What Coronavirus Risk --- The Markets Have Roared Back

What Coronavirus Risk --- The Markets Have Roared Back

First I want to say WOW, the markets have bounced back in a loud way. Louder than my Cross Colours 👚clothes back in the 90s. I have been on a number of enlightening calls in the last few weeks to gauge the pulse of the us --- the people --- the consumers. I keep my ears to the streets to see what real people are doing and if it’s in line with what I hear in the news --- I do this because I am wary of Headline Risk. One hot topic is Real Estate and I’ve been very surprised to hear what people are doing in this space. Of course job security has been a frequent discussion as well. For example, bankruptcies are occurring as companies navigate the crisis. And stimulus oh my – it seems that the Federal Reserve and Congress have somewhat been on the same page and don’t care about debt, inflation, or the next generation because they have pumped a record 4 Trillion Dollars into the economy. It’s much harder to invest during a crisis because there is so much news and information flowing -- Headline Risk. The amount of texts I get and send about breaking news and events is way up. So I usually like to keep things simple and you got a glimpse of that last month:

Contagious Health Pandemic à BAD 👎

Administration Response to Pandemic à BAD + SLOW👎👎

Stimulus from Fed Reserve + Congress à Very Good (Rollout of Stimulus Checks – slow; PPP – well let’s just say the LA Lakers, a Billionaire’s holding company, and a rich Florida Homeowner’s association all got a $$Million$$ dollar checks before small businesses on main street did. Changing from Very Good to Good 👍👍

News of Re-openings à Risky (Again unorganized but I understand the need to get people back to work) 😬

News of Treatments à Very Positive as I wrote about Gilead and Remdesivir very early on 👍

News of Vaccines  à Nothings seems imminent until 2021 w/ one big exception the Oxford vaccine out of London I believe could be promising as they were already working on a coronavirus vaccine and are using those building blocks to fight COVID-19. 👎

You do the math from what I’ve listed out and you’ll see why I split my investment strategy.  Without a vaccine, a contagious health pandemic is very dangerous and now cities have run the numbers and can’t stomach the shut-downs any longer…even if it means deaths tick up higher.  But 4 Trillion of Stimulus will make some of us temporarily forget we are in a crisis – but will everyone get a piece of this helicopter money strategy.  So my calculation is this:

• I need my retirement income protected – Retirement Funds out of the market ✅
• I need some exposure to Stimulus induced rally – Personal Investment Account (very active and I’m looking for big gains and possible exits) - Teladoc, Uber, Match, Roku, Gold ✅✅
• I need to cut costs and stockpile cash – Refinance, apply for stimulus funds, cut costs in my family budget ✅ (Comcast and Insurance cos I still owe you a call)

Headlines Versus Real Life

Headline -- Mortgage rates near record lows — and green shoots emerges as Americans prep a move back into home-buying

Real-Life – In the last few weeks, I’ve heard people are putting in offers, closing, and trying to move from being renters to owners. If the price is right, go for it because rates are low. Still a little surprised at the pent up demand here.

Headline – Banks are requiring HIGHER down payments (often 20%) and higher credit scores; JP Morgan and Wells Fargo have stopped Cash Out Refinances / HELOCs

Real-Life – Back in March, I told you to refinance and get cheap cash while you can. The Banks are sleepy and slow but are they are finally tightening the screws. I know of a Cash-Out Refinance recently closed and I got instructions to lock my regular refinance rate a few weeks back. Normal refi’s will still be occurring but look for more scrutiny because of the jobs landscape due to COVID-19.  As far as Cash-Out Refis, if you were slow this source of cheap cash may be narrowing.  

Headline -- Mortgage forbearance (program allowing people to NOT pay mortgage) has ballooned up to 4.1 million borrowers/ Over 7.5% of home loans

Real-Life – I have heard real stories of mid to large sized landlords saying their tenants have lost their jobs and their rental income is impacted. Do you fault the tenants for not diversifying their tenants or simply forgive tenants and renters because this is an act of God. What about this -- how long will eviction moratoriums be in place by cities AND will people pay – back rent and back loans may be too much for people to pay plus their normal rent when the economy picks up. This is the area that concerns me the most especially since I’m hearing of people buying homes NOW. Is this the tale of the halves and have nots or are people a little too early into a looming crisis?

Headline -- In roughly 6 weeks, unemployment claims have jumped to 30 Million people and projections of roughly 47 Million are being forecasted as the peak (by the Federal Reserve St. Louis)

Real-Life – Over the past few weeks, I’ve heard about management changes at corporations, bankruptcies, and mainly furloughs. Thanks to some courageous leaders many companies are pledging to NOT layoff but I’ve seen the layoffs in the restaurant, hospitality, entertainment, and travel industries. For example, United Airlines which accepted “stimulus” money will keep employees on the payroll until the money runs out. It’s April and they have already told staff to take 20 unpaid days off before October AND will lay off 30%.

I did my analysis back in March so I would not suffer from analysis paralysis today. You can easily get caught up with ALL of the changing headlines. I am preparing for the long winter like in the Game of Thrones. United Airlines is a big and resourceful company – if they have enough information in their crystal ball in May to a) take the stimulus money and b) still announce layoffs of 30% in October what does that mean for the economy, stock market and jobs picture. I always want to have optionality – you see I’m setup like United to ride the stock market being fueled by a) stimulus.  I’m only roughly 10% away from my all-time portfolio highs (4 Trillion in stimulus will do that I guess) but I’m slowly exiting winning positions AND my retirement funds are now not moving until I understand what United sees coming in October. Maybe they see reality sinking in once the stimulus wears off that we all must come together – stringent distancing, an effective treatment, bountiful productions of a vaccine, and less fear in the air.   If NOT it will be a long cold winter.

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

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
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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

2018 YEAR IN REVIEW – A YEAR OF GROWTH...A YEAR OF OPTIONS

2018 was quite an interesting year for stocks, the economy, and for me.  Before we close the book on this year, it’s also fitting to look back and reflect.  This is bit of my spiritual side speaking but for my financial folks it’s a moment to stop and balance your books. If you’ve read my previous posts, I talk about the importance of goal setting.  Now is the time to reflect on whether you hit those targets across ALL of your Pillars. Did you grow your spirit, mental fortitude, physical well-being, and finances? 

When I take a moment to reflect, I see some small strides I’ve made which I KNOW I will carry on into the New Year. My past year was the year of the FITBIT, where I became physically healthier (even playing basketball one a week) by challenging myself mentally to meet my daily health goals and give up unneeded foods, sugars, etc. I even gave up drinking (with the exception of a HS reunion event) and I was surprised I was up to that challenge (considering Little Jon wrote the Patron song specifically for me).  I concluded my financial challenge of renting, for the last 1.5 years, a house that did not meet most of our needs BUT it allowed us to SAVE and meet our new budget goals (2 paid off vehicles that are over 14 years old).  Again, an exercise in mental toughness for those who struggle with sacrificing today for a bigger picture.  Next, I personally want to thank my family for the changes they made this year to help us meet our family financial budget. This is turning into an effortless exercise (NOTE: IT DID NOT START THAT WAY) of developing a budget at the beginning of the year, then as a family we have to log all of our actual expenses. We use only one joint family account for family planning so there are NO SECRET EXPENSES that crop up (if we didn’t budget for it don’t bring it up and it’s not an item we are buying). In summary, we MET THE BUDGET FOR OUR HOME!!  Another goal met was buying our 2^nd Home! This was accomplished by those seeds we sowed a few years back…renting our first home, budgeting and sacrificing for our new home which took a few years to save up for the deposit needed.   

Many will overlook that these activities crisscross through a few of my Pillars; rarely does a challenge involve just one.  Taking on these goals has made me mentally stronger, a decent multi-tasker, better prioritizing and dealing with RISK.  I am equally proud of the last two items which have fueled my growth the most this past year.  # 1 – I took on the project of building out a consulting practice after companies continued to approach me for my skillset.  I still work in Corporate America but on my terms which has made me SIGNIFICANTLY less stressed (Pillar: Spiritual), in better health (Pillar: Physical), make more money (Pillar: Financial), and more technically skilled (Pillar: Mental/Education) then I have ever been.  #2 – 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.  In summary, always stay balanced, clear minded, and focused. Help others yet use common sense and be prudent. The survivors in "The Walking Dead" did not survive from being lazy...you always have options and choices in life. Stay blessed.

For my reflection, and those of you that come here for the stocks my Financial YE Trading Review:

What Worked?

VALUE – By sticking with my value approach, I barely bought or sold ANY stocks in the last year. I sold 3 stocks this year that I held for more than 1 year because I felt the markets were reaching their tops.

Apple (AAPL) – I sold my entire position of Apple @ $200. Remember when we bought under $100. So long old friend until we meet again.

PBF Energy (PBF) – I sold energy which shot up earlier in the year. Now energy is back down to its lows. We’ll have to scrape the bottom of the barrel and see if its value time to pick shares back up.  PBF was in the low $20s and I sold $47. Funny at the time I thought I got out a little early.

Sirius Satellite (SIRI) – I owned this stock because I used to own XM Satellite radio, yes since 2005.  I watched the charts hit highs of $6.62 and decided to part ways after 13 years.  In a strange twist of irony, I recently purchased Pandora…who is being acquired by SIRI. We may be reunited again J

OPTIONS – My experiment in options was helpful this year.  When the market is up 10 years straight, the only thing that is certain is VOLATILITY.

            Volatility Index (VXX) – I traded the VXX over 5 times successfully for big gains. My only reflection was to bet bigger.

                Options – I traded over 80+ options contracts. I needed to test my strategy okay. We traded small amounts for high success. I might be above an 85%  success rate. Time to ramp up

DISRUPTION – I traded options contracts 3 sectors that were ripe for Mergers and had a handful of option contracts that did well when the stocks were acquired by other companies:

KLX Inc. (KLXI)

Dell Technologies Inc. (DVMT)

Cronos Group Inc. (CRON) * I believe the deal is still pending, but my options were sold

Red Hat, Inc. (RHT)                                 

Time Warner Inc. (TWX)

What Kind of Worked?

Radisys Corporation (RSYS) – I held RSYS for years. Sold some during the good times and closely followed the quarterly earnings. They were in the process of turning the company around but had the RISK my small consulting practice has. They were reliant on 1 or 2 big vendors. The biggest being Verizon. When VZ abandoned their unlimited data strategy for a while it hurt RSYS earnings. I felt vindicated when the acquisition was announced and I believe Reliance Jio purchased this company early as 5G is now taking off a major strategy for all telecom companies. So I feel vindicated they were purchased and rebought before the acquisition. BUT I did take a loss on this position.

What did Not Work?

I have 3 simple lessons learned that all investors must heed:

1)       If the Government is MAD at another Country, GET OUT of those option contracts: I had two Chinese stocks that got beat up once the Trump Administration decided to impose tariffs on China:

NXP Semiconductors N.V. (NXPI) – I had a profitable position, up huge. Trump Administration began their tariff stance and China retaliated by NOT APPROVING the Qualcomm merger of NXP. Qualcomm needed approval from 9 countries

JD.com, Inc. (JD) – Another contract that was positive, and you know the rest.

2)      Don’t trade options contracts into earnings season:

Match Group, Inc. (MTCH) – I got busy at work and should have exited this position before earning. Went from being up big, to a small loss. Lesson learned

3)      Don’t hold option contracts when the market begins declining:

Teva Pharmaceutical Industries Limited (TEVA) – I was up by enough points that I was going to simply let the contract expire profitable. I don’t think you understand, Teva was at $23 or higher and I had a contract for $17. During the market downturn, I saw the unbelievable happen in a matter of 2 weeks. Again went from being up to taking a small loss.

Caesars Entertainment Corporation (CZR)