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Hope everyone had a great Memorial Day Weekend and they’re ready for the week ahead. Time for your daily dose of the Wall Street Journal brought to you by yours truly.

Side note – I’ve also been dropping some knowledge bombs in the “Education” tab. Go check those out and let me know what you think! Have an idea for a post in the future? Let me know and I’ll probably do it!

Optimism Over Reopening Pushes Stocks Higher
Stocks moved up Tuesday on optimism about economies reopening and the potential development of a COVID-19 vaccine. This rally now pushes US indexes up more than +30% since late March.

Restaurant bookings and spending on hotels and airlines appear to be picking up in the US, coinciding with a decline in the daily number of new infections.

Despite the recent stock rally, many investors, including myself, remain concerned about how to value shares when earnings have fallen so sharply and many companies have withdrawn their future forecasts. The market rebound has pushed the S&P 500’s forward-looking price/earnings ratio to 23.36, its highest level since 2002. *insert eye’s looking to the left emoji here*

Boeing and Airbus Study How Coronavirus Behaves During Air Travel
Boeing and Airbus are researching the new COVID-19’s behavior inside jetliners, part of an industry push to curb risks that have brought air traffic to a near standstill.

The effort to better understand air-travel risks during the pandemic comes as airlines try to reassure nervous passengers that masks and filtered cabin air provide reliable protection from infection in flight. Boeing said they’re developing computer models that simulate the cabin environment and could ultimately inform decisions by airlines, health officials and regulators on how to prevent the virus’s spread.

Airbus said the plane maker is exchanging information with universities in the US and other countries – they’re also exploring other methods of reducing the spread of the virus including self-cleaning materials (a disinfectant that can last for 5 days & touchless devices in lavatories).

Despite sanitary efforts, Friday the TSA screened only 349,000 across the entire US; -88% below year-ago levels.

Tax Credit for Keeping Workers on Payrolls Draws Bipartisan Interest
The $3 trillion package passed by the House this month features an expanded wage subsidy, known as the employee retention tax credit. That proposal (which would add $194B to an already $55B tax credit created in March) is gaining bipartisan support even as lawmakers clash over other legislation to aid the economy during the pandemic.

The House’s plan would give employers enough money to cover up to 80% of their wages and benefits, up to $45,000 per worker, plus a credit for fixed expenses like rent.

For Democrats, the subsidy offers an alternative to the payroll-tax cut President Trump is seeking, which they oppose because it does little for the unemployed. Republic supports prefer the subsidy to spending programs favored by Democrats and see it as a way to link aid to work.

The nonpartisan Congressional Budget Office projects unemployement averaging 8.6% in the fourth quarter of 2021.

Either way, people are unemployed and that in itself is a hard problem to fix – especially during a pandemic.

Lumber Prices Rebound From Coronavirus Decline
About 18 months ago I spent every spare hour of time I had looking for “recession indicators” online along with a list of actions to take once we were deemed to be in a recession. You know what every online resource I used told me? The price of lumber and copper are massive indicators of economic growth and contraction. If our economy is thriving, chances are we’re building things and you need lumber and copper to do that which drives prices up. If our economy is contracting, chances are we’re not spending extra money building things therefore the demand for lumber and copper will decrease which decreases prices.

Well do I have news for you –

Lumber future for July delivery ended Tuesday at $356.80 per 1,000 board feet on the Chicago Mercantile Exchange – Austin, I have no idea what that even means? Is that historically high or low?

I got you –

Boom – perspective.

And here is how the prices of saw-mill share-prices have been impacted.

And here is a graph showing the growth (and contraction) of residential construction.

Alright Austin we get it – but what does this mean? Great question.

Considering Lowe’s and Home Depot reported double digit lumber sales growth, “home-building season” may still be a thing this year. I wonder how this will impact the price of homes over the next 12 – 24 months. As always, drop your feedback in the comments below!

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Responses

  1. interesting!… quick question about the lumber section of the update. Considering the prices are very similar to this point last year, is this an indication that we are not in a recession?

    As for future of housing prices, personally i think they’re going to drop. I don’t believe we have really felt the full effect of the coronavirus on the economy yet. There are a couple of reasons for the but mainly the government has stepped in and softened the blow, at least in the short term. 

    For example in Canada, the government is basically handing out $2000 every 4 weeks to anyone that has had their income cut or lost their job due to corona virus. The best part is that they basically came out and said that they’re not verifying the eligibility of individuals for the ” CERB” program and basically anyone that applies will get the funds, this includes people who weren’t affected by COVID-19 and are going along business as usual. Now $2000 every 4 weeks isn’t going to make anyone rich, its more than enough to keep most people afloat in the short term. Not to mention it may be more than some people earned working full time.

    Next we have the mortgage deferral programs, which essentially allows buyers to differ their mortgage for up to 6 month. Once the 6 months are up, your mortgage payments are recalculated, and you are stuck paying a higher mortgage for the remainder of your term.

    Now here’s the problem, what if those people don’t go back to work after 6 months and still can’t cover the mortgage payments?  What happens when the $2000/month payments stop, because obviously the government can’t keep that going for an extended period of time. 

    I think in the next 5-6 months is when we really find out how bad things really are. Now if people start defaulting on the mortgage and those houses go back on the market, add to that new houses being built and drop in demand because people aren’t working so they can’t afford to buy a house, i think prices drop dramatically.

    Obviously there are quite a few assumptions here and I’m not sure if its a similar situation in the States as i don’t follow the policies as closely.

    Let me know what you think. Sorry for rant lol!

    1. Totally agree with you here. I don’t think we’ve seen the impact of COVID-19 quite yet due to the governments just pumping in cash to keep the economy going. Once that money goes away, people will start really feeling it.

    2. Hey man – thanks for commenting your thoughts! When it comes to the price of houses, it’s hard to say one way or another. I believe I recently cited the stat that the average home price is up +7% YoY in a WSJ news update – absolutely crazy to me.

      I agree, I don’t think we’ve yet seen the impact of the coronavirus to our economy. It’s so weird to see the market rally every Thursday off of higher unemployement numbers.

      I can’t speak for Canada because i’m not familiar with their financial aid system, but I would be curious as to how much of the money those people are receiving back in $2,000 lumps were taken from them from a tax perspective to begin with. I’d love to see some sort of analysis around that thought. Then the same for the USA.

      Sort of familiar with the mortgage deferral program you mentioned and it’s such a rip off in my opinion – I’ve seen videos of people who have had to enter into a deferral / forbearance program with their lender and still be reported as “foreclosure avoidance” which wiped out their credit score. With my lender, if I were to enter into their forbearance program I’d have to repay all of my “missed” payments in a lump sum at the end of my forbearance period. Not helpful for those unemployed to begin with.

      I agree with you, in the next 5-6 months is when I think we’ll begin to say “hmm .. maybe ‘that’ company shouldn’t be trading at such a frothy multiple” and people begin to realize 34M unemployed is not a good thing and the markets shouldn’t be rallying. Great rant – always feel free to share your thoughts in the comments!

      1. Yes, I do remember that post about rising housing prices. However i am not sure if it was you or Justin that mentioned that sellers were pulling out of the market faster than buyers, which could explain the rise in prices.

        As for the ” lump sum payment” forbearance program, i’m not sure who came up with that idea and how they thought it would help. Honestly when i first heard about it, i thought it was a joke. Even someone who is employed with a well paying salary would have difficulty making multiple mortgage payments in a lump sum, so how can they expect someone unemployed to come up with that amount , even if they go back to work.

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