Jim Niedelman:
Well, it is 4 Your Money time with David Nelson, CEO of NelsonCorp Wealth Management. Always great to see you, David.
David Nelson:
Thank you, Jim. You as well.
Jim Niedelman:
We certainly have heard a lot of debate in recent weeks about the proposed additional stimulus from the pandemic from the federal government. There are strong arguments for and against it. What thoughts can you share about it?
David Nelson:
Well, it’s a tough spot that we find ourselves in today. We’ve talked a lot about government spending as far as some prior programs, certainly out of the gate here, as far as when this crises started, the response was quick and it was large. We’ve learned from prior mistakes as far as coming in late in the game, what have you, and certainly this go around was was aggressive. The argument for probably centers around it’ll be cheaper in the long run and a fast recovery equates to more revenue as far as tax revenue, as far as for the government. Those against basically are saying we’re wasting taxpayers’ dollars on many businesses that are going to fail regardless, and by giving them money today, that doesn’t make a whole bunch of sense.
Jim Niedelman:
Can you dig a bit deeper into those concerns?
David Nelson:
Yeah, I brought along, Jim, a slide that I think will help visually give people a good feel as far as for what’s taking place. Beyond the financial crisis, the biggest concern, as far as that’s out there, centers around what we have on this particular slide and that is bankruptcies. These are looking at bankruptcies of corporations with $50 million of liabilities and more. This is really significant. When we look at the chart, we look at the far right, we see that the third quarter, as far as this year, set an all time record for bankruptcies in the third quarter. Now, if we look back and at the beginning on the left hand side of this, we go back to just prior to the financial crisis and the financial crisis as people may or may not remember, the peak in the bankruptcies was the first quarter, as far as the 2009. What’s unsettling about this is that the bankruptcies continued at a pretty good clip all the way into roughly mid 2010. That’s what people are trying to prevent. That’s what we’re trying to learn from prior mistakes.
Jim Niedelman:
What are the possible implications this could have on the investments that people have, who are watching at home?
David Nelson:
I think the biggest thing is more bankruptcies basically equate to lower returns because when you lose money on a stock and it goes out of business, you’ve got to have the other stocks that can pick you up and give you that good return and stocks clearly have that potential. The less obvious one is the bond market. You’ve got government bonds, you’ve got corporate bonds. I’m going to focus just on corporate bonds today. Generally speaking, they’re safer than stocks but, again, they’re not immune to not defaulting. They do go out of business occasionally and, oftentimes, you can find that you get back less money. Understanding that bonds pay a pretty low rate of return and if you have of your bonds go bankrupt or you get back part of your money, it’s really tough to make up. I guess to summarize it all, we talk about this all the time, you’ve got to know what you own and, oftentimes, people don’t know, but you need to do your homework.
Jim Niedelman:
David Nelson, always great to have your insight. Thank you.
David Nelson:
Thank you, Jim.
Jim Niedelman:
If you missed any of this discussion, we have that available for you online at ourquadcities.com.