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🏀
- 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.
- 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.”
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.
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