Thursday, May 21, 2020

Survey of Household Economics and Decision-making. Jin Yingzi, Impact Investing Intern. American University

The 2019 Survey of Household Economics and Decision-making (SHED) interviewed over 12,000 individuals via an online survey launched in October 2019. To understand recent financial conditions and to see how circumstances for families have changed, the Federal Reserve Board also conducted a survey in April 2020 on the financial repercussions from COVID-19.

The initial response from the 2019 survey showed that overall economic well-being had improved substantially relative to the overall economic well-being in 2013, the last time a similar survey was conducted. But differences in financial well- being still remained and widened slightly, across education levels and across racial and ethnic groups. Changes in monthly family income were a main source of financial strain. Financial support from family members or friends is one income source used to cover expenses. Most people worked as much as they wanted to, but many adults wanted more full time work. Few adults performed gig activities as a primary source of income. In 2019, many non-retirees were struggling to save, and those who did so frequently expressed discomfort in making investment decisions.

For banking and credit, most adults had a bank account and were able to get credit from mainstream sources. However, substantial gaps in banking and credit service access still existed, especially among racial and ethnic groups. The survey continued to indicate improvements in preparedness for small financial setbacks. However, some people could not fully pay their bills or would have been unable to do so if a modest emergency arose. Although most adults are satisfied with their housing and most own their own homes, younger adults, as well as those who are black or Hispanic, were not as satisfied with their housing and were less likely to own their own homes.

Economic well-being generally rises with education levels, but the likelihood of completing higher education varied by race, ethnicity, and family background. More than half of young adults under age 30 who went to college incurred school debt, Those who failed to complete a degree or attended for-profit institutions, were more likely to have fallen behind on their payments.

A supplemental survey conducted in April 2020 to obtain an updated perspective on financial conditions after the Coronavirus Aid, Relief, and Economic Security Act but before the payments were received. This survey found that about one-fifth of people experienced a job loss or a reduction in their working hours in March 2020. More than one-third of those who experienced a job loss or reduction in working hours expected to have difficulty with their monthly bills.

Current Economic Issues

The global spread of coronavirus has had devastating impacts on health and economy, and has exacerbated social and economic issues. Fed Chairman Powell (2020) released a report on the current economic issues due to the coronavirus in the United States,. He pointed out that the U.S. has temporarily shut down economic and social activities to control the spread of the coronavirus, which  has put downward pressure on the economy. Differing from previous recessions in the post–World War II period, which led to high inflation, the current downturn is without high inflation and an  economy-threatening bubble.

Powell briefly discussed measures taken so far to offset the economic effects of the virus, and outlined the path forward. Congress has provided about $2.9 trillion, roughly 14% of gross domestic product, to fiscally support households, businesses, health-care providers, and state and local governments. The Fed also created four new facilities to increase the flow of credit. First, the outright purchases of Treasuries and agency mortgage-backed securities restored activity in critical markets. Second, liquidity and funding measures, along with discount window measures, expanded swap lines with foreign central banks, and several facilities with Treasury backing to help smooth functioning in money markets. Third, with additional backing from the Treasury, the flow of credit to households, businesses, and state and local governments is more directly supported. Fourth, temporary regulatory adjustments encouraged and permitted banks to expand their balance sheets to support their individual and business customers.

The path ahead is both distinctly unsure and challenge to great downward risks. If the coronavirus crisis gets deeper, there will be longer-term impacts and lasting harm to the productivity of the economy. An extended recession and lagging recovery may additionally discourage enterprise funding and expansion, further limiting the resurgence of jobs as well as limiting the growth of capital stock and slowing the pace of technological advancement. A loan from a Fed facility can provide a bridge between temporary interruptions to liquidity, and these loans will assist many borrowers get through the current crisis. But the recovery may take some time, and the passage of time can turn liquidity issues into solvency problems.

Tuesday, May 19, 2020

ESG Investing Webinar Review. Andrew Taber, Impact Investing Intern, Emory University

The Intersection of ESG and COVID-19. Call hosted by Goldman Sachs to discuss the impact of the global pandemic and economic recession on ESG, with a focus on both the investor and corporate perspectives.

ESG Investing is the consideration of Environmental, Social, and Governance factors in 
investment decision making. 

As emphasized in the presentation, while some consider the ESG qualification to be simply a box to check, it is becoming a very important marker of strong investments. This presentation discussed the growing importance of ESG factors and the relevance of COVID-19 on future investing.

Martin Whittaker of Just Capital discussed how the pandemic is emphasizing the importance of risk factors and relationships for corporations. As a nonprofit which surveys thousands of Americans in building their company rankings, they have found that the way corporations treat their workers and care for their safety has become critical. Given the health risks associated with COVID-19, this is not extremely surprising, however, Whittaker suggests that these are important measures to watch as America exits the crisis. In fact, things are looking good in this area. Whittaker explained that the is was positively surprised by the efforts of corporations in supporting their workers across the board. For instance, many executives took pay cuts to prevent or reduce layoffs. Overall, Just Capital has found that the need for authentic, accurate, and current ESG data about companies has grown. The investment market needs to move towards more perfect information.

Mark Wiedman of BlackRock discussed the relationship between ESG rating and corporate
success. Overall, Wiedman explains that BlackRock believes that America’s investment market is
undergoing major developments as firms respond to climate risk. Specifically, Wiedman claimed that 90% of sustainable strategies have outperformed their conventional counterparts. The relationship between financial performance and sustainability linked to risk factors outside finance explains this trend.

ESG ratings have become important pieces of data in choosing funds. For BlackRock, they are actively seeking sustainable strategies; in the last two years, the amount of money they have in global shares in sustainable strategies has multiplied sixfold. This is for two reasons; not only are companies with these conscious visions outperforming others, clients specifically state that they want their portfolio to contain risk-conscious companies. All in all, Wiedman finds that while priorities themselves in making investment decisions have not changed, their individual emphasis has. Echoing Whittaker, this crisis has increased the importance of strategy along with risk and human capital management.

The next speaker was Katherine Collins of Putnam Investments. First, she explained that ESG can
be defined and used in different ways, but the most important would be the Alpha generation, that is, the financial and nonfinancial performance and returns. Collins finds that in determining which sustainable companies to invest in, it is important to look at the actual purpose of the company’s ESG components. Is the company simply checking the box and filing paperwork, or is sustainability a core piece of the company’s strategy and product? This is very important. Interestingly, Collins also argues that looking at improvements in sustainability is crucial. A company may have been a huge carbon emitter, but if they are actively transitioning to renewable energy but have not passed ESG yet, they still may be a sound risk-conscious investment. Additionally, she explains the difficulty in measuring social elements; for instance, there is no real quantitative numeric to accurately measure and compare diversity in companies.

Thus, companies that are able to clearly communicate their strategies and why they are risk-conscious and sustainable are easier investments. Companies ought to look at sustainable investments as more than just a box to check and lots of paperwork but as key investments in their future.

Last, John Goldstein of Goldman Sachs sort of summarizes the whole presentation. COVID-19
reemphasized the importance of elements that ESG takes into account and demonstrated that it can
withstand even this crisis. He further supports that these sustainable companies are outperforming others, along with the idea that new business conversations are happening as risk is becoming a huge factor.

Sustainability needs to be a major part of corporate strategy and a company’s story. All things considered, Goldstein concludes that as the need for data has increased, so has the importance of taking into account risk factors. ESG is a legitimate factor in making investment decisions and has serious implications on the company’s future.

Thursday, May 14, 2020

Black People and COVID-19: Key Impacts.

Black People and COVID-19 | Key Impacts

A new national survey of African American small businesses was conducted by Washington, D.C.-based Creative Investment Research. The survey asked questions about the Paycheck Protection Program and the Economic Injury Disaster Loan Emergency Advance (EIDL) Programs. The survey was intended to get a true pulse of how effective the lending programs have been. Sixty four percent (64%) of survey participants that said they applied for the Paycheck Protection Program (PPP), only 19% got funding. Even those receiving funding, however, got far less than what they asked for or expected. As survey respondents were predominantly Black businesses, this gives us some insight as to why unemployment is high and growing among Black Americans.

What can Black people do immediately?
  • Apply for the stimulus check of $1,200 - 100% probability rate of receiving;
  • Apply for Paycheck Protection Program (PPP) - much lower probability rate of receiving PPP, only about 19% received funding per survey results. Services to help you apply:
    1. Lendio - committed to trying to get capital to black, women and minority companies
    2. Paypal
  • Apply for the Economic Injury Disaster Loan (EIDL)
  • Identify internal resources. Caucusing with your network to ask for money (loan pool). Look to your family for financial support and guidance.
Expected Impacts of COVID-19, ranked from most to least significant:
  • Health (95%). This is because: lack of top-level hospitals in communities of color, gentrification;
  • Employment (85%) - We estimate Black unemployment will hit 50% at peak. This is because Black people are the last hired, first fired. A lot of black Americans work in the service industry, which has been one of the hardest hit by the pandemic;
  • Education (70%) - The best opportunity to fix this issue is through more equitable and creative educational opportunities;
  • Homeownership (50%) - We suggest that the Fed engage with Fannie Mae and Freddie Mac to create mortgage-backed securities (MBS) to help Black homebuyers;
  • Small Businesses (40%) - Lower than expected impact since Black business owners are equipped with better survival skills.

Sunday, May 10, 2020

Webinar: Can Black People Survive Post COVID?


Come advocate for change!

SPECIAL GUESTS:
  • CONGRESSMAN HANK JOHNSON (D-GA)
  • DR. CHARLES STEELE, JR., PRESIDENT AND CEO, SOUTHERN CHRISTIAN LEADERSHIP CONFERENCE
  • WILLIAM MICHAEL CUNNINGHAM, FOUNDER - CREATIVE INVESTMENT RESEARCH
Wednesday May 13, 2020 6:00 pm ET. Zoom Webinar. 

Saturday, May 9, 2020

Fiscal and Monetary Policy Need to be Coordinated Globally


AT almost that three times the level reported in December, 2019, Friday's Black unemployment rate number is surprising and unfortunate, no matter what partisan policymakers and economists say.

Remember, our expectation (and hope) was that fiscal and monetary policy actions would limit the initial damage. The Paycheck Protection and Economic Injury Disaster Loan programs certainly helped keep May's unemployment rate below 20%, but the numbers show that more focused fiscal and monetary policy actions, coordinated on a global level, are needed.

In our comment on the Economic and Social Costs of "Reopening" America, we estimated that U.S. small businesses would need $6 trillion on an annual basis to ensure their survival through the coronavirus crisis. This was confirmed by the head of the Federal Reserve Bank of Atlanta. (See: https://twisri.blogspot.com/2020/04/economic-and-social-costs-of-reopening.html).

Unfortunately the unemployment numbers show that we are just beginning to see the true scale of the damage caused by the virus. As we forecast on December 26, 2016,

" Under any conceivable scenario, the current situation is very bad, and I mean toxic, for democratic institutions in general and for people of color specifically. Bottom line: our Fully Adjusted Return Forecast** indicates that, over time, things will get much, much worse....." 
See: https://www.linkedin.com/pulse/trumpism-william-michael-cunningham-am-mba/