Summertime Rally - It Ain't Broke So Don't Fix It

Here it is the groove slightly transformed
Just a bit of a break from the norm
Just a little somethin' to break the monotony
Of all that hardcore dance that has gotten to be
A little bit out of control it's cool to dance
But what about the groove that soothes that moves romance
Give me a soft subtle mix
And if it ain't broke then don't try to fix it


~ Will Smith + DJ Jazzy Jeff ---Summertime

I often use my blog as my personal sticky notes. It becomes a treasure trove of how I traded the markets --- say during a previous recession. When I look back during those times, I laugh at the days I was recommending stocks (in a recession) --- but it serves as a healthy reminder that there will be plenty of good days as the economy heals and eventually rebounds. Are we already there? Well that's why I put on the track Summertime. While some may say its still technically Spring, the markets are roaring back and it feels like Summertime in the air. Good data is in the news for a change to break the monotony. It's cool to go outside and goof around in your backyard. It is so nice outside, many states are even trying to re-open BUT with the shelter-in place strategy working --- I often hear 'if it ain't broke then don't try to fix it'. I want to highlight the difference between MACRO AND MICRO.  While I may believe there is a long difficult road ahead (MACRO), I can't deny that weeks of 4/20 and 4/27 have been really good so far (MICRO).  Here are some of the headlines:

Fear of Missing Out -- FOMO RALLY 

The S&P 500, aka the S&P, is one of the more commonly followed stock indices. It is a good reflection of the U.S. stock market as it tracks the performance of the largest companies listed on stock exchanges in the United States. The all-time high of the S&P is roughly around 3380s in February 2020 --- well I'll be the first to say I'm very impressed, while also very shocked at the massive rally off the bottom. This is why I allocate funds in different buckets. My investment account has been fully funded in stocks and I have bought a few new stocks but mainly I've monitored the stocks that were down and glad to see many of them moving up off their lows.

COVID-19 Treatment / Vaccine News

Gilead Sciences (GILD)  This morning as I was watching the markets, a ray of hope sent the stocks shooting up. GILD released preliminary results of a coronavirus drug trial which appears to indicate that at least 50% of patients treated with a 5-day dosage of antiviral drug remdesivir got better and more than half were released from the hospital within a two week period. My understanding of the data appears to show similar results with a 10-day dosage (so positive news for a lower dosage period). Remember, this is NOT a vaccine only a treatment to save lives! But I think the market is looking for rays of hope and people will begin to see a path forward if they know there is an opportunity to survive this deadly virus.


Real Estate   

Developer DR Horton (DHI) said it has observed an upturn in weekly sales for the most recent two weeks.  March was been a rough month for real estate sales. I assume the industry needed some time to adjust and adopt technology to allow for more remote video based tours. A green chute in the housing sector can be seen as mortgage applications to purchase a home pivoted directions and moved higher a week ago --- up 12% week over week, says the MBA. This uptick was seen across the 10 biggest states and may kick-off a snapback spring of homebuying.

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URB Lesson:

Macro - I like to tell people to plan long-term 3-5 years and have opinion/view/perspective on how you expect things to play out. I watched the movie 'CREED' and based on your opponent you have to develop a game plan...even when you're the world champ.  Example: Towards the end of 2017, I had a view that the market was no longer cheap. So I changed my approach, I trained for 6 months and found ways to make income on quick trades. Normally I like to buy and hold for many years but it life we must adjust to the data (or your opponent).

Micro - This article is to keep it real. The last few weeks have been positive. That is great for me, my family, the city and state, country and world. Be flexible to take advantage of these micro moments. I am long in my stock portfolio but I can still be conservative in my retirement account.

What I am Trading - I have been actively trading UBER (UBER) over the last 3-4 weeks. I get in and get out. For example, I think its all time low is 18 --- I bought at $23 in my retirement account and just sold today. I was pleasantly surprised with how it performed. In my stock account, I was early on UBER and bought at $27ish. I traded around the position using options and took some nice income wins and then I sold off the position this week. But I need to research my opponent UBER further. A good friend of mine...billionaire Jim Chanos thinks UBER is a bad investment --- so I can be stubborn OR I can be balanced. He wisdom has prompted me to sell my position even though I was up over 33% in one account and had small gains in another. I must remain humble and see life and trades through the eyes of others. If not, you don't see the hidden risks around the corner.  Why do I respect Jim so much he makes money typically off of betting when stocks go down...very difficult thing to do. 

On advice from another famed short-seller Carson Block of Muddy Waters --- they bet that Luckin Coffee would tank. China's next Starbucks was a high flyer UNTIL this month: Luckin Coffee fell over 70% after the company disclosed its chief operating officer fabricated 2019 sales to the tune of over $310 Million dollars. How in the hell do you hide $310M when the whole world is watching you. That's my MACRO concern with this Summertime rally - we are still scared, jobs lost, many lives lost --- BUT the market looks as if that's all in the rearview. For now, I'll enjoy cutting the grass and chasing the kids but I do wonder what will be the damage from the coronavirus recession. 

Payment Protection Program -- P.P.P. (Yeah You Know Me)

PPP Remix:

Harm me with harmony
Dave drop a load on 'em
PPP, how can I explain it
I'll take you frame by frame it

To have why'all jumpin' shall we singin' it
P is for Payment, P is for Protection scratchin' temple
The last P...well...that's not that simple (uhh Program)

Who’s down with PPP, well it seems like everyone. Almost a month ago I wrote about the first stimulus package that was released.  In that package $350 BILLION was laid out for small businesses. So I turned up Naughty By Nature O.P.P. and started filling out the application. But to my surprise, my regional bank wrote back a few days later telling me all the funds in the program were gone and I’d have to wait and see if the program would ever be renewed. The question at the top of my mind is how in the hell did $350 Billion run out that quick. This is for small businesses, the backbone of our country, and it’s only covering two months of salary, rent, utilities, etc. Well I found out these snakes may be the reason (Company, Millions of Dollars Loaned):

Ø  Shake Shack $10M

Ø  Ruth Chris $20M

Ø  Fiesta Restaurant $10M

Ø  Quantum Corp. $10M

Ø  Potbelly $10M

Ø  J. Alexander’s Holdings $15.1M

Ø  Hallador Energy $10M

Ø  ZAGG $9.4M

 The interesting thing about the list here is I am only calling out the publicly traded companies on stock market exchanges. I’m not knocking these companies for taking advantage of a good situation BUT seriously if you’re stock trades publicly your kinda a big deal. And it means you have access to funds in ways I DO NOT. You can issue stock, access lines of credit, chat with private equity funds, etc. But wait there’s more -- there are over 75 public companies that decided to stiff it to small businesses. I seriously can’t support these companies in the future because in a time where everyone is hurting if you can't avoid gaming the system for once…then damn that more gangsta then my boys from the Sopranos or the Wire. Thanks to Morgan Stanley for searching thru public company filing records and compiling a list. And this means we don’t even know how many non-public companies of similar size are doing the same thing.   Here is a bigger list of inconsiderate #$*#*@:

Source: Morgan Stanley, public company records

Small businesses trying to stay afloat keep your head up. If you are an independent contractor, sole proprietor or true small business (LLC, S Corp, Corp, Partnership) head to the SBA website and sign up.

SBA Loan Program: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

A House of Cards --- Pt. 3 (Debt - The Gift & The Curse)

This has probably been my toughest post to write.  I've been hinting at what is to come through posts like Deja Vu. I believe the economic impact to come will be very rough on all of us and it is the primary reason I headed to the sidelines (moved most of my individual retirement accounts to cash) over a month ago. It's the reason why I have been holding so much in savings and declining to take on any real estate and other deals for the last few years.  It was also the reason why in my Investment Account I stop investing in roughly Q1 of 2017 and began trading options --- short term bets I wanted to win quickly and then get out off. I did well but I still have some bets on the books that have been pummeled and probably overexposed myself to retail and consumer discretionary stocks.  I have invoked my sandlot strategy (taking my ball and leaving the playground) and this has only happened one other time in my Gen X/Millennial lifetime (I'm on the border --- take your pick). You'll see the other time was during the financial crisis. Instead of me speaking on what is to come, I've decided to rip from the headlines snippets of what the everyday people feel and believe are their biggest risks to come. Almost all involve too much debt and that's why I rally around a lyric in an old Kanye verse from the Beyonce Ego (remix): "What you want dog, Tryna stay recession free".  Yes sir, to stay recession free is to stay debt free. See the risks of limited savings, too much debt (over-leverage), and not having enough capital to make investments when others are swimming naked. 

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The Human Toll --- No Free Lunch

(The Washington Post) -- In interviews with more than a dozen laid off workers and small business owners, nearly all said their biggest economic concern was paying the rent or mortgage in April. Many people across the country have monthly payments that exceed $1,000. The median monthly rent in the nation is just over $1,600, according to Zillow, an online real estate database company. The median mortgage payment is $1,400. Millions of Americans don’t know how they will get the money in time to make rent. The nation has 40 million renters, who tend to be younger. Black and Hispanic families are twice as likely to rent as white households, according to the Pew Research Center. (Bloomberg) -- “If the government tells me you’re good enough to get a loan, I have to trust and believe in the government,” Castillo said. “Then we just hope and pray that the client doesn’t get foreclosed on.” Matt Badders, a San Antonio lawyer who represents lenders, auctioned off two houses. The failed mortgages remind him of the run-up to the financial crisis 12 years ago, when lending to customers with spotty credit nearly brought down the world’s financial system. “We’re almost back to 2007, when mortgage originators are waking people up on park benches, saying sign here,” Badders said. After the last financial crisis, the fund required a $1.7 billion taxpayer bailout, its first in 80 years. The government has since tightened lending standards and built up the insurance fund. Because of rising home prices, borrowers who bought years ago now have considerable home equity, which could provide some cushion as well. But recent loans are the most likely to fail. In San Antonio, Erika Wilson, a 32-year-old home health aide who was separated from her husband, bought her dream house in June 2018. It had an eat-in kitchen and more than enough room for her two young daughters. Along with her other debt, the $1,900-a-month mortgage payments ate up more than half her family’s income. On Q Financial, an Arizona-based lender, foreclosed on her loan.  She’s still living there because the federal government has suspended eviction proceedings in its lending programs during the pandemic. “I messed it up,” Wilson said.  “I didn’t know what I was doing. It made me feel like I wasn’t adult enough to own a home.”  (The Atlantic) -- According to Zandi, at least three big waves will hit American economy activity. The first is occurring now, as businesses close and the economy grinds to a halt.  Next will be the job losses. “The third wave will hit when people realize they are worth so much less, particularly the Boomers, who are focused on their retirement,” Zandi told me. “When they realize their nest egg has evaporated, they'll go into panic mode and cut back on spending, and that further exacerbates the problem.”  The Small-Business Impact of an Over Levered System (Barron’s) -- The Federal Housing Finance Agency on Monday said that Fannie Mae and Freddie Mac would offer mortgage forbearance to some multifamily property owners—on the condition that they suspend evictions on the basis of nonpayment of rent. According to the plans Freddie Mac and Fannie Mae announced Tuesday morning, landlords whose multifamily properties are financed through the enterprises may be eligible to defer loan payments for up to three months. Landlords who want to take advantage must show hardship as a consequence of the virus and gain lender approval, according to the companies’ press releases. (Bloomberg) -- Real estate investor Tom Barrack said the U.S. commercial-mortgage market is on the brink of collapse and predicted a “domino effect” of catastrophic economic consequences if banks and government don’t take prompt action to keep borrowers from defaulting. Barrack, chairman and chief executive officer of Colony Capital Inc., warned in a white paper and in a subsequent interview on Bloomberg Television of a chain reaction of margin calls, mass foreclosures, evictions and, potentially, bank failures due to the coronavirus pandemic and consequent shutdown of much of the U.S. economy. “To keep people employed, you have to support the employers,” he said Monday in the interview. “The biggest part of employer expense is rent. When commerce stops and they can’t pay rent and they can’t pay interest on the debt, and then the banks and the intermediaries can’t pay their investors, it all collapses.”  Urb Lesson of the Day:  Financial 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

Keep On Pushing - Q2 Market Outlook Amid Coronavirus Pandemic

With Quarter 1 2020 in the books, I wanted to capture a few of the headlines coming across my screen that I'm paying close attention too:

What you Should Know:

1. Unemployment numbers are on the rise
2. The Federal Reserve is printing money an unprecedented levels - rates have lowered as they help unfreeze the mortgage markets
3. Shelter-In Place is sparking a rise in internet companies
4. Deals are being lost but the big ones are going through
5. SBA Loan Details

Jobs Number:
- A record 3.3 million Americans applied for unemployment benefits last week (Labor Department).  Last week saw the biggest jump in new jobless claims in history, surpassing the record of 695,000 set in 1982. Many economists say this is the beginning of a massive spike in unemployment that could result in over 40 million Americans losing their jobs by April.

Interest Rates:

- 30 Year Mortgage are at lowest levels of: 3.4%

- Mortgage Applications up 15.3% 

- Refinance up 26%

Note: One company said they received 8K refinance requests day

Investment Themes:

Invest in Internet Related Companies:

- Match Group disclosed that Tinder interactions are up. But it is not resulting in a large number of  new customer adds just yet

- Zoom Media (NASDAQ: ZM) is winning the marketing war. Everyone thinks Zoom and Slack (NYSE: WORK) are the only telework software out there. There are many but Microsoft Teams (Microsoft: MSFT), Go To Meeting, are go to collaboration and communication tools.

- Also cyber security software is in high demand. To help my client with the Coronavirus crisis, I manned the call support line and took calls from all over the world for the first time in my life. Every major client was working remote and more importantly I listened to the name of the software being used: Zscaler and many remote authentication and identity management tools are needed NOW more than ever.

Deal or No Deal

Madison Square Garden (NYSE: MSG)  – The owner of the NY Knicks just recently spun off their restaurants business. Hmmm I think someone may be separating the good assets from the bad assets.

Xerox (NYSE: X) – Some Mergers are no longer being pursued. HP is no longer being courted by Xerox.

Sprint (now merged under T-Mobile TMUS) - Some Mergers were pushed through. One of my biggest wins was Sprint and this deal closed today!!! T-Mobile required their 16 banking partners to come through with the funding --- Deal Closed

Helicopter Money - The last line of defense for the capital system under stress is to bail everyone out. I sh!t you not in economics its called the helicopter money strategy. Well for anyone looking to get a Small Business Loan, I captured some of the details here:

SBA Loan Details:

• Small Business Administration (SBA) Loans are available beginning Friday
• All existing SBA-certified lenders are eligible
• All FDIC-insured banks and Credit Unions are eligible
• The SBA is developing a portal for borrowers without existing relationships to find local lenders

      SBA Loan Terms:

• 0.5 interest rate with 2- year term
• Payments are being deferred for 6 months
• Partial or full loan forgiveness avail depending on layoffs (not happening) and certain qualified expenses
• The loans are 100% guaranteed by SBA
• The loans are administered by individual lenders