A House of Cards --- Pt. 2 (Debt - The Gift & The Curse)

First, I wanted to apologize to a reader. When I was asked in my last post whether I thought the system is built like a house of cards --- I said I wouldn't use those words. But in fact, I actually did  just that during the financial crisis of 2009. See here: A House of Cards Pt. 1  🎴

Sorry Bill Maher, it was my very rare attempt at trying to be politically correct but I got caught so I thank the readers for keeping me honest. I recently spent some time reading my own posts from late 2007 into 2010 to remind myself of what we lived through in the last crisis. There were the market highs I wrote about in 2007 which were peppered with my incessant rants about the housing market being eerily over inflated. My saving grace was the Lord blessing me ☝ with an opportunity to be in town while my sister was house hunting for her first home. While I applauded her for getting a newly built home for a great price, I kept giving her grief for moving to the boondocks --- yep right across from cornfields. I soon began my path to homeownership and then stopped. My sister made more money than I did but somehow I was pre-approved for a loan almost double her amount. It didn't add up so I told myself back in 2005 something doesn't feel right. But what's the saying if you build it they will come. And of boy did they ever -- the city continued to extend and while some cornfields are still there, I see less and less as the years pass. I guess that's the perfect picture of the America dream, the big home -- but who is going to stop you when you can't afford it. My accounting background saved me I guess.

While I would love to get back to what I'm buying and selling, my goal right now honestly is on educating people about risk. I'm blessed to be able to sit back and write a blog because I have a rainy day fund built to withstand this disease and economic fallout still to come. I de-risked by moving my retirement fund to cash --- because it's purpose is just for that...RETIREMENT. And I'm blessed with a pot of funds I've saved over the years to take risks at a time when many are unfortunately being squeezed. These are pillars that you can implement to ensure you're built to last. And what I hope will stay with you is I did it the old-fashioned way --- I saved day after day reminding myself I grew up po' middle class and I'm not in a HURRY to go back. With 2 cars both going on 15+ years of age means, our cars are paid off (one less bill to fret about). Yes, they are showing their age and one is in the shop but that repair bill is looking better and better that getting a fancy new car in an environment like this. When my wife was my then girlfriend, she would jokingly introduce me as the guy who bought a new home but got his coach off of Craigslist. Yup that was me, but I shop well and it was Macy's higher end furniture and I helped a couple who needed it gone because they had to leave for Australia. But on my financial terms and that coach is sitting in my second home and still complimented to this day. 

When I think about this crisis, I wonder how much pain it will inflict physically from the disease, economically to the country, financially to all of us, but emotionally to most of us who did not or unfortunately cannot save enough to weather the storm to make rent or the mortgage or the car bill or the utilities. It makes me wonder how many lives could have been saved if the country did not need to remain "Open for Business" because of the curse of debt. I stand in awe at stimulus package after package that is thrown at this crisis and think about the gift it will provide to many to reflate the economy. I hurt thinking the richest nation does not have enough equipment to battle the viruses newest target --- the great people of New York, especially New York City. Two people to a respirator was an update I heard today and I was in disbelief --- mainly because I had spent over a month watching Eunice Yoon, a CNBC reporter from China day by day paint a vivid picture of how a bustling nation like China was slowly ground to a halt. Wuhan in lockdown, then further cities like Beijing take stringent precautions. Bleaching of streets and temperature readers shown on TV and then she would narrate about the strict restrictions just to get into her building which included ID and temperature checks. If this was in January and Wall Street and I were digesting this information you would assume we were preparing for what was to come. CNBC is a channel I'm positive many in the White House had turned on just as I did each morning. So hopefully you understand where I was coming firm almost a month ago when I was frantically asking for things to be locked down. My goal is not to ruin the dream, just a reminder than lives were at stake.

-------------------------------------------Debt - A Gift?-------------------------------------------------------------

A quick story of the gift and curse of debt. This a Bloomberg story on my buddy Tilman Feritta. I have a nice stake in Ceasar's which I think Tilman does as well so I wanted to highlight how debt is used to lever up to be a rock star. He is feeling some pain but it's a quick insight into how those more fortunate will not suffer like many others will. My next posts will show you the other side. 

Tilman Fertitta:

• Personal fortune of over $5 billion before the crisis.
• Most of his wealth is in the travel and leisure industry:
• Casinos -- Golden Nugget 🎲
• Restaurants -- The Landry’s Inc. portfolio includes Del Frisco’s steakhouse and Bubba Gump Shrimp 😋
• Sports Franchises - Houston Rockets🏀

Tilman has worked hard but he used an amazing amount of DEBT 💰💰(financial leverage) to amass his empire. How you ask:

• Well, leverage of course. He took an outstanding amount of debt out against all the companies he owned. To the tune of roughly $5 billion against Golden Nugget the parent company for his restaurants and casinos. So there is a big risk he could lose this part of his empire due to the crisis. 

How might this play out for Tilman, maybe coin flip odds in my view:

• Heads -- Confident the company will have access to enough cash to weather the storm
• Tails -- Fertitta said: "This year, his restaurants and casinos were expected to generate well over $700 million of cash, more than enough to pay $250 million to service the debt and invest as much as $200 million in new projects, he said." "That leaves you with around $300 million of free cash flow,” he points out. “I don’t think it’s a bad business model.”  

Heads would definitely require a sizable bailout and the economy being jump started within a few months. Tails if feels like he acknowledges I built the thing on steroids 💪 and if he loses he went out like a true Texas cowboy.

No worries on how this story plays out because the Houston Rockets, his bankroll, and other properties he owns are not tied up in his highly levered businesses. Great risk management Tilman but how many folks on main street will have an outcome with odds like this. 🤔 I hope we all have heads or tails outcomes like this as we learn more about how our economy works.

Source: Bloomberg Davide Scigliuzzo

The Government Makes It Rain --- Stimulus To the Rescue

Coronavirus Update – Shutdown Has Finally Started

Thanks to the great leadership exhibited from New York, California, and Chicago the nation is slowly shutting down city by city --- and state by state. While unbelievable, this is very necessary to starve the virus. There will be debates on how long and I remind people to look to China’s recovery and the timeline they used. For example, Wuhan the epicenter of this crisis will remove the lockdown on April 8th. SO the reality is the longer the better for the hotspots. Why I demanded leadership --- one voice, one plan. Providing risk consultation to large corporations puts you in a position to see some amazing dynamics. People will not do thing unless they know the order has come from the top…it appears countries are no different. The shutdown should be federal because if we all go into shelter at the same time, you hope we can plan to exit strategically around the same time. Let me give you an example, if you have a missing child, technology (like the Amber Alert) has allowed for us to receive notification all at the same time rather than piecemeal.  This speeds up the likelihood of finding the child much better than sending it to one police department at a time. If the coronavirus shutdown does not come from the top, when one state recovers my question is: “Does that state allow you to travel or accept visitors from states that did not shutdown at all or that shutdown much later than your state did. Essentially this recovery could drag on longer than needed if we cannot move in a cohesive manner as a country. There could be a lack of trust in the air which is why I believe countries like Italy, China, S. Korea and others when into lockdowns all at once. Make It Rain – Last Resort to Inflate the Economy I am hoping for better coordination so we can begin to recover quicker and get the economy going.  The importance of the pillars we work on so hard here is to help you during these exact moments. If you have savings, you have some cushion during these bad times. See these articles, ripped from the news headlines: “Many Americans Biggest Worry is April 1st Rent and Mortgage Payments”  -- Washington Post “Real Estate Billionaire Barrack says Commercial Mortgages on a brink of Collapse” – Bloomberg “Jobless Claims Soar Past 3 Million to Record High” -- CNBC  “Mortgage Rates Surge to Highest Level Since January” – Marketwatch “2 Trillion Dollar Stimulus Package” --- See below These are just a few of the necessary reasons why the Federal Reserve is making it rain. It’s basically a blank check to shore up the economy until we can get a handle on the COVID-19.  Like in 2008, the market has responded with a rally since a “handshake deal” was announced just a few days ago. This rally will likely continue into the actual signing of the bill. Use this an opportune time to trade in the relief rally that is not uncommon. But when the dust settles, I am still not risking my individual retirement account funds at the moment because we know there is more to come. Mortgages need to be paid, the rent is due, businesses are asking for a bailout and jobs are being shuttered. Hopefully all this is temporary but it is a big risk. I don’t see an all clear sign, just yet. Urb Lesson of the Day:  Account Diversification · Savings Accounts – Gets you through the rough patches in life · Investment Accounts – Allows you to take risks when others are NOT – like today · Individual Retirement Accounts – This is truly for your future, why NOT wait for a sign that the recovery is strong

When it Comes to Bailouts --- Congress Be Nimble, Congress Be Quick

But if history is any example, Congress usually falls when jumping over the Candle Stick --- at least for the first few times. Take a look at what I wrote in 2009 and tell me if it sounds eerily similar to what is happening today. Does this mean that as humans we don't learn from our mistakes? I would hope not but wow the similarities cannot be overlooked. If you're lazy I'll paste a few excerpts here from the initial 2009 bailout response from Congress (https://urbanomics.blogspot.com/2008/11/bailout-tarp-abandoned.html):

2009: "Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. 

Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffett are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public!"

2020 - Fast forward to March 23, 2020, the bailout provision did not pass the Senate last night. This will undoubtedly cause the stock market to fall swiftly even further, and oh boy is it ever. With a majority of my investments in cash, you have to take history into account. Everyone I talk to NEEDS the market to go up I assume due the sheer amount of leverage they have in the system. While I am hopeful as well, risk management IS NOT about hope. It's about threats and likelihood. I am certain no matter what the climate is, politicians cannot do the right thing the first time around. Similar to the courageous fighters "300", that they are NOT --- until the markets are truly crashing and panic is all around will something finally get done. Look at 2009, same circumstances in 2020. Compromise, take care of people first, protect your companies but make then remember the pillars so we learn from our past mistakes. 

2009: "Where do we go from here:

The markets will continue to trend lower or remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market."

2020: Again striking similarities. Gas then dropped dramatically to $2. Where are we now in 2020... this exact same range. I have not looked at the charts but my gut tells me we are headed to the highs of PAST which are significant lows from where we were just a month ago. Let's flash back the good times in 2007 and 2013 as examples:

Before the Crash we topped 14,000 on the DOW in 2007: https://urbanomics.blogspot.com/2007/07/dow-take-bow.html

After the Crash we hit 14,000 in 2013: https://urbanomics.blogspot.com/2013/02/dow-at-14000-pt1-are-you-too-late-for.html


We will get a bailout package in the next few days. Then expect the markets to bounce with euphoria. But then we will have to live with the unwinding process. If many of us are trying to get by living paycheck to paycheck...not everyone can be bailed out. Usually you see/hear debt or margin calls (people calling say you owe them money), foreclosures, evictions, etc. I am proud of the companies that have stepped up and delayed these payments already. But its a band aid measure. But proud non the less. I have not looked at the charts yet so this is not a prediction...but this could be a psychological number that is tested as it has been in the past.

Q&A Session --- Questions About A Coronavirus Recession

Yo, why is Jadakiss as hard as it gets?
Why is the industry designed to keep the artist in debt?

Why you don't stack instead of trying to be fly?
Why is ratting at an all time high?

Lyrics from Jadakiss --- Why ft. Anthony Hamilton

Q&A with the Lyrics from Why

Let me help my guy Jada out really quick: Jada Question: Why is the industry designed to keep the artist in debt? Urbanomics Response: Well Jada the bigger question is why was your song written in 2009 but this question is still applicable even today. Ripped from the headlines: Taylor Swift, Mase, Megan thee Stallion --- all recently complained about contract dealings in the past year. You heard me hear say Jay Z and Master P gave you the blueprint -- independent. Funny you were referring to the music industry but ironically this seems to apply to most every industry I can think off. Let's take the NFL and NBA players who constantly are asking for a fairer share of the total profits as live sports is cable's last hope. We see players as spoiled, rich and entitled but do you find it interesting that someone pays their salary AND no one (main street, public, suburbs, politicians, etc.) ever calls the OWNERS spoiled, rich and entitled? How about the fact that college athletes in America can make universities AND coaches millions of dollars but the players don’t get paid…let alone their are no where near their fair share OR market value of the contribution they made to the profits of the college sports industry. I just saw that disgraced college basketball coach Rick Pitino, who once had a $55 Million dollar at the university of Louisville, is now allowed to coach again at Iona…even though he was the coach during the school’s biggest scandal which uncovered players getting perks and incentives (under the table) to come and play for the school. Did all the players on his team become millionaires during that run -- funny in the business world we have a fancy word called profit sharing. Maybe the NCAA didn't get that economic memo. Jada Question: Why you don't stack instead of trying to be fly? Urbanomics Response: Let me help those who are a little challenged by our smooth language --- to stack means to save money. Trying to be fly --- insert: spoiled, rich, and entitled.  Jada we haven’t even talked about the “economic” industry --- is this designed to keep the aritist public in DEBT? The public continues to take on debt at an alarming rate AND from a young age: Student Loans, Credit Cards, Auto/Car Loans, Home Loans. If the system is working and fair, why is every article about students swimming in debt. Every piece of mail is another company asking me to take my already high credit card debt and “consolidate” it with more debt they are willing to offer me. Wait there’s more --- I can take debt out to purchase my brand new fancy car and of course my home which has more seats and rooms than people in it, respectively.  The US is one of the few developed to offer a 30 year mortgage. What a beautiful concept --- let’s give you debt for something you spend most of your adult life paying for. With interest IF you ever held your home until paid off you likely spent more 40+ years paying for that home. But similar to the whiny NFL players who we complain about --- who are the owners that allow people to take debt out like this?? I could rattle off every company but what’s the point --- the real question is why is main street not taught money, budgeting, debt, savings, retirement, wills, insurance, and how healthcare works?    Real Questions I Received this Week Q: Do you like leverage and is now the time to lever up? A: For those of you out there, leverage is borrowing debt (money you don’t own) and using it for purposes like investing in assets (home, stocks, etc.). I do not think now or ever is truly the time to borrow money.  Something I learned from Warren Buffet is during tough times, when tide comes in you’ll see who was swimming naked. What he is referring to is debt, and the tide is an economic or financial crisis. When it hits, swimming naked means you are OVER LEVERED --- you have too many debts that cannot be paid.  My motto since my dad required I get a job at 14 was that I would never take on true debt. I sacrificed for the greater good and went to a state school so the fees would be less and I earned scholarships to help with the cost. Was it enough – no I used debt (my credit card) to get me through the lean moments which were usually the last few months of each year. But only because I made a promise that every penny of my summer job would go to paying off that debt.  I treat debt like the Lannisters in the Game of Thrones --- don’t get into debt but when you do always plan to pay if off. While I pay my debts on time, it's because I want to have the privilege to access credit (mainly during bad times to benefit on fire sales). Public Service Announcement: If you are in too deep, see if your lendor/creditor will work with you to forgive some of the debt...do not be ashamed many people do this and many corporations go through bankruptcy all the time (it's easier for businesses). A: Now is not the time to borrow more debt because the markets are too turbulent and more downside is to come. I do think you should have Money/Capital/Savings set aside to take advantage of the upside when we do get through this crisis. But those funds should rarely ever be someone else’s money --- then you forgot one our cardinal rules --- never take on debt or you may be the one they find swimming naked. What someone giveth, they will taketh and they usually come knocking only when times are bad. Don’t confuse leverage or debt with equity.  For example, I plan to invest during the downturn but I would rather put my rainy day savings to use OR my equity in my home.  If I lose my own money, I have no one to blame but myself. Losing someone else’s money may mean a lot of sleepless nights. I am evaluating using my home’s equity but this does involve risk. If you look back to my posts in 2009-2010, I was one of the few who had savings and no debt during the depths of the crisis.  Unfortunately, there were many home foreclosures and asset repossessions going on. I bought my home on a fire sale from a local bank that similar to many people fell in love with giving people too much debt or the wrong people debt. Revisit that process here (note my house is one of those in the pictures): https://urbanomics.blogspot.com/2010/04/homebuying-101-tour-baby-tour.html My equity in my home means I have gains since I first made my purchase and I can borrow against that --- but the risk IS your home is the collateral. So to reduce your risk, I advise if you try this approach DO NOT take the full amount of equity in your home. If we are headed for a downturn and your home value decreases that $100K in gains may be more like $50K. Q: Why is oil going down so much? A: Haha be happy and take advantage of cheap prices. Prices are so low, someone commented to me I don’t remember the last time prices were below $2. The reason prices went down are primarily because of Saudi Arabia, no conspiracy theory here just market forces at work.  And this IS NOT linked to the coronavirus.  The Saudis increased oil output after they could not reach an agreement with Russia to limit oil production. In economics if you have too much product that you cannot sell --- prices WILL come down and they fell to the floor. The virus has made this worse because if people are being quarantined or staying at home the demand for the oil is now dropping.  Urb Lesson 101 – if supply goes up or demand comes down --- the value of a product usually drops. We have both.  I’ve provided a source here as well:  https://www.nytimes.com/2020/03/08/business/saudi-arabia-oil-prices.html Q: Can you believe it, 3 states have just now issued the shelter-in place strategy that you shared weeks ago were needed? A: Yeah and many more states have closed schools and are allowing people to work from home. I think this is a well needed step in the plan to starve the virus. People are its host and you need to reduce people being in close contact for extended periods of time to starve the virus. The concern I still have as testing is finally ramping up, what is the damage by not doing this sooner and because it is NOT a true national strategy and states are electing to shutdown individually we all may not resume being productive as soon as we’ve seen in other places.  I think many people are using grocery store pickup and delivery, drive thru’s, Uber Eats, and I’ve seen stocks around meal delivery services popping but I’m not as big on this service for the masses.  Q: So when I start to process everything I am seeing and hearing is this all a House of Cards? A: To start, I have never seen the show so I don’t fully know the premise. But I truly understand the disbelief people have in how this has been handled. I think there has been poor leadership and people are panicking, hence the toilet paper craze. I think there are two things at play working separately: 1) Poor leadership results in no trust of the data/information coming from the top. It’s displayed when Trump would rather yell at the reporters than calmly answer the questions we are ALL hoping to hear the plan or solutions too. It’s clear when I get FEMA texts minutes apart from many people that everyone is on high alert and susceptible to hoaxes. That does not happen unless if you don’t TRUST the daily briefing you’re receiving from your CEO or leader. 2) If a virus can bring world to its knees because the fact is revealed that most of us do not have enough saving to cover two weeks of shelter-in place that is a scary proposition.  The new questions that will come are: a) When a family is so far in debt you go into bankruptcy….what does a country do to get out of a mountain of debt? b) If a lot of that debt is used on our medical system why is it being called fragile --- and we only have 400K medical beds nationally?  c) Will every virus, major climate change, and/or recession cause panic and markets to crash like this? d) Who get's a bailout --- it seems this time like everyone needs one?  I pray we are all patient to get through this together and help each outer out. Because it will be a long drawn out process that is leading to an economic recession.  Next week, news is already coming out that the unemployment numbers will skyrocket to somewhere between 2.5 to 3 Million people. Stay tuned in and stay positive. We'll provide more on how we hold it down during a recession

POETIC JUSTICE --- Navigating The Storm To Come

If I told you that a flower bloom in a dark room, would you trust it? ~ Kendrick Lamar

You ever get that feeling of Déjà vu?  Well I did and I did not like what I was seeing. That was the rationale back on March 2^nd when I first started posting on COVID-19 and the risks it posed to our health, economy, and wealth. I beat the drum beat of quarantine, lockdown, or as they are now calling it --- stringent social distancing because as a risk manager you want to prevent the worst possible outcome. I do that on a daily basis for corporations and it is much better getting yelled at by clients for being overly protective and concerned than witnessing them painfully recover from the depths of something that could have been better mitigated.  For example, I once had a banking client down in the Florida Keys. The Keys is a great location --- think conch fritters, fresh oysters, beautiful water and sites. But I also had a job to do --- what natural disaster quite common in Florida and the Keys: Hurricanes. My job was to ensure not only was their cybersecurity posture adequate --- but for a client in the Florida Keys I paid very close attention to their disaster recovery planning and insurance policies. When I completed my assessment, I wanted to provide some level of confidence is they were adequately prepared.  Yes, a large aspect of my blog is about financial empowerment but more importantly you need to be able to sleep at night knowing you did everything in your power to plan for health, economic, and financial success. And your plan has to be resilient to get you through black swan events just like my client who vigilantly prepares for that next hurricane.  

Does History Repeat Itself

Undoubtedly it does. I think it was Will Smith (don’t quote me) who said anything you can think of has already been done and is somewhere written in a book --- you just have to find it. Maybe not exactly like that but you get my point. So if navigating through a crisis is a class, guys like my big homie Ray Dalio are the excellent teachers to keep up with. He runs the world’s largest hedge fund but ironically often sounds the alarm of the true inequities of people today and having a plan to address then because history will eventually give us a black swan moment that will send us reeling.  If I lost you I apologize, but the point I am trying to make here is I am concerned about the tools our government has to get us out of a crisis may have already been exhausted. I’ve heard Ray and a few other people that I follow echo the same sentiment.  I’ll break it down like this because I write about it often here, when times are good for a family or a country the excess wealth it takes in must be saved for a rainy day.  We did not do that as a nation and it’s not going to make RECOVERING from the economic crisis that ballooned out of the COVID-19 pandemic that much harder.

My other example is: When times get bad, a retail store may resort to providing discounts to get customers in the door to spend and give the business a boost. A federal government uses interest rates similar to how a store uses discounts or coupons. If you reduce the interest rates, money is discounted and people come running through the door.  BUT WHAT HAPPENS WHEN INTEREST RATES ARE ZERO --- OR BETTER SAID WOULD YOU KEEP BUYING IF THE STORE KEPT GIVING YOU EVERYTHING FOR FREE??

If you recall, I posted very little in 2017 and 2018 but when I did I highlighted that I had changed my investment strategy to trading stock option contracts. Again not to overcomplicate things:  I simply had a very hard time finding deals in the stock market so I invoked my sandlot strategy --- I took my ball and went home.  I wasn’t buying any stocks but taught myself how to trade options because I wanted short term-investments that didn’t leave me hanging out to dry when the eventual was to come --- a Recession. We were already in our 10+ year of an economic expansion, one of the longest on record.  My biggest concern is the COVID-19 pandemic lit the fuse for a big drop in market I already thought was running too hot.  If you’re lazy here is a snippet: “I explored options for the first time in portfolio and it was a big reason for my investing success this year.  I have been studying it for months, used a fake portfolio of money to test trading strategies out, and implemented BASIC trades that have complimented my LONG-TERM VALUE oriented approach.  I repeat, I was afraid and had never traded an option contract in my life.  This year I’ve executed over 80+ option contract trades in a way that I believe lowers my investing risk, especially considering I’ve told people to be cautious because we are in the 10^th year of a stock market rally. “ Feel free to read my comments here:

https://urbanomics.blogspot.com/2018/04/the-plan-can-economy-grow-forever.html

https://urbanomics.blogspot.com/2018/12/2018-year-in-review-year-of-growtha.html

I want to wrap up here by saying I’m very concerned. Ok yeah I worry a lot, but please put my logic together:

1)  I traded my first option contract on May 30, 2017 and I spent the first half of 2017 learning and practicing something I had no clue about because THEN I thought the market was overvalued.

2)  Debt Levels are very high because our government did NOT save for a rainy day when times were great (10+ years of economic expansion). This does not help thing when in a debt crisis.

3)  Unfortunately President Trump constantly spent the last few years criticizing the Federal Reserve into lowering interest rates. You traditionally raise rates when times are good (we had over 10+ years of good times).  Rates are now at ZERO and that means we have NO MORE TOOLS left to fight an economic battle.  It is the main reason, I recommended going to cash in my Individual Retirement Accounts just a few posts ago.

My next post will break down what happens in a Recession and why I’ve learned from the 2008 crisis --- When I sounded the alarm it was the only other time I’ve ever moved my IRA to cash. Like then, do not try to be a hero in these markets. After 10% down days you may get itchy to buy the dips but prepare to be nimble and get out the next day. Don’t panic, but brace yourself for a bumpy ride down --- and hey if I guess it will be a little Poetic Justice.

Individual Retirement Accounts - Being The Boss of Your Retirement

Investing In Yourself – Using Pillars to Build Your Core	https://urbanomics.blogspot.com/2015/04/urbanomics-pillars-path-set-for.html
Setting Budgets + Saving for Black Swans	https://urbanomics.blogspot.com/2013/02/personal-finance-budget-101-free-credit.html
	https://urbanomics.blogspot.com/2019/11/hey-henry-high-earner-not-yet-rich.html
How to Open My First Brokerage Account	https://urbanomics.blogspot.com/2015/04/personal-finance-101-starting.html
Diversify your Life (Mind, Body, Soul, + Investments)	Search My Blog

Coronavirus Update – Do You Think They Are Listening To Your Plan?

I’ll make 2 quick assessments.  I’m of the belief that we are moving too slow and in a fragmented manner. Tone at the top, is when the highest leader of an organization sets the direction and PLAN which gives everyone instructions on what to do.  Assessment  1 -The tone from our leaders has been slow --- despite the rumors people are spreading--- there is no “National Holiday” that has been declared. Something like this would have to come from our President and federal government.  So what does that mean, you need to be listening and looking to your local city and state leadership for direction because each and every city will deliver their own instructions. This is fragmented and leads me to believe that the handling of this outbreak will take longer than may be needed.  We’ve gone from different messages: a) go about your daily lives, b) social distances, to c) hunker down??  Very early on you saw that I’ve called for a national holiday. This approach goes further than social distancing because it tells everyone to stay home but reassures the masses that they can pay bills if they cannot work from home. You identify the sick, give them help outside of our fragile hospital system, don’t expose others, and try to assist the stores and restaurants with supply chain and safety measures for shoppers. For example, set limits against hoarding and push people to order ahead and people of means can continue ordering from restaurants thru delivery if done safely.  Assessment  2 -  I called for testing --- this reduces the panic in the air. The truth is if you show any symptoms of any type of sickness you need to isolate yourself, remember there is no cure. But testing helps to comfort us and know what we are dealing with. Thanks to companies like Roche Diagnostics stepping up, they are producing over 400K testing kits each week to now assist the country.  The elderly and vulnerable need to seek help first and if you think your symptoms are progressing then you should seek assistance. So currently, I know some people are still physically going to work and I can attest not everyone is an essential employee. I know some schools are still open. This uncoordinated approach IMO delays stopping the spread.

What Comes Next?

Well let’s think about what I’ve laid out above.  A fragmented approach is leading to companies and schools closing on their own terms. By not doing it in coordination you will now have a fragmented and unclear approach to layoffs, furloughs, and how employees get paid. Even if you can work from home, what decisions will your company take if their sales/productions/revenues dip?  Remember this is NOT just in America but across the world. So my math leads me to believe that things will get worse before they get better and yes that means Recession signals.  I’m mentally planning for a Recession and making minor adjustments.  1st Budget and Save à  If the government does NOT help out you and me (main street) you need to build and rely on your saving to ride through the rough patch.   2nd Renegotiate Bills à Call everyone but the Water/Sewer, Gas, Electric Cos.  If you pay for cable, internet, cell phone, and mortgages now is the time to determine if you need that service and IF they value your business. For example, sorry Sports Fans – if all sports is canceled do you really need the Sports Cable Package?? 3rd Refinance à Because of poor leadership, the markets are panicked. For example, you’re not crazy if you got a response from a bank last week quoting you pretty bad rates. I learned that the market which buys mortgage products seized up. Good news is call back, the Federal Reserve last night indicated they will directly begin buying mortgage products so RATES SHOULD START going back down. Don’t settle Me personally, I can’t watch the NBA, English Premier League, or March Madness right now so it’s time for cable to go. My refinance is in progress and I’ll keep you posted on my savings.

What About My Retirement?

Once you have your budget in-line, the savings will slowly start to roll in. Then it’s time to think about your individual retirement account (IRA). I don’t like to advise people on what to buy and do because we all think differently. If you read what I posted above, my thesis is the actions NOT being taken by our leadership will prolong this crisis. If my thesis is correct, the market will fall further and we may technically reach recessionary levels.  The reason I like to invest is you can tell the real from the fake. Many people like to give you their opinion, but would they place their own $$ on what they are telling you. To mess with people, I often ask them would they be willing to bet on it…and that’s when they get quiet. If you have done the work, the rest is to follow your instinct.  I have a savings account that allows me ride this store out no matter what happens. That allows my IRA to truly be just that…a retirement accounts.  So for my real ballers, think about this concept. If you believe the markets are NOT going to do well for awhile --- why stick around. I call it my Sandlot Move à I take my ball and leave, like Jay Z said “I don’t need the NFL, the NFL needs me”.  If you don’t know what he’s talking about here --- keep working on the pillars we lay out here and you soon will. I make moves when I say so and in this environment, I don’t need to put my retirement account at risk because some guy in an ivory tower tells me wait it out. So what if I miss some of the rebound, I’m still good. I’ll catch the markets when I can go to an NBA game again --- or maybe an NFL game Jay J

Urb Lesson of the Day – Individual Retirement Accounts (IRA) are not something to be taken lightly. First diversify your IRA. My buddy told me something that I thought was no longer widely practiced after the days of Worldcom and Enron going out of business. He mentioned he had most or all of his 401K retirement account in his company stock.  It’s great to be a believer in your company but you must be diversified.  Before Enron: Many companies matched 401K funds in Company stock. Employees were often required to hold the stock until retirement or closure of the account. That IS NO LONGER THE CASE. You're more than welcome in leaving in all company stock but know you are gambling and not investing. You could win BIG or go BUST.   My advice is even if you work at Apple, ensure that your entire 401K is not in company stock AND if your match is in company stock --- elect to have it go cash (Stable Value Fund) or something like the S&P 500. Then later when you evaluate your account (each month or quarter) you can CHOOSE to have some of it going to company stock. Never let someone choose for you. Boss move

Coronavirus / Bear Markets --- What to Do With My Investments?

Investing In Yourself – Using Pillars to Build Your Core	https://urbanomics.blogspot.com/2015/04/urbanomics-pillars-path-set-for.html
Setting Budgets + Saving for Black Swans	https://urbanomics.blogspot.com/2013/02/personal-finance-budget-101-free-credit.html
	https://urbanomics.blogspot.com/2019/11/hey-henry-high-earner-not-yet-rich.html
How to Open My First Brokerage Account	https://urbanomics.blogspot.com/2015/04/personal-finance-101-starting.html
Diversify your Life (Mind, Body, Soul, + Investments)	Search My Blog

Thanks for tuning in. I've heard from so many people so these discussions will frame my upcoming blog posts. For example, I raised the discussion of what to do with your retirement accounts so I'll be addressing that soon. This week, I fielded multiple questions on should I start buying. I will try and address all of these items but not in a frantic manner --- remember we were built for these moments. We've been investing in ourselves, setting our budgets, saving for black swan events, diversifying our portfolios and strengthening our core for these very moments.

People and Safety First

First things first ☝ always remember that people...yes I said people and safety always come first. That is why I was so passionate about what the next steps should be for this country during an outbreak like this. As a risk manager, this is the number 1 rule and it must not be forgotten.  If this were my favorite show "Heroes" you would hear the phrase 'Save the Girl' --- well my response to the administration is 'People First Profits Will Come'.  Sometimes we all need that subtle reminder. 👂

Stick 2 Da Script

If this is your first time get familiar with my pillars above. If you've been here before don't forget them because this is a life-long journey of having the tools you need when things are GOOD and when they are BAD. Again I've received a lot of questions this week and I assume people will take their time to read through my blog before firing off their questions but that isn't always the case. The most common questions I get are:

• Is it a Good Time to Buy?
• What Stock(s) Should I Buy?

These are solid questions if you are a seasoned investor, who invests in the markets often. However, I want to start a new trend --- where people are comfortable talking about how much they got in savings first!  You tell me what car you drive, where you work, your favorite drink, damn some people even rattle off their credit score BUT people get real quiet about their savings.  So I'm here to remind you of my Rules above...because the first investment you should be asking me or anyone about is How Can I Invest In Myself.  And here is my answer:

Set a Budget  Every winter its 2 things -- cuffing season 💑(if you're single) and budget cutting season ✂. I revisit my budget and guess what I found out -- It goes UP, DOWN, or stays the same. It rarely ever stays the same so I challenge everything that goes up.

Mortgage - Have you refinanced?

Insurance - Have you asked for lower rates or called a new competitor for quotes?

Bills - Can't fight these much but do you need that super cable -- when you work 5/7 days a week a least? Can you phone a friend for that Netflix account?

Urb Lesson of the Day - Being a boss means doing the dirty work, and having tough conversations. This week alone, I had CEO discussions with my banks and what they need to do to keep my business --- remember they work for you.

Start Saving 💰 - Real savings IMO is the money saved up AFTER you have no outstanding debts in your household. So set your budget to get on a plan to begin saving for your future and future BLACK SWAN events. Before the coronavirus crisis, I've talked about black swan events being the one thing we are always on the look out for.  Well that event is here and a deep savings account helps ease those of us panicking if schools are closed, your company shuts down temporarily, you unfortunately get laid off, medical bills surface, etc. Remember the government shutdown, H1N1, 2008 financial crash make sure you're not a part of this statistical group:  Roughly 70-80% of American workers live paycheck to paycheck. (Source: 2017 Careerbuilder Report)

This is why I was passionate about putting money in hands of the American people. I predicted state and national shutdowns would be required to slow down a contagious disease (note: China, Italy, S. Korea all showed why this is necessary). That finally happened here in the US.  Why was the response so slow? Well, they are scared to shut the system down --- because the capital machine has most people living paycheck to paycheck. So work can never stop (for those who cannot telework/work from home), I guess even when your health may be at stake.  I applaud this gent for keeping it real on national TV, he acknowledged its a big problem when most Americans live paycheck to paycheck:

Urb Lesson of the Day - I live to save because there will always be black swans, moments that shock you and your family --- weddings, deaths, travel, layoffs, medical bills --- you want to have the savings to get you through these moments. I know the rent, bills, and food has to be paid but the long-term plan is we need a healthy you to be a provider for yourself and family for years to come. Use these markers to benchmark how much you need to save for a rainy day:

2 Weeks Pay --- Rookie

1 Month Pay --- Rising Star

3 Months Pay --- Honorable Mention

6 Months Pay --- Veteran

12 - 24 Months Pay --- All Star (Cue Biggie: "I'm not only a client, I'm the player president")

 

I personally have moved to cash in my individual retirement portfolio because you have to sit down and map out what happens next: businesses slow down, layoffs will rise, and earnings from corporations will be bad for the next few quarters. My retirement money is just that a second savings account I can afford to be very careful with.  Your primary savings account is a cushion for whatever is to come. Stay tuned for more, I will address what to do with your individual retirement accounts and for those aggressive people trying to gain an edge in the market --- YES we'll discuss stocks to buy.

Investing in a Coronavirus Epidemic ---- No Testing Time to Move to the Sidelines

So 10 days ago, I wrote the following article: https://urbanomics.blogspot.com/2020/03/the-virus-goes-viral-why-stocks-are-in.html

Viral + Misinformation
I needed you all to truly understand in the age of social media, 24x7 news media, and poor governance from some world leaders -- the virus has truly gone viral.  The virus is NOT a FINANCIAL ISSUE it is a biological disease. A viral pandemic will NOT be cured by pouring money back into our economy.  The fact that our leaders have NOT provided a clear message is evidenced in my conversations over text, e-mail, and chat with family, friends, and co-workers. For example, a question came into my local public radio station. The question was: What type of antibiotic can be proscribed to combat the coronvirus?

Answer - This is NOT bacterial, antibiotics is not a solution to protect us. The fact is I wrote here weeks back, that a few companies have JUST started research on this virus in search for a vaccine and companies like Gilead, Moderna, and others are possibly over a year away from finding a cure and mass producing a vaccine. 

Stop Worrying About Perception
Crisis is managed by LEADERSHIP, constant factual messaging, and preventative and detective measures. I used to work with a guy years ago that bragged, boasted and used dumb ass phrases like 'epic fail', to put down everything and everyone in an attempt for him to look great. Well, this becomes an issue when you do and say these things all time. When a real crisis finally comes, he looks like the epic failure because he cried foul so long no one could distinguish the real crisis from the minor issues he used to rant about. The reality is his leadership was an 'epic fail' and that reminds me of what I am seeing today.  I get paid to manage risk and everyone knows the two primary methods of risk management are Preventative measures and Detective measures.

         Our leaders have dropped the ball on Preventative and Detective Measures. 
My colleague used the word perception and I thank him for that. My favorite term is optics as many of my colleagues and clients know. People drastically underestimate the optics of a situation and I believe its made me a fairly strong businessperson.

Perception 1 - In the US, we cannot and should not restrict people from travel, social gatherings and events, and work. It's draconian, un-American, because we're too sophisticated to adjust our way of lives.

Preventative Solution - Okay, to start...don't use the word quarantine (it's like socialism here in America just won't fly). But you should restrict travel, social and work gatherings, etc. To prevent a contagious disease spread by touching and coughing, you have to limit travel and close interactions. We know you want to keep the economy booming and the stock market up BUT this is the right next step. Like the loser who uses 'epic fail' many have dissed China for their draconian measures but their infection numbers are dropping, work is resuming, and confidence will slowly come back when you restrict or quarantine the nation.  Imagine that --- So Italy and the National Basketball (NBA) should be applauded for the courage to put people before profits because they would have been creating an environment to spread the disease if they did not quarantine their country and stop games, respectively.  If we are waiting for a message from every school, employer, and city to determine their own shutdown we are creating an environment of panic. This should be a message from the highest level, shutdown, so we are all on the same page. We call this setting the tone from the top. Don't leave it up to my elementary school, National Hockey League, Baseball, Golf, cities, states, and companies to make this call alone.

#2 or 3 weeks of profit pain help this disease go away

Perception 2 -  The greatest country in the world cannot develop enough testing kits to address this issue.

Detective Solution - We don't know how bad the situation is --- WHY because we DON'T HAVE ENOUGH TESTING KITS?  That seems more like someone doesn't want the real number to come out.  We talked about preventative measures, let's move over to detective. To detect the virus you need a kit. If you restrict people's travel period, then you can calmly share with people what the symptoms are, identify sick people, and test or DETECT whether they truly have the virus. We all know if the real numbers come out people will panic, but people are already panicking because they don't trust the current numbers being posted today. 

We freak out when an NBA player, or a guy on a jet, or symptoms show up in our local school --- I guess I wonder why people begin buying $100 dollar bottles of Purrell.  Tell the truth, most people have been exposed just like we all are exposed to the flu every year. Get us testing kits and let people know they will survive it JUST like you survive from the flu each year. We are all at risk --- risk is everywhere everyday --- but the people at high risk are the elderly and people with compromised immune systems. They need to be protected.

Restrict Travel and Movement - 2 to 3 week of pain could mean we get a handle on this

Get More Testing Kits - Yes testing reveals the true number and will burst everyone's bubble that many people around us are infected. But guess what, we stay home, treat ourselves, and get better

Ramp Up Protection For Elderly and Sickly - These are our most vulnerable population. Its time to give hospitals, nursing homes, and high risk people all of the resources they need. This includes make-shift hospitals just for the virus. Why because the last place I want to send someone with symptoms IS to a hospital FULL of people with compromised immune symptions.

Step Up and Pay for Time off and Healthcare - People sick or not will continue to go to work, in FEAR of losing their job. Pay for time off and for the fact that many people DO NOT have healthcare. If you ensure that panic dies down.

Loans to Affected Cities/States - Put in place the items I shared above. Every company and city will need a loan soon if you don't limit the spread further. So I don't love this idea b/c Cruise ships, retail, food, sports companies all will be hit --- are you going to bail them out. Bail people out first and companies will be saved. You do that and maybe it lessens the impact to business

# 2 or 3 weeks of profit pain helps this disease go away

Bad Ideas:

Payroll Tax Cut - Stop the optics of politics. This is a also a way to NOT fund Medicare and Medicaid. Just send me a check and ensure I have a job and health until the crisis is over.

So unfortunately since 2008, I have not had to make a call like this but I truly believe we are at this point. Until I hear the governance of our leaders changing, I will be personally moving my retirement portfolio to cash and safe assets. I have lost faith in the message coming from our leaders, the data being presented, and the actions -- or lack of actions being taken.

No Testing means I don't trust the data. If we don't implement the steps above then unfortunately my indicators say we are headed for a recession. I plan to move my retirement vehicles to cash, but I will keep my personal portfolio in stocks, I have some protection from the VIX, Gold, etc but it's not helping that much.

The Virus Goes Viral --- Why Stocks are in a Bear Market

Investing In Yourself – Using Pillars to Build Your Core	https://urbanomics.blogspot.com/2015/04/urbanomics-pillars-path-set-for.html
Setting Budgets + Saving for Black Swans	https://urbanomics.blogspot.com/2013/02/personal-finance-budget-101-free-credit.html
	https://urbanomics.blogspot.com/2019/11/hey-henry-high-earner-not-yet-rich.html
How to Open My First Brokerage Account	https://urbanomics.blogspot.com/2015/04/personal-finance-101-starting.html
Diversify your Life (Mind, Body, Soul, + Investments)	Search My Blog

The Virus Goes Viral

This week the stock market was rocked by round the clock news of a SARS like coronavirus, COVID-19. The Dow fell 12 percent this week alone, which I believe is the biggest one week drop since the dreaded financial crisis. With over 3 Trillion Dollars worth of value erased in US Stocks, I get asked what in the world do I think is going on and what am I doing during a period like this. This very topic came up today when I spoke with my dear friend who happens to be one of the biggest mortgage brokers in the country.

When asked for my thoughts -- I told him plainly the Virus has gone Viral. And what I meant by this is, in today's hyperconnected world we are getting peppered with news updates, pictures, and opinions all day. I truly believe the virus has gone viral and we are seeing the market reacting to real-time tweets, posts, and texts as news comes out instantly. Gone are the days where we all had to tune into CNN or wait until our local news came on to try and decipher what was happening a world away. Over the past few weeks, I've seen constant pictures of cruise ships (not able to dock), masked people in coffee shops, and empty streets and restaurants. So my mind instantly goes to my favorite End of the World shows like the "The Last Ship" or "The Walking Dead" which similarly displayed quarantined ships and empty streets, respectively. The fact is as a county and world we may be more worried and nervous that ever before (thanks to Ring doorbells) and a polarized political environment. That uneasiness and mistrust, today more than ever, may be causing this natural response that this is the Big One. I am NOT arguing for less information but our futures will be scarier when you can watch a live counter of people getting sick and dying across the world.  

First, we should be amazed at how rapidly people now move across the world. When we had SARS back in 2003, the world was less mobile and while that virus hit with a fury -- it impacted less people. COVID-19 is a similar genetic strain to SARS but is clearly more powerful (virulent) and contagious. In a more mobile world, when one part catches a cold the rest of the world will catch that cold or at least sneeze. Similar to the flu and cold season, those most at risk clearly appear to be the elderly and people with underlying health conditions. 

So people need to hear from those in charge to ensure that a plan is in place for their health and well-being. This is a critical response to all those real-time updates we get and the apocalypse shows I watch. If I got a real-time update of flu infections and deaths each season, I would never leave the house (let alone a homicide update for most metro cities).  I wasn't paying attention back then  -- but does anyone know what we did as a country when SARS or Avian (Bird) flu impacted the world?  I don't so my point is don't panic.  Hospitals already restrict youth during flu season so our next best steps are: a) protecting our elderly    b) reducing close contact    c) washing our hands   d) hoping for warmer weather

With markets being at ALL TIME highs, it is a very rationale to be scared but don't panic and definitely don't SELL everything.

What Should Be Sold ---

Segments of the markets involving in travel, leisure, hospitality, dining, and retail. In addition, businesses with significant exposure to Chinese customers or China's supply chain. They will be sold off because we just don't know how long this disease will last. Also, due to today's hyperconnected world, NO ONE wants to be the company that didn't close its doors soon enough, cancel flights fast enough, or take the necessary precautions to keep customers safe. So businesses in this segment will take a hit.

What Should Be NOT BE SOLD ---

I think your healthcare, internet, gold and gold mining stocks should not be sold. I also think you need to try and protect your portfolio. Protect Protect Protect - you'll see that's why I've own gold related stocks like Novagold since 2008-9. Oddly enough that was the same time I advised my mortgage broker to add Gold to his retirement portfolio. I recently wrote about a healthcare stock: Gilead, a company helping to develop a vaccine for COVID-19. And I want to share with you an investment vehicle called the Volatility Index. Known as the VIX, this offers some protection when the stock market gets very volatile. I bought shares in the 4th quarter of 2019 (a little early) when I thought the market was getting to high -- I purchased shares around the $15 a share range. I'm glad to have insurance protection when the market feels like it is falling off of a cliff.

I own VIXY which is a volatility index fund. When things seem too good to be true, BE FEARFUL, and buy protection. Roughly 10% of my portfolio is being offset by VIXY which gives me some piece of mind on down days.

Try and protect yourself in advance of market downturns and then during the downturns we go bargain hunting. I picked up the following stocks in the last two days:

• Facebook (internet) 
• Match Group Inc (internet) - Owners of dating sites: Match, Tinder, PlentyOfFish, Meetic, OkCupid, Pairs, Twoo, OurTime, BlackPeopleMeet, and LoveScout24
• Teladoc (healthcare) - Virtual/Video conferencing healthcare services with your doctor and the future of a simple doctor's visit
• Uber - While ridership will decline, Uber Eats may pick up, I think it will be temporary and for a stock that fell from $42 to $29... an opportunity exists

My assumption is most people will be swiping right, wanting an expert doctor opinion or eating in. Me, I'll be #investandchill