What Does Investing Look Like in a COVID-19 Economy?
How is the stock market up, while the economy is down?
Liz Ann Sonders, chief investment strategist at Charles Schwab, joins Roben Farzad to talk about the unprecedented divergence of the stock market and the coronavirus economy. With 34 years of investment experience, Sonders takes your questions on how the current economic situation may impact individual investments.
|“I just think the ripple effects are so massive and so long lasting, that I think we are really going to see some remarkable shifts in how we live our day to day lives how we work, and … the investment implications.” - Liz Ann Sonders|
The show airs each Saturday on VPM News 88.9 FM at 6:00 p.m. and Sundays at 8:00 p.m.
The following excerpt was edited for clarity.
Roben Farzad: Now Liz Ann, you mentioned zero interest rate policy and we have a question from Dan Ludwin, he's actually a portfolio manager. He emailed it to us:
While low to no interest rates feel good for borrowing and buying it seems to be impacting so many retirees by depleting historically beneficial interest income used to subsidize retirement spending other than risk assets with yield. How are these folks supposed to generate moderate investing income without stepping off the edge of the risk cliff?
Yes. Will you shed a tear or two for the saver? No one seems to talk about savers in this country
Liz Ann Sonders: And in fact, I think the disadvantage that is accrued to the savers has been greater in terms of its negative impact on the economy than the benefit that was assumed would come from taking rates to zero. Because we've been in this deleveraging mode, at least in the last 10 years on the part of households, and on the part of financial institutions -- certainly not the case in non-financial corporations or the government side of things -- and I think even more so looking ahead, we're unlikely to see a tremendous amount of increased borrowing, certainly not to fund discretionary consumption. That ship sailed in 2007. So I think that era has sort of permanently changed, which means the benefit that extensively comes from low interest rates doesn't accrue to the real economy, really where it's accrued is to asset prices, and asset prices are held by the wealthier leaving a lot of less wealthy retirees in a true scramble and it has forced many of those folks out the risk spectrum, not just into equities, but until the recent sort of collapse in in the lower rungs of corporate debt and in the junk market out into much riskier areas in order to pick up yield. It is a less discussed sort of peril of low interest rates and there really is nowhere to go. My colleague Kathy Jones, our fixed income strategist, often jokes that people ask her all the time, I just want to save 5% yielding security, as if we keep them hidden in a drawer somewhere and we just pull them out for our best clients. It just doesn't exist in a ZERP (Zero Interest Rate Policy) world and it has clearly been to the great disadvantage of retirees