Unemployment pays well. By design, and for now.

Good morning,

Welcome to “Not Pretty, Not Rich,” a newsletter meant to keep you up to date on what’s happening in the markets and economy, and what you can do to take advantage — if anything.

A little housekeeping:

  • A reminder that I’m now sending this out on a Tuesday/Friday schedule for the time being. If any of you would like to see it more or less, let me know.

  • A disclaimer: I’m neither a financial expert or professional. I’m just a guy who writes about money, and this newsletter is a place for me to share my opinion, views, and resources. It’s unaffiliated with my employer, and all views contained within are my own.

  • You can connect with me on Twitter and LinkedIn if you’d like, and email me with any feedback. 

Nobody correctly guessed the mix of my dog, though some of you were close. She’s a chihuahua/border collie blend. Very exotic.

Once again we’re off. Like a herd of turtles. It’s Tuesday, May 19, 2020.

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Most people are earning more on unemployment than they were at their jobs 

You may have heard that some people who’ve been furloughed, laid off, or fired as a result of the pandemic are now making more money on unemployment than they were at their jobs. That’s true, and as it turns out, more than two-thirds of those receiving benefits are getting more from the system than they were seeing in their paychecks, according to a new working paper from economists at the University of Chicago.

The paper says that more than two-thirds (68%) of those receiving benefits are getting more on unemployment than they were at work. 

This is largely the result of the extra $600 per-week stipulation included in the last stimulus package, which is set to expire in July. And it was also a concern of lawmakers who opposed the stipulation, as they were worried that the extra money would act as a disincentive to go back to work. 

Well, this paper says that is likely to happen (it is happening already, in some places). 

But I want to reframe this: Isn’t giving people more than what they were earning at work exactly the point of the legislation? It was, in effect, a way to incentivize people to stay home or at least wait to go back to work until the situation smoothed itself out — I’m not saying it’s a good idea, that this was likely done by design. This may cause problems here and there as the country reopens, but it’s also a reminder that most people in the U.S. don’t make a lot of money.

And again, that extra $600 per week will run out sooner than a lot of people expect.

A plausible answer as to why the stock market is so resilient

I’ve been wondering why and how the stock market — which is up significantly after crashing in late February — continues to climb despite the deluge of bad news. Well, I came across an interesting comment on Reddit that made a lot of sense to me:

“When the SPY is 23% tech, 11% communication(this sector includes FB, GOOG, NFLX) and 15% healthcare, it kinda makes sense. That's nearly half of the SPY weight in industries that are over-performing in this environment.”

The Reddit user continued:

“Not to mention those 3 sectors also make up 72% percent of the NASDAQ and 41% of the DOW.”

As for what in the hell that all means, “SPY” is the ticker for the largest ETF on the market, which tracks the S&P 500. In a sense, SPY tracks the stock market at large. And what this user is saying is that a big percentage of the stocks making up the S&P 500 (usually the 500 largest companies on the market) are doing well — that would include tech companies, communication companies, and health care companies. Those are companies that haven’t been as deeply affected by the pandemic as, say, retail companies.

Think of it this way: Companies like Amazon and Microsoft are doing just fine through the crisis compared to Starbucks or the newly-bankrupt JCPenney. And among the S&P 500, there are enough companies doing well that they are keeping the markets at large afloat.

This helped me make some sense of what’s going on, anyway. Maybe it’ll help you, too.

Action items

I want to make this newsletter more action-oriented, but I’ve admittedly had trouble doing so over the past couple of months given that just about everything in our lives has come to a standstill.

So, I’ll start ending each issue with an action item. Today’s is this: Stop using services like GrubHub and UberEats, and order directly from restaurants. The more I read about these services, the more confounding they become. 

None of them make money, they all tend to charge customers more, and they’re expensive for restaurants to use. You can read more about that, but the point is that these services are all kind of a racket.

Check out this analysis written by Brian Chen for NYT a little while back. He tested four platforms and found that, in some cases, you can pay up to 91% more for your food.

So, save yourself some money, and the businesses you’re trying to support. Just call them directly to order. 

Sam

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