Fleeing the city? Watch out: It may be a false economy


There are three reasons I don’t own a car. The first is that when I was about to buy one for the first time, someone in my extended family needed help with her school fees and I decided that was a more compelling need. The second is that I live in an urban neighborhood where I really don’t need one.

The third? I figured a car would blow a half million dollar hole in my retirement savings, and I decided it wasn’t worth it.

Half a million dollars? Yep. The Automobile Association of America estimates the average cost of owning a new car works out at around $9,000 a year and change. That includes buying and depreciating the actual car itself, money spent on gasoline, insurance, and so on. (It doesn’t include parking.)

Take that $9,000 a year and invest it in the stock market, and even if you only earn 5% a year over 30 years you’d have about $600,000.

OK, so that’s a new car, and you can shave thousands off the price by buying a used car.

On the other hand, most people buy their first car in their 20s and they will need money lasting into their 70s, 80s or more. Invest that money at 5% for the full 50 years and you’re not looking a half a million dollars, but just under $2 million.

For a period of time, it looked like more people were making the same calculation, especially among millennials, though others dispute the findings.

Not any more.

There is now a stampede out of the cities and into the suburbs and the countryside. Some blame the urban unrest. Others blame the pandemic, the lockdowns, and the sudden, desperate need for more space. Others say everyone will soon be working remotely from their homes, so why spend all that money living in the city?

(Historians point out that the same thing happened hundreds of years ago during the plagues, which often had a mortality rate above 70%.)

And with that stampede has come a stampede for cars. No wonder stocks in car-dealer companies such as Car-Max
KMX,
-1.19%

have skyrocketed since the crisis broke, beating the S&P 500
SPX,
+0.12%

by a clear margin.

There are many good reasons to live in the suburbs or the countryside, and plenty of reasons to move at the moment. But for those hoping to save a ton of money, it may be a false economy. Once you leave the city you need a car for each adult in the household—so for a married couple you may be looking at as much as $20,000 a year, and you’re certainly going to be hard pressed to get two cars, all-in, for less than $10,000 a year.

A friend told me if I moved to the countryside I’d save more than that on real estate. But I don’t think so. I’m currently refinancing my condo at a fixed 30-year rate of…2.5%.

So instead of spending $10,000 a year on cars I can borrow…$400,000. Adjust the numbers as appropriate.

When I bought my condo15 years ago there were very few neighborhoods in the U.S. where you didn’t need to own a car. Today, thanks to online deliveries, Uber
UBER,
-0.15%
,
Lyft
LYFT,
-0.10%

and Zipcar, that’s all changed.

Cars are wasting assets. They depreciate to nothing. Real estate isn’t. Barring catastrophe, your home’s value should rise at least in line with inflation, and probably by more than that.

Personally, I’m willing to bet that this current panic will abate. We will either have a vaccine or herd immunity, or both, within short order. Once the lockdowns are over, people will stop going stir crazy at home—and that’s going to be good for civil order (Note: I’m not talking about protests per se.) No, I don’t think everyone is going to “work from home,” and I think cities will continue to flourish because the face-to-face social interaction is absolutely essential to any kind of creative, “knowledge” economy.

I have been incredibly grateful during this crisis to live in a walkable neighborhood where I see friends every day, face to face and not on Zoom
ZM,
+2.89%
.
People cannot live by Twitter
TWTR,
-0.24%

and Facebook
FB,
+3.68%

and TikTok alone.

But everyone will have their own opinions and these things, and make their own guesses.

The one thing I know for sure is cash flow. And before leaving the city and moving to the suburbs, do the math.



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Facebook, Twitter remove Trump posts for making ‘false claims’ about coronavirus


President Donald Trump answers a question during a press conference in the White House on Wednesday.


AFP/Getty Images

Facebook Inc. and Twitter Inc. on Wednesday removed posts by President Donald Trump that violated their coronavirus misinformation policies.

The identical posts were a video clip from a Fox News interview with Trump about reopening schools, in which he wrongly claimed children are “virtually immune” to COVID-19.

While children appear to be generally less affected by the coronavirus, they are not “virtually immune,” and a number have died. The state of California, for example, has recorded more than 48,000 cases of COVID-19 in patients 17 and younger.

A Facebook
FB,
-0.28%

spokesperson said in an email: “This video includes false claims that a group of people is immune from COVID-19 which is a violation of our policies around harmful COVID misinformation.” 

However, that message was not included on Facebook’s site. The post was replaced by a message reading “This content isn’t available right now,” which does not explain why it was removed or that its content was inaccurate.

It was the first time Facebook has taken down a Trump post for violating its coronavirus rules. In June, Facebook took down Trump campaign ads that included a Nazi symbol, and in March took down Trump campaign ads that were misleading about the census.

Trump’s official campaign account — which Trump retweeted — posted the same video on Twitter, which has been more active than Facebook at taking down presidential posts that violate guidelines. It was up for at least five hours before being taken down, with a note reading: “This Tweet violated the Twitter Rules.”

A Twitter
TWTR,
+1.21%

spokesperson confirmed the tweet was removed for being in violation of the company’s rules on COVID-19 misinformation. Twitter added that the Trump campaign’s official account will be blocked from posting again until the video is removed.

Trump has harshly criticized social-media companies for fact-checking and removing his posts, and in July the Trump administration asked the FCC to reinterpret a 1996 law that gives broad latitude to how tech companies police content on their sites.





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Is the ‘great rotation’ in the stock market under way as coronavirus cases surge? Or is it a false dawn? Here’s what experts think


The tyranny of the behemoth technology stocks, which has supported the overall U.S. equities market since March, took a breaker this week.

For months the most highly valued, technology and e-commerce companies have marshaled a nearly unceasing rally during a public-health crisis that has exacted tremendous pain on the domestic and global economy.

However, the conclusion of last week’s trade on Friday highlighted some softness in the uptrend for megacapitalization tech names, raising questions about whether a rotation from out of those highflying leaders and into less-loved, economically sensitive sectors, like manufacturers, energy companies, financials and industrials, is afoot.

Among the group considered at the vanguard of the tech-rally, Facebook
US:FB,
Amazon.com
US:AMZN,
Apple
US:AAPL,
Netflix
US:NFLX,
Google-parent Alphabet
US:GOOG
US:GOOGL
and Microsoft
US:MSFT,
only the iPhone maker finished the week in positive territory.

Meanwhile, Netflix was the worst performer among that cohort, off 10.2%, notching its worst weekly skid in a year; and Amazon’s 7.4% decline was its worst weekly drop since the period ended Dec. 28, according to FactSet data.

As a result, the blue-chip Dow Jones Industrial Average
US:DJIA,
consisting of 30 companies with only four considered traditionally tech in nature, outperformed the Nasdaq by 3.36 percentage points last week, up 2.29% vs. the technology-laden Nasdaq Composite
US:COMP
1.08% weekly decline. That marked the 124-year old benchmark’s biggest weekly outperformance against the tech-heavy benchmark since June 5, according to Dow Jones Market Data.

And the broader-market S&P 500 index
US:SPX
produced a weekly gain of 1.25% that was 2.32 percentage points better than the Nasdaq, representing the S&P’s largest outperformance since the week ended Feb. 5, 2016.

On top of that, small-capitalization stocks, considered more sensitive to the health of the economy, reflected in the Russell 2000 index
US:RUT,
gained 3.6% for the week.

Drilling deeper, value-style investing, which has underperformed growth for years is flirting with a comeback of sorts, with the Russell 2000 index’s value index
XX:RUJ,
which tracks small companies that are undervalued by some metric, gaining 4.3% for the week. Meanwhile its comparable growth index
XX:RUO,
which follows the performance of companies that have a tendency to consistently grow earnings, rising a less-stellar 2.9%.

Similarly, an exchange-traded fund tracking the S&P 500’s value index, the SPDR Portfolio S&P 500 Value ETF
US:SPYV,
finished the week up 3.4%, versus a 0.2% decline for its comparable growth ETF, the SPDR Portfolio S&P 500 Growth ETF
US:SPYG.

Beaten-down financials registered a 2.1% advance for their best weekly rally since the week ended Jun 5, as measured by the Financial Select Sector SPDR ETF
US:XLF
; while industrials
US:XLI
soared 5.9% for the week, also marking their best weekly gains since early June.

But was this a bona fide rotation into those categories and styles that many strategists view as necessary to propel the market to new heights ? Or is it another head fake?

Quincy Krosby, chief market strategist at Prudential, told MarketWatch in an interview that it isn’t clear whether tech’s setback over the past week was outright profit-taking in the wake of a long run of gains, or rotation in which investors sell tech and use the proceeds to buy assets in areas that they believe may have more room to run.

This isn’t the first time the markets have seen glimmers of rotation out of tech and growth names, only to be left disappointed. Bargain hunters back in late May scooped up battered stocks on the back of optimism around progress toward a coronavirus vaccine. But the moves since then have come in fits and starts, with the S&P 500 and Dow pinned around their most recent peaks in June, while the Nasdaq has notched 27 record closing highs in 2020.

The market’s rally up to this point has been supported by companies that have been considered more resilient to the uncertain, socially-distant, outlook that the COVID-19 public-health crisis poses. In that way, tech companies like videoconferencing company Zoom Video Communications
US:ZM,
which is up 262% so far this year, and the aforementioned tech behemoths are viewed as defensive plays.

However, a sustainable rally is one that must include so-called cyclicals, experts say.

Investors should be asking what the next theme in the market will be, said Gerald Sparrow, chief investment officer of the Sparrow Growth Fund
US:SGNFX,
which carries a four-star rating from fund-tracking service Morningstar.

“I think it’s going to be a combination of cyclical stocks and e-commerce,” Sparrow said in an interview. More broadly, further market gains are likely to be more balanced, “with all sectors participating.”

Mark Arbeter, a prominent technical strategist, appears to agree with the notion that tech must continue to be a part of the next burst higher for stocks, if one is to be had, noting that the influence of the megacap tech companies also means they can drag the overall market lower too.

“How these highfliers act in the coming days as well as the Nasdaq could be a great tell as to whether the overall market will finally break higher and head to all time highs now, or if they break lower, pulling the overall market with them and squeeze some excesses out before we head to all time market highs,” he wrote in a July 16 research note.

The road ahead, however, will be a tough one as companies continue to face the economic perils of the coronavirus pandemic. The Wall Street Journal reported that the four biggest banks, JPMorgan Chase & Co.
US:JPM,
Wells Fargo
US:WFC,
Citigroup
US:C
and Bank of America
US:BAC
set aside $33 billion to protect against soured loans in the second quarter, signaling that the worst of effects of the epidemic are far from over.

Indeed, the U.S. recorded more than 71,000 new coronavirus cases on Friday, representing the second-highest daily of infections on record, with the U.S. looking at 3.6 million total confirmed cases, amid a resurgence in a number of states, data compiled by Johns Hopkins University show. The global case tally now exceeds 14 million, with nearly 600,000 lives claimed from the epidemic that started in December.

The recent spike in cases in U.S. states, including California, Texas and Arizona, has thus far been ignored by the equity market but could eventually stymie the rebound if it translates to a slow and an unsteady economic recovery as some economists predict.

“Wall Street remains upbeat, but sentiment on Main Street is turning grim in response to the upsurge in Covid-19 cases that is prompting a renewal of lockdown restrictions,” wrote Bob Schwartz, senior economist at Oxford Economics, in a Friday research report.

Week ahead

Markets will gain more perspective on the economy when a parade of corporations, nearly 500 companies, report quarterly results next week.

A bevy of tech names will be featured, including Dow components International Business Machines Corp.
US:IBM
on Monday, Microsoft on Wednesday, and Intel Corp.
US:INTC
on Thursday. Elsewhere, earnings from electric-vehicle maker Tesla
US:TSLA
on Wednesday will be closely watched as will American Airlines
US:AAL
on Thursday.

On the economic data front, major reports will be sparse with updates centered on mostly on the housing sector. On Tuesday, the Chicago Fed national activity index for June will be released at 8:30 a.m. Eastern, on Wednesday, a report on existing home sales for June will be released at 10 a.m., with Thursday seeing the usual update on weekly jobless claims at 8:30 a.m. and a report on leading economic indicators at 10 a.m. On Friday, market participants will watch for flash PMIs on manufacturing and services for July at 9:45 a.m. and report on new home sales for June at 10 a.m.



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