FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
February 16, 2021

IN THIS ISSUE:

1. Fed: 9 Million Small Businesses Could Close by Year-end

2. The US Pandemic Coin Shortage of 2020-21 Explained

3. Texas Paralyzed By Worst Winter Storm On Record

Overview

Fed-followers were startled last week by news that millions of small businesses will likely close permanently this year – unless another round of stimulus is approved by Congress. The Fed also convened an emergency US Coin Task Force last year to solve the nationwide coin shortage. I’ll give you the details below.

With temperatures below freezing across the entire state of Texas and reports of more snow and freezing rain to come, our office will be closed for the next day or two. If you need to speak with one of our Investment Consultants, their direct phone numbers are at the end of today’s E-Letter.

Fed: 9 Million Small Businesses Could Close by Year-end

The Federal Reserve released the findings of its most recent survey of US small businesses, and the results are most troubling. The Fed stated that around 9 million small businesses are likely to close permanently by the end of this year – unless they receive more stimulus relief soon.

Many small business owners told the Fed they have exhausted their personal savings, borrowed all the money they can and are at the end of their rope or will be later this year. The survey found that the number of small businesses that have over $100,000 in debt increased to 44% last year, up from 13% the year before.

As a result, many said they’ll have no choice but to shutter their doors permanently without more relief just ahead. Let’s look at the numbers.

The Fed’s latest poll found that about 3 in 10 small businesses don’t think they’ll survive the year without help. CBS Moneywatch notes that there are about 30 million small businesses in the country, meaning that this proportion amounts to about 9 million small businesses.

Minority-owned businesses were more likely to report a poor financial outlook, with a whopping 8 in 10 saying they must have additional relief just ahead to survive this year.

Folks, if we lose anywhere near 9 million small businesses in 2021, this will all but guarantee a second recession this year – almost certainly more severe and long-lasting than the pandemic recession in 2020.

The House of Representatives passed President Biden’s $1.9 trillion stimulus package last week. That legislation reportedly includes $1,400 checks for most Americans who qualify, which would help, of course, but it is still unclear whether the House package includes more specific relief for small businesses. Or if there is another Paycheck Protection Program in the works.

In any event, the House’s $1.9 trillion stimulus package faces stiff opposition in the Senate where most Republicans think at $1.9 trillion, it’s just too large. I continue to expect there will be some kind of a compromise, which might land at around $1 trillion (just a guess).

While it is yet to be resolved, it remains to be seen if the stimulus will be enough to save a third or more of our struggling small businesses. Likewise, it remains to be seen if there will be a second PPP.

What I will say in closing is not only would losing a third of our small businesses result in another serious recession later this year, it would also tank the high-flying stock markets at long last, in my opinion – and I don’t mean a garden-variety “correction” either. Think bear market!

The US Pandemic Coin Shortage of 2020-21 Explained

At grocery stores, convenience stores, hardware stores and other retailers across America, curious signs popped up over the summer of 2020 asking customers to pay with credit cards, debit cards or exact change. Was it because cashiers didn't want to handle physical dollars and cents that could be contaminated with the coronavirus? Nope, it's because the United States was/is experiencing a severe coin shortage.

Yes, if wearing masks, hoarding toilet paper and canceling summer plans weren’t annoying enough, Americans also had to sacrifice the 46 cents in change from their drive-thru iced latte. Millions of Americans decided they simply didn’t want to handle physical coins. Many emptied their pockets at night and dumped their pennies, nickels, dimes, quarters, etc. into jars or other containers until they could take them to coin kiosks or changers in exchange for dollars.

The fact is, the COVID-19 pandemic response simply disrupted the normal cycle of coin circulation. According to the US Treasury, there were $47.8 billion of coins in circulation as of April 2020, which was actually $400 million more than in April 2019, but those coins weren't moving through the economy like they should have been.

The Federal Reserve gave several reasons as to why there were fewer coins in circulation:

• Many banks and businesses nationwide closed their doors during the lockdown phases of the pandemic, including cash- and coin-heavy sectors like convenience stores, public transit, laundromats, etc.
• The US Mint also slowed its production of new coins during the early stages of the pandemic as staff was reduced for safety reasons at the mint's Philadelphia and Denver locations.
• Even as the economy reopened, consumers opted for "contactless" payment and generally used less cash and coins, meaning more coins were sitting at home in Mason jars, piggy banks and under couch cushions.

Retail stores quickly felt the coin pinch and passed the inconvenience along to their customers. The National Grocers Association and several other retail industry trade groups sent a strongly worded letter to Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin in late June 2020 saying that rationing coin shipments to banks "threatens the functioning of our member businesses and, by extension, the needs of our customers."

In their letter, the groups cited economic statistics showing that cash is still very much king in certain sectors and among certain consumer demographics:

• 45-60% of sales at grocery stores and convenience stores are cash payments
• About half of all transactions of $10 or less are paid in cash
• Consumers with an annual household income of $25,000 or less pay cash in
  43% of transactions

In an effort to resolve the shortage, the US Mint dramatically ramped up coin production last year, outpacing its usual 1 billion coins a month with 1.59 billion coins in June and higher-than-normal volume throughout the rest of 2020, according to CoinNews.net.

The Fed also convened an emergency US Coin Task Force in July composed of government and industry leaders, including banks, armored car companies and others. One of the task force's early accomplishments was to create the hashtag #getcoinmoving, which banks and credit unions plastered across Twitter to encourage people to cash in their piggy banks to get more coins back in circulation.

Some banks even took matters into their own hands. Some banks around the country launched “coin drives” among their customers, awarding free lunches to the branches and customers who collected the most coins.

By the close of 2020, the US Mint's two facilities in Denver and Philadelphia had stamped out 26% more coins than the previous year, according to American Banker. As a result of increased coin production, plus a gradual reopening of the economy in most states, the coin shortage appeared to be much less acute by the end of January this year.

On February 5, the Fed released a statement saying the coin shortage is under control but added it continues to work with the US Mint and commercial banks to assure they can deliver coins as needed to customers. Consumers who built up stocks of US coins last year are encouraged to put them back into circulation – in other words, spend them.

Texas Paralyzed By Worst Winter Storm On Record

As you've probably seen on the news, Texas is gripped in the worst snow/ice storm in decades, if not ever – with record low temps. And more freezing precipitation is expected tonight and early tomorrow.

Roads are closed or impassable from Houston to Dallas and most of West and North Texas. I grew up in West Texas (Lubbock) where we had weather like this almost every winter, but most Texans have no idea how to drive in these conditions.

Businesses and schools across the state are closed because workers and students cannot get in. Halbert Wealth Management was closed yesterday, today and possibly tomorrow.

If you have questions about your accounts or other issues, feel free to call your HWM Rep:

Phil Denny – 512-212-3826

Spencer Wright – 512-212-3827

Hope you are all staying warm and safe,

Gary D. Halbert

Gary's Between the Lines Blog: Record Gun Sales In 2020, Ammo Shortages Widespread

 

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