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Investing for the Future in the United States of Agita

Four years ago, I didn’t have a plan. Donald Trump was the surprise winner of the 2016 presidential election, and I wasn’t quite sure what to say to the people who were on the verge of losing their minds.

In the wee hours of Nov. 9, 2016 — as futures trading suggested that the U.S. stock market was going to fall an awful lot when it opened — I sought to encourage the discouraged. Continue to bet on capitalism, I advised. You can still count on it to deliver the same sort of long-term returns to investors that it had for decades.

Then, within hours of the opening bell in the United States, there was a reversal. Shares ended up rising that Wednesday. That calm-down column that I wrote in the middle of the night needed some revising.

So this time, I’m writing things down ahead of election night. And I’ve had daytime conversations with financial planners who had, in previous careers, worked in government jobs under both Republicans and Democrats. They offered a few helpful pointers.

First, a maxim of sorts about our collective state of anxiety — whether you’re pulling for four more years or a new occupant in the Oval Office. “Emotions are really good at raising questions and really bad at answering them,” said Zach Teutsch, a financial planner in Washington, D.C. It’s true in life, and it’s certainly true with financial decisions. Try not to make any big ones anytime soon.

Second, it’s easy to overestimate how much change is possible in the first year of any presidential term, especially for things that can hit you squarely in the wallet, like taxes, retirement rules or health care. Mr. Teutsch learned all about that during his time at the Consumer Financial Protection Bureau, where he worked from 2013 to 2017.

As Mr. Teutsch tells it, many people working in government spend their careers focused on a single problem within a specific policy area that they would love to fix. They make plans and have memos in their back pockets and are ready when the legislative, executive or judicial clouds part.

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“Mostly, what you do is think and wait for those brief moments when you can move the thing to fix the problem that you’ve been obsessed with,” he said. It tried his patience enough that he found another line of work.

But here’s the problem for those policy lifers and for those of us who pay the taxes that keep them employed: Only a tiny fraction of them finally get to do their thing during any presidential administration, and it isn’t possible to predict who will get their shot or how successful they will be. It would be foolish to, say, fundamentally alter your retirement savings strategy in anticipation of a change to some or another tax rule.

But what if Joe Biden wins and the Democrats regain a majority in the Senate? Don’t assume anything, warned René Bruer, who worked for Jeb Bush when he was governor of Florida and Republicans controlled both houses of the State Legislature.

“Governor Bush told us not to bet on any legislation passing or failing based on Republican politics,” said Mr. Bruer, now a financial planner in Colorado Springs. “He said it will very much surprise you.”

While it feels like a long time ago now, we should not forget the John McCain thumbs-down moment, which sank the legislation that would have gutted Obamacare in 2017. That was with one party in control of both chambers and the presidency, a reminder that even two years of control over Congress and the White House may not be enough time to fulfill a long list of legislative wishes. Now imagine chastened Republicans reframing their pitches to voters and taking back the House in 2022, again dividing the government.

Mr. Bruer is a Marine Corps veteran who spent part of his childhood in Africa seeing people burn banks on his way to school. He actually takes some comfort in what to others feels like a heightened level of American governmental chaos.

Stocks can lose a lot of value in a short period. But over decades, they tend to deliver enough growth to allow you to achieve long-term goals, like being able to retire and live off the money. That, however, happens only if you have the courage (and discipline and leftover income) to save regularly and don’t yank money out when you think something scary is going to happen.

If you have money in stocks that you will need in the next few years, you should rethink that — but not because of what could happen on Tuesday or because of the way politics or policy might affect the markets. It’s simply better to put money you know you’ll need soon into something less volatile.

“We want growth-oriented investments in the part of someone’s portfolio that they are planning to hold for the long term, precisely so we don’t have to worry about what is going to happen in an election,” Mr. Teutsch said.

Then, focus on the things you can control. That’s the opening line of the script Mr. Bruer uses with clients who just want out of the markets for now, regardless of whether their team is going to win. Then, he asks if there is some fundamental health or career change that might necessitate a change in course.

If not, the conversation continues with some reminders and a review of the basics. “Do you have a financial and investment plan? Yes. Are your investment costs low? Yes. Diversified? Yes,” he said.

Simply reminding yourself of your own good planning can have a calming effect.

And if the stock market has been good to you — from the Obama administration into the Trump administration — maybe there is some money left over for others whose paths have been rockier. That’s one area where Mr. Teutsch hopes his clients are thinking hard about a possible change in strategy.

“After an election can be a great time to assess your social impact plan, especially around charitable strategies,” he said. “Because the world is going to need very different things depending on who wins.”

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Recession’s Silver Lining: American Households Are Doing Better Than Expected

For months, Americans have barely dined at restaurants or traveled for vacation. There have been no ballgames or concerts to attend. Gym and other memberships mostly remain frozen.

Forced into lockdown mode by the coronavirus, people put big purchases on hold and scaled back their spending. Around the same time, mortgage lenders, student loan collectors and other creditors offered struggling borrowers a break on payments. And stimulus checks from the government arrived.

These trends have come together to form an unlikely silver lining to the economic recession, which set in eight months ago: Despite the pandemic’s economic devastation, which has tipped millions of people into unemployment, many American households are in relatively good shape. Since April, consumer savings have increased, credit scores have surged to a record high and household debt has dropped. The billions of dollars that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. And lending at pawn shops and payday lenders, where business tends to boom during downturns, has been unexpectedly slow.

“Everything was upside down,” said John Hecht, an analyst at the investment bank Jefferies. Usually, in times of distress and unemployment, more people find themselves with deteriorating credit and are forced to seek high-interest, or subprime, loans, Mr. Hecht said, but not this year.

The pain may still be coming. Banks and other consumer lenders are bracing for financial stress next year, as millions of people remain out of work and the labor market’s rebound shows signs of stalling. A third surge of coronavirus cases has taken hold in the United States, and lawmakers in Washington are mired in fights about the terms of additional stimulus. The number of people in America living in poverty has grown by eight million since May — though their financial woes often aren’t captured by credit and loan data because they’re out of the financial mainstream. And longer-term consequences like wage stagnation, reduced entrepreneurship and the accumulated cost of interest-bearing debt could linger for decades.

But for now, households are weathering the turmoil largely because of the unusual nature of the current downturn. The pandemic ended America’s longest economic expansion on record, meaning that people came into this recession in better shape than they were in when the Great Recession took root in 2008. Back then, risky mortgages metastasized into a crisis that upended the banking industry; this time, banks and borrowers aren’t facing that kind of structural threat.

This time, too, the government’s rapid aid efforts blunted a bigger crisis. Expanded unemployment benefits, $1,200 stimulus payments and aid to small businesses had an immediate impact this spring. Those who lost their jobs used the money to keep up with rent and other bills. Others used it to pay down debts, or socked it away in savings.

“The quick, coordinated response of government stimulus and lender relief was unprecedented, and had a huge influence,” said Ethan Dornhelm, FICO’s vice president of scores and predictive analytics.

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Credit…Desiree Rios for The New York Times
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Credit…Libby March for The New York Times

Since he lost his job as a toy designer in March, Daniel Brennan has been holding things together through a combination of aid money and loan relief programs. A six-month forbearance on federal student loan collections reduced his monthly expenses by $280. (He began getting bills again this month but requested an extension, which his servicer granted until February.)

Mr. Brennan, who is separated and had moved into his own apartment shortly before the pandemic took root, gave up that apartment and returned to the house he owns in Willow Grove, Pa., with his soon-to-be ex. Their mortgage lender, Wells Fargo, let them defer their payments until at least the end of the year. Because interest still accrues, that will increase the total amount they owe over the life of the loan. That break, though, has given Mr. Brennan enough cash flow to stay current on his car loan and credit card bills and buy essentials like groceries and gas.

“Not paying the mortgage is making everything work,” said Mr. Brennan, who is 46. He’s leery of what will happen when that forbearance ends if he has not yet found another job.

Those who have held onto their jobs without having their hours or wages cut often ended up financially stronger than they were at the start of the year. Daniel Zeccola, 36, an emergency and internal medicine physician in Denver, took advantage of a 90-day forbearance on his private student loan from Laurel Road to shift his normal $5,000 monthly payment into his savings account instead.

The rate he earns on that savings account is higher than the interest rate on his loan, netting him an extra $90 a month, said Mr. Zeccola, who is saving for a down payment on a house. “I feel kind of guilty,” he said. “I’ve been protected from the downsides of what so many other people have experienced.”

Even as the swell in household liquidity provided by the government’s relief efforts starts to ebb and spending picks up again, creditors remain optimistic about consumers’ ability to keep up with their bills. The personal savings rate soared this spring, peaking in April, when Americans stockpiled $6.4 trillion — about a third of their disposable income. It has declined since, but stayed far higher than it was a year ago, according to the latest government data.

Credit card spending nose-dived, thanks in part to the reduced temptations of a locked-down economy. Balances plunged by $76 billion in the year’s second quarter, the largest drop ever recorded by the Federal Reserve Bank of New York. Total household debt fell that quarter for the first time since 2014, according to the regional bank’s research.

Credit card issuers and other consumer lenders have not seen a rash of defaults — for many lenders, they’ve actually dropped below normal levels — thanks mainly to the stimulus checks and expanded unemployment insurance. Most creditors don’t expect that to change until the second half of next year, at the earliest.

The average American credit score has also steadily increased this year, reaching a record 711 in July, according to FICO. Credit scores can be a lagging economic indicator — in the Great Recession, they didn’t bottom out until late 2009, months after the recession ended, although they started dipping much earlier. But this time around, consumer debt levels and missed payments have actually dropped, which explains why the scores are rising.

“Over all, consumer customers are holding up well,” JPMorgan’s chief financial officer, Jennifer Piepszak, said on her bank’s earnings call this month.

Still, many lenders have protected themselves by doing what they always do in a downturn: cutting back on their riskiest lending. Large credit card issuers reduced some customers’ credit lines, turned away new customers and, in some cases, shut down entire product lines. Wells Fargo and JPMorgan stopped offering new home equity credit lines in April.

Lenders outside the financial mainstream, who cater to those without access to credit cards and traditional loans, haven’t yet seen the pickup they usually do when the economy deteriorates. Payday lending started sliding in early March and even in October, remained down more than 40 percent compared with last year, according to data from Veritec Solutions, which tracks small-dollar lending for several state regulators.

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“Demand is still well below normal,” said Ed D’Alessio, the executive director of INFiN, a payday industry trade group. “What we’ve seen during the pandemic is that consumers have come in and paid off their loans,” and not borrowed afresh.

Many pawn shops had a record number of customers reclaim their items, leaving some stores with bare shelves even as retail demand surged from shoppers stuck at home and looking for bargains on items like TVs, video game systems and power tools for home-improvement projects.

“Our showcase has never looked emptier,” said Jordan Tabach-Bank, who owns three luxury-goods pawn shops in New York, Chicago and Los Angeles. “Instead of needing loans from us, people are redeeming their loans, picking up their collateral and paying it off.”

The big economic question right now is whether a consumer crisis has been averted or merely delayed. Economists and credit analysts see two big unknowns that make it hard to forecast where things go from here. The first is whether a resurgence of the virus will force further lockdowns, which would prolong and intensify the recession. The second is whether the government — under the leadership of whichever candidate wins the presidential election — will inject trillions more into the economy through new stimulus and relief measures.

Banks that set aside billions to cover potential losses have slowed the rate at which they’re building their reserves, but they’re keeping the emergency cushion. Asked by an analyst whether the government’s efforts had reduced the likelihood of losses or simply postponed them, Ms. Piepszak, JPMorgan’s finance chief, said the bank simply didn’t know.

Federal relief measures were “a bridge, and the question is whether the bridge will be long enough and strong enough to bridge people back to employment and bridge small businesses back to normalcy,” Ms. Piepszak said on the earnings call. The government’s actions might only “delay rather than change” the looming possibility of large loan losses, she said.

The uncertainty is wearing many people down.

The $600 a week in expanded unemployment benefits helped Joël René Scoville, an actress who lives in New York City, stay current on her rent and other essential monthly bills. But those payments ended in July. Now, she’s collecting just $138.40 a week in benefits and nervously calculating how long her $4,500 in savings will last.

For years Ms. Scoville, 46, supported herself through theater work, catering gigs and a part-time administrative position at a children’s after-school program. All three of those jobs came to an abrupt end when the pandemic hit, and none seems likely to return until well into next year.

“The fear about ‘what about next month’ is always looming in my mind,” she said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

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Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.