 million new employees during the month of June. In early June, all of the automobile workers went back to work and are near full capacity. The combination of those workers and the suppliers to those workers alone constitutes close to 3 million employees. Throughout most of the United States restaurants are reopening and hotels are relaunching. I know 3 or 4 million jobs will be restarted and employees reemployed. There is no question about it that most of these jobs could not have been created, nor the companies reopened without the PPP loan program from the government. Essentially, the Federal government gave private industry grants to reopen their businesses and pay their employees. It is believed by many that this program saved 5 million jobs in America.

Old friend Craig Sager and his family with 
baseball player, Michael Jordan, in July, 1994

It is kind of interesting how the President has criticized the Federal Reserve for its lack of action in reducing interest rates. However, there can be no criticism that when the pandemic was announced the Federal Reserve jumped in with both feet and saved a very weak economy over the short term. There is an old saying in the legal business that you never want to fight with someone who is not paying his own attorneys. In the case of stock market investing, you should never bet against a country who can, on a whim, print $3 trillion of new money.

Make sure you make no mistake in understanding where this $3 trillion came from. Due to the speed in which they needed to distribute the money, there is no way they could have had time to issue bonds. This is classic printing of money and distributing that money to employers so they could keep employees working. Will it work? That remains to be seen. Over the short term, it has certainly been encouraging. There are many other encouraging signs that you can see if you actually look.

During this entire time of the lockdown, the 10-year Treasury has traded at unprecedented prices. Most recently that bond was trading at 0.6% over a 10-year period. If you put that in perspective, you could buy a bond for $10,000 that paid you a dividend every year of $60 and it had no potential to go up over the next decade. Just exactly who would make that conscious investment decision? However, that is beginning to change. Recently, the 10-year bond has moved up to 0.9%, which is still historically low, but a 50% increase over the most current rates.

You could never say anything regarding the U.S. economy without reflecting on the effect that COVID-19 has had on the economy and what its potential really is. I guess I have never been able to quite understand why the media is so terribly focused on this virus which has proven to be almost harmless to most Americans. There seems to be nothing but negative reporting on the subject, to the point of where it almost has become laughable. This morning I woke up to a Yahoo report that indicated in huge bold print “Texas Sees Record Spike in Coronavirus Cases After Reopening.” Of course, these same publications have been uniformly critical of the states for reopening their businesses, and therefore this record spike could reinforce their argument that the country should not reopen for business. However, if you read the article a little closer, it is much more informative.

In Dallas County, they reported an uptick in cases of 298 for the day. Remember, Dallas County has roughly 2.6 million residents and close to 6 million in the metropolitan area. Houston reported 180 new cases that day with metropolitan Houston having 7 million residents. Obviously, these numbers are totally insignificant as a percentage of the population. I have struggled to understand why the media is focused on this entire subject and why it is so important to them that they continue to report the negative but do not give you the real facts. Yes, a lot of people would like to dismiss it as truly political of the infamous liberal media, however there must be a more logical reason for their preoccupation with the subject.

In trying to reconstruct exactly what took place, I went back and reviewed the information in Alex Berenson’s book, “Unreported Truths about COVID-19 and Lockdowns.” The very first report of the virus was on March 16, when the Imperial College predicted 500,000 Britain’s and two million Americans would surely die if the governments did not act immediately to close schools and businesses. This was written by a scientist not a physician but was supported by the World Health Organization. I guess that would, by any definition, scare most politicians to death. However, what was clear at that time is that it had not happened in China. The pandemic had not moved to Beijing and no overall financial catastrophe actually occurred. Why was it at that point the media was so focused on reporting this potential huge loss of life around the world based upon the Chinese experience? In fact, in many cases China got back to work within 30 days and now their country is almost fully operational.

Ava's first swimming lesson at 6 months old

What we now know is that the Imperial College report professor, Neil Ferguson, has a long record of exaggerating his predictions. His prior predictions, which are legend, and in some cases, comical, have become largely forgotten. What is interesting about this matter is only two weeks later the very same scientist changed his projection. In less than a two-week period, he projected that in Britain, 20,000 Britain’s would die rather than 500,000. And more shockingly, he reported that of the 20,000 people expected to die due to the COVID-19 pandemic in Britain, at least half of those would have died anyway due to other causes.

So, in a period of just three weeks, his projection went from 500,00 to 20,000. I am just wondering as of right now why the media never bothered to report this major reduction in the estimated deaths from the pandemic. Would it have changed our thoughts? Probably, but now we will never know. For the record, as of this morning there are 40,548 reported deaths in Britain. As I will point out later, these death statistics are wildly unreliable.

Come to the United States, we all vividly recall Governor Andrew Cuomo proclaiming that the state of New York would need 140,000 hospital beds for COVID-19 patients. Almost hysterically, he demanded that the U.S. government provide 40,000 ventilators for their use. You will recall by Presidential decree, companies such as General Motors were mandated to make ventilators because the need was going to be so great. However, what we saw was that the field hospitals built and a huge expense to the state and federal government were never used and were dismantled, and in often cases, without serving a single patient. At the end of the day, New York never had more than 4,000 people on ventilators. You have to wonder how valid the information was when the estimate was wrong by a 90% difference. Needless to say, we have a lot of unused ventilators for sale.

What is not fully understood about COVID-19 is that it really only seriously impacts older people. It is now believed that 43% of all the people who have died from COVID-19 were in nursing homes. It is almost unscrupulous to now understand exactly how the death figures are calculated. I think a good example of this is a quote from the Director of the Illinois Department of Public Health explained in April, “If you were in hospice and had already been given a few weeks to live, and then you also were found to have COVID, that would be counted as a COVID death. It means technically even if you died of a clear alternate cause, but you had COVID at the same time, it's still listed as a COVID death.”

As mentioned before, there is a huge difference between dying of COVID and dying with COVID. However, many of our problems associated with COVID were of our own self-making. It has now been learned that the state of New York so much feared the overflowing potential hospital situation that in their haste to free up beds, they sent COVID patients to nursing homes. What we now know is that this was a fatal error. Once the patients were at the nursing homes, they spread the virus to not only the other people at that home, but also the staff. What is ironic about this matter is that these individuals were likely to die shortly anyway.

CiCi enjoying the beach buggy

In New York, it is estimated that the average stay for a nursing home patient is approximately five months. So, as it clearly could be demonstrated, in all likelihood these patients were going to die shortly anyway and the contracting of the coronavirus was meaningless to their death. However, in order to reinforce their position, each of these deaths are considered to be a COVID death. Remember, the reason for the lockdowns had nothing to do with stopping the spread but had everything to do with slowing the spread and not overrunning the hospitals. Now what we actually know is that the hospitals were never overrun, and it was never truly an issue. As of today, there are roughly 30,000 hospital cases of COVID in the entire United States and at its maximum, it was only 58,000 hospital cases.

In many cases, the hospitals were not only not overcrowded, they were empty. People were so scared by the media that they refused to go to the doctor even for normal health checkups. So basically, doctors, dentists and other healthcare professionals did not work for two months due to the fear placed in the American worker of the potential loss of life in COVID. As a good example of the progress that is being made, the increase in hospitalizations for COVID has been declining remarkably. Over the last six weeks reporting period, 33 days there have been net reductions in hospitalizations and only up eight actual days. The reporting on this issue has gotten so bad that even Washington state has in their records of COVID deaths two people that died of gunshot wounds.

But the real news that is coming out of this matter is that there is almost no risk to younger people. For example, in Italy 32,000 Italians died by COVID-19 and the median age was 81. That means that half of the people were above 81 and half were below 81. In this number, 13,000 were over the age of 80 and another 5,400 were over the age of 90. That has been the case throughout the world.

In New York City, 40% of the 23,700 deaths were people over the age of 80. And even to the point that under the age of 15 across the United States, there have been only 19 cases of death from COVID-19, while 180 deaths from flu were reported. This statistic bears out the facts that under the age of 30, your risk of death is almost insignificant. To give you an example quoted by my friend, Marc O’Connor, “If you are under the age of 24, your odds of getting struck by lightning is 1 in 700,000. If you are under the age of 24, your odds of dying from COVID is 1 in 1 million. That does not mean you will not get sick, but you will not likely die.

You may remember the very famous case of where the Lake of the Ozarks had a huge pool party over Memorial Day. It was reported in every major outlet as a huge abuse of social distancing. The pool was shown crowded and the decks around the pool were also overflowing. The national media was outraged at this clear abuse of the lockdown. Just as a follow-up to that case. There have been zero cases of reported Coronavirus related to that party.

When I was president of Brown Steel, 
November 1979 - still writing newsletters

So, the question always beckons us, what does the future hold. Clearly, none of us know if we will have a second wave of Coronavirus. What we do know is that medicine is ready. There has been an explosion of Federal money supporting antibody therapy. This therapy does not prevent the disease but makes those early in recognition recover quicker. There are numerous companies making antibody medicines at the current time and many are expected to be available in the fall. The Manhattan Project of the Federal government relayed a vaccine is moving forward. There are numerous vaccines already in testing around the world and China now said that they would roll theirs out in a couple of months. I think it is more than reasonable that a vaccine will be available before the end of 2020.

So, there is no way to criticize what has already happened because we have already gone through the lockdown. But there is absolutely no emphatic evidence that the lockdown should continue. There was probably never any reason to close the schools and all the schools will reopen in the fall, except maybe in California. For reasons not known to most people, they have elected to ignore empirical evidence on the subject.

We can expect that the camps, sports leagues and schools will all open in the fall. Millions of workers will go back to work in June, and more importantly, in August. As previously mentioned, the extraordinarily lucrative unemployment benefits will run out in July 2020. This will make many employees go back to work by default. Employers around America are reporting that it is hard to get employees back to work since they are currently making more in unemployment than they made while working. All of that will end in July. In addition, with schools starting back and normal childcare opening back up in August, another 5-6 million Americans will be back on the payroll.

So, as we sit here today, we are at a crossroads of the investment year. It has certainly been a strange period thus far. The months of January and half of February was great. Half of February and most of March was horrible. The month of April was fabulous, and the month of May was very satisfactory. But it once again shows that you cannot try to time the market. At the height of dismay in March with the media pronouncing America in Depression, if you sold your stocks you made a mistake. Almost always, you are better off to ride out these markets when volatile. But as we approach breakeven on the major market indexes, I anticipate the rest of the year will be extraordinarily volatile. There will be periods of large gains and large losses, but at the end of the year we should still see gains.

As the economy picks up over the months of June, July and August, we will get back to normalized unemployment. My projection for the end of 2020 unemployment will only be 8%. While much higher than the beginning of the year, it is certainly within normalized range. Corporate earnings will be depressed in the second and third quarters but will rebound strongly in the fourth quarter. I know all of this sounds like we are talking about a tremendous period of time, but as I write this we are only three weeks away from the third quarter and only three and a half months away from the fourth quarter. It is going to happen faster than you ever expect it. But do not expect it to be straight up because the media is just refusing to let the COVID fears recede. However, as the correct information is dissimilated, eventually even the media will have to concede their mistakes. As to a question regarding his projection for the future, on May 25, Governor Cuomo said “I'm out of that business (forecasting cases of COVID-19) because we all failed at that business. Right? All the early national experts. Here's my projection model. Here's my projection model. They were all wrong. They were all wrong.” Truer words have rarely been spoken in America since February 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