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.
