The US Economy Has a Stimulus Hangover

 I fear the US economy is starting to feel the hangover effect, after binging on $13 Trillion, yes with a "T", trillion dollars of stimulus. I'm not going to argue whether it's needed or not because I previously said stimulus to main street America is definitely needed. But the hangover reminds me of how I felt after a Saturday night of partying in Chicago once we officially transitioned from winter to warm weather --- everyone was out drinking.

When I think about government stimulus, everyone this spring and summer was wasted off of stimulus. If you were unemployed you got an extra shot of stimulus in the form of $600 added to your unemployment pay. For small businesses and then surprisingly large business (remember my post on even the LA Lakers organization getting PPP funds), we benefitted from stimulus if we promised to bring workers back. We soon found out many of my business colleagues graciously took the money and then far too many decided NOT to bring workers back --- why because they were more concerned about tying the funds to when business would come back. But being in the RISK MANAGEMENT business, this is fundamentally flawed thinking. The PPP experiment as I call it was a social experiment to see if as a nation we could band together and do what's best for our neighbor financially. I'm sad to say, the experiment didn't work as business people fought it along the way, while cashing in the money. During a health pandemic where people SHOULD stay home quarantined, you cannot expect business to return back to normal --- use government taxpayer money to keep people afloat. 

Note to anyone reading -- What kept people going was the unemployment checks and the extra bump of $600, it caused an e-commerce boom. How do I know, well I am in the Cyber Risk Management business. I have been getting calls from all over the country to help people do more business across the internet. My most amazing story is a company that sells boats and luxury yachts in Florida. They called me and we discussed business. At the beginning of the pandemic, no business because their model was predicated on customers coming in. But they quickly learned they needed a robust web platform as they were getting boat and yacht orders left and right. It sounds like most of us in Corporate America could keep going as we could work from home and buy boats and yachts but I wonder about the front line worker who is exposed to the virus on a daily basis if you're driving a bus, riding the train, or working the grocery checkout system. No national quarantine holiday in my humble opinion was a bad risk management move.

Why do I think we're feeling a hangover let's look at the news:

Company Continue to Announce Layoffs - 

• Airlines - this industry announced 35K job cuts and some anticipate this number will top 100K
• Disney - announced 28K layoffs
• Salesforce - initial pledges were made to not layoff, well soon thereafter they announced 1K layoffs

Jobless Claims Continue to Rise

As an investor, how do I keep track of economy. I use one indicator called the Jobless Claims report from the US Labor Department. The data is staggering:

• As of September 30, 2020 25 million required jobless benefits 
• Last week (Oct 10, 2020), - 898,000 new persons applied for jobless benefit aid for the first time
• To put this data into context, during the 2008 Financial Crisis that I believe was the worth since the Great Depression, the number of first-time applicants peaked @ 665,000 

COVID-19 Continues to Spike 

• France noted that 40% of it's hospital beds are filled w/ COVID patients
• Europe cases are rising
• The rural US is now the leading source of new cases
• And unfortunately people are fatigued or bored with staying home

Like a patient addicted to stimulus, the stock market is calling for more. What happens if we don't get more --- a painful withdrawal??

The ride up has been nice if you bought into e-commerce and stay at home stocks: think ROKU, PELETON, AMAZON, FACEBOOK. Everything else hasn't moved much...need proof I believe the S&P500 is up only 4%. So my barbell approach is still working. My retirement funds are safe (not invested in the market) and my investments in ROKU and Collectors, Sprint, Alibaba Allergan and others have surprisingly made me a tidy fortune during the pandemic. Real Estate is the other area where I'm poking my nose in. 

A reminder to not drink the Kool-Aid --- you'll avoid a hangover. Stick to the pillars.

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

JOBS, Company Watch - JOE, BKS, LULU, NFLX

January 9, 2012

JOBS BY THE NUMBERS

If you weren’t paying attention, some important data was released this week.  The US Labor Department released the number of jobs that were gained/lost in the previous month.  Drum roll…companies hired 200,000 employees in December and the famous unemployment rate dropped to 8.5%.  If you aren’t familiar with the numbers this is POSITIVE in my book.  The reasons are: (1) More people have been getting jobs and this has been consistently happening since last summer, (2) The jobs are being added across small, medium, and large companies, and (3) Jobless claims (i.e., people filing unemployment claims) are falling.  In case you were following along at home, the number usually has to be over 125,000 to signify that jobs are being added. 

We want more jobs, I want more jobs, and we should expect that are federal, state, schools, and citizens will do and try everything to continue to get this number to a level that allows our country to grow and people to work consistently.  So please when we watch debates or listen to the evening news keep that in perspective that without jobs a lot of other things seem pretty trivial.

COMPANY WATCH – St. Joes Company (NYSE: JOE) / Barnes & Noble (NYSE: BKS)

St. Joes Company – This stock is a great example of trusting your instinct.  I like the prospects of taking a contrarian, or against the grain, stand on some investments.  JOE was one of those companies that I thought is a better investment than owning home builders.  My thesis is you get to own land and that has an intrinsic value that should hold its worth in economic downturns like the ones we’ve suffered.  Well to make a long story short, I believe I had the right thesis however I never expected there was going to be such a dispute as to what the true value of the land is.  David Einhorn made a compelling case as to why the value of the land St. Joes held wasn’t worth what St. Joes was claiming and the stock has fallen sharply.  WELL, finally there appears to be some upside to the stock.  I’ve noticed that some analysts have upgraded their outlook based on future growth prospects.  The development of land in the Panama City area, the recent development of an international airport, and recent cost cutting measures are signs that they might be moving in the right direction. 

Price: $14.67

                                          

Barnes and Noble – I am a sucker for stocks on the decline and Barnes and Noble is showing up on my radar. The other day is dropped roughly 20% on news that they were changing their future outlook lower.  That is never good and investors let them have it.  BKS even mentioned making changes such as spinning of their NOOK business. 

Price: $11.65 

COMPANY WATCH  - Lululemon athletica (NASDAQ: LULU)  / Netfilx (NASDAQ: NFLX)  

Lululemon – I’ve had my eye on LULU for quite some time now.  This stock has been a high flier and it you don’t know they make money by selling $100 dollar yoga pants.  Yoga, it’s all the craze for people with money and to show of that dough they buy expensive pants to get their work out on.  Well LULU had come under some pressure and the stock dropped a bit.  I am a stock hater here! And because I like things on the cheap I want LULU to fall further before I begin buying.  I may not be able to get that opportunity because LULU seems to go one direction and that’s up.

 Price: $53.44

Netflix – Quick note, I trashed it on the way down and I love a good rebound.  NFLX, at the lows of $70 is attractive to me.  It’s rebounded strongly and they recently talked about expanding further internationally.

Price: $98.18

What's Up With The Economy, The Deficit...

That is a really good question, "What's Up With the Economy?"!  The best analogy is the economy is sorta like a really nice business train that is slowly chugging along and starting to lose passengers at each stop.  I think this is an accurate picture because the data is definitely mixed, showing corporate businesses are doing quite well and chugging along, like the train.  The passengers being lost at each stop are comparable to middle-class Americans that are being negatively impacted by: 1) high gas & food prices, 2) declining housing prices, 3) still high unemployment numbers.  And the biggest problem is JOBS, JOBS, JOBS, or the lack thereof.  Jobs are so critical because they give Americans confidence that the economy is getting better when they see their neighbors getting up and going to work, coming home with bags of groceries, and investing in their homes.  So who is focusing on getting more Americans jobs? That's the question that needs to be asked of everyone from the president and his administration, to your senators, then your local congressmen, and also of the companies that are doing well.  Every moment should be spent on turning the dismal job scenario around and we've seen our politicians come up with some solutions but not nearly enough.  The formula is not that difficult as it usually comes down to stimulating Americans and stimulating the companies who are tasked with hiring more Americans.  Its a shame the debate in Washington is whittled down to spending versus tax cuts, but that has been the case.  Last time I checked both scenarios cost taxpayers money but are needed to bring this economy back to life.

Economic Indicators ~ (Dec '09) Monthly Job Numbers

The Labor Department's monthly jobs numbers are out and everyone on Wall Street and in the federal government have been waiting on these figures. FYI, for us regular folks in the city and in the burbs these numbers that came out this week are a summary of the previous month ...so the numbers that were announced this month are DECEMBER's unemployment numbers. The government also takes the time to go back and revise the number they've reported for the previous months. The numbers continue to paint a mixed bag with more negatives than positives at this point. I've highlighted the negatives in RED and the positives in GREEN.

December’s Unemployment Numbers are out. Here are the points based on numbers from the different surveys:

- The actual unemployment job loss number is – 85K for December. This is not what was expected because the estimated number from experts was to see a loss of roughly -10K or even a slightly positive number. So this number was worse than expected.

- The Household Survey has the number of unemployed persons at 15.3 million and the unemployment rate at 10%. Here is the breakdown among working groups (amazing when you see the actual numbers):

• Adult men (10.2 percent),
• Adult women (8.2 percent),
• Teenagers (27.1 percent),
• Whites (9.0 percent),
• Blacks (16.2 percent),
• Hispanics (12.9 percent),
• Asians (8.4 percent)

- The number of long-term unemployed (longer than 27 weeks) continues to rise.

- The number of people counted in the labor force is declining. This is strange because the stock market & GDP (economy) has been increasing. This is almost a sure sign that the unemployment rate will be rising this year to likely 10.5 to 11%. The experts say this is because the labor force will increase (not decrease) as the economy gets better and when those (dropped out) people are back and looking, they will be counted and the unemployment rates will increase.
- The number of part time, marginally looking, and now discouraged workers increased.

- The areas where jobs are increasing are Healthcare and Temporary help services. Temp employment has risen by 166,000. This is a good sign as companies usually bring temp and contract jobs back first.

Here are the revisions to October and November:

October - revised from -110K down to -127K
December - revised from -11K up to +4K

I stumbled onto the actual site where the Labor Department releases its employment numbers and that site will be posted in my favorites.

My Take On Things

My goal today for posting is similar to Nike’s slogan of “Just Do It”. I am just going to write and pretty much relay what’s on my mind. As you can tell from the gap in my postings, this has been a busy last few months. I have been impacted by many of the things that all Americans are facing with the downturn in the economy. Job loss has hit close to home and impacted my family members, I am working more hours and seem to be stressed out more, and time seems to keep ticking in the back of my head like one of those old grandfather clocks. Literally (because I reside in the Midwest) and figuratively, its grey outside and it appears that a year ago I was looking into the abyss of what I truly believe is the closest thing that we will experience in our lifetimes to an economic depression. And my goal is not to be depressing, but to keep it real. So I am going to flashback and flashforward in this posting on where I believe our economy WAS and where I truly believe things stand TODAY as it relates to my life. This hopefully will hit home to you and help you understand how all of the things that we hear, read, and see…such as the big Wall Street bonuses, TARP, cash for clunkers and the homebuyer’s tax credit are ALL RELATED but from a regular guy’s perspective like mine (and yours).

Where the Economy Was ~
Depending on how far we go back (let’s say 2.5 years ago), there was jubilation amongst everyone. I seemed to be eating out everyday, throwing bring your own booze ‘BYOB’ events at different restaurants and traveling to either Vegas or South Beach at least twice a year. And I never thought to ask why but before it used to be a small trip between me and my friends that managed their finances well (fiscally conservative) and then it blossomed to the guys that didn’t always manage their finances but who could now make the trip. And I never thought much about the phenomenon but our trip of almost 10 people for a sun filled trip to Miami could have been an indicator of things to come. Where did everyone get the money (steady jobs, bonuses, easy credit) to be able to go all of a sudden…especially when a round of Patron in S. Beach cost each person over 80 bucks??? I didn’t think about that at the time but the other event I did find strange was home buying activities in Chicago. I recall a few years back that everyone was asking me when I was going to buy. So I stuck my toe in the water and found out that buying a home in Chicago was easily going to cost me almost 3x as much as it did in Indiana. And on my average joe salary the numbers didn’t match up??? So what did I do…I BLOGGED about this phenomenon over and over and some people got it, while many others didn’t (see http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html . My only mistake with housing was assuming that most of the inventory was being bought by speculative investors with deep pockets, but read on because the investors were average people like you and I caught up in the frenzy…of flipping houses and retiring early. But what I didn’t see was the tsunami effect that was to come of too much easy debt to buy houses and obtain loans, credit cards, etc. I didn’t watch TV outside of sports and the occasional Law and Order episode. If I would have clicked a little bit further I would have known that there were new shows cropping about how to “FLIP That House”, “Buying Tons of Property with Lines of Credit”, and I appreciate Suze Orman’s segment of “Can I Afford It”. I wasn’t in tune to the fact that the nation was building a culture of people that were just buying things with no regards as to whether they could afford it. My rule of thumb is if you have to call into a show to ask whether you can afford something then you probably should not be buying it! And to be fair these tv shows should show both sides by doing a “Where are They Know” segment: helping us understand how long those flippers had to hold that property before they ran out of money or were foreclosed on and their dreams where swept away. That would have been Real TV and not just the happy story of flip every home and make a minimum of $35-50K of each flip in no time.

I don’t know what kicked things off but the house of cards crumbled. Was it finally that the market ran out of easy buyers and found the one’s like me that asked “How Can I Afford This” or “Why Are You Giving Me So Much Debt”? There must have been a peak when the banks realized that the uninformed buyers were running out OR that we had stretched them too thin. Who could keep up with inflated mortgages, debt to furnish this gigantic house, and debt to finance their new life of upgrades (i.e., cars, clothes, dinners, vacations). I am guessing the first realization came as banks began HALTING credit lines à No more borrowing against your home (Home Equity Lines of Credit) and no more extensions for your credit card which has reached it limits. So guess what this halting of initial credit does, it crimps our lifestyles and people stop making extravagant purchases. My first clue was the Recreational Vehicle (RV) market and their predictions of a slowdown. Think this is the ultimate purchase for people with excess money a lavish vehicle to travel around in and still feel at home. Then most people stopped spending on themselves and stopped buying clothing, jewelry, cars, and holiday trips to warm places. This pullback caused all these industries – Retail, RV, auto, transportation to start to cut jobs to match the lack of demand. And hell breaks loose when anyone (but especially overextended people) starts to loose a job. Why, because there is a mountain above your head of things to pay. Let’s start naming them: mortgage/rent, car bills, utilities, credit card, school loans, insurance, and medical bills. And when jobs are cut across entire social classes you begin to realize that even rich people have huge mortgages, autos, boats, vacation properties to keep up with.

For me and my family, the downturn in the economy hit hard and hit fast. It rattled our conservative little family because our family’s employment history represents the entire workforce via construction, legal, business, technology, healthcare, and education. And the first shoe to drop was the construction section and we had a member of our family unemployed. I began writing even further that this wasn’t your normal recession and not to drink the Kool-Aid from all the people on Wall Street like Larry Kudlow who told you to keep waiting for the goldilocks rally that never came as the Dow Jones Industrials dropped from 10K to below 7K. This recession was hitting college educated people in growth fields like construction. And I didn’t believe the hype when they were telling you that this is where capitalism kicks in and the great trickle down effect of rich people spending money would bring us back see http://urbanomics.blogspot.com/2008/03/hey-i-cant-swimand-neither-can-wall.html . This time I wrote it seems different, because this was not like other bubbles and it wasn’t just people on the lower end of the social spectrum being hit with job losses or their dollar not stretching as far. But what they didn’t realize what that the folks of every class where being impacted because everyone was trying to keep up with the next level up.

If you recall, I wrote about conservation and a prudent evaluation of your entire financial landscape. Reassess everything and get rid of excess debt (see http://urbanomics.blogspot.com/2008/07/mystery-market.html & http://urbanomics.blogspot.com/2008/05/hot-topics-oil-housing-economy.html ). For me, I had caught the bug slightly and often bought stocks on margin…what a mistake that was. When you use someone else’s money and the value of your investment goes down, not only do you have to pay them back in full but with interest. So in some ways I felt want the homeowner or credit card borrower was going through. I don’t want to sell while the value was dropping and ohhh great…money has to come out of my bank account to get rid of this extra debt. This prompted me to start taking my lunch to work, and going out less, and shopping less…and buying groceries. There were no vacations this year except for weddings and family get togethers. And that’s when I thought about what would turn this economy around…I didn’t know then but I summed up my hunch saying that it would take a mix of things to stimulate people from “pulling back” (see http://urbanomics.blogspot.com/2008/10/bailout-what-this-means-to-you-plus.html) And I remember saying let’s help the people that have pulled back on spending and can pull no further and need help with daily responsibilities. And while I was right then, I missed the fact that all the temporary band-aids (tax cuts, clunker) only work for so long… and the ultimate area of assistance has always been with JOBS. If there are no jobs, this pull back continues…because while again others may use the phrase “90% of Americans are still working and therefore consuming” they may be a little bit out of touch with the real world. The real world knows that its more that 10% unemployment and it also knows that many of the “90%” are like me and don’t and won’t consume much until things start looking better for the people around us.

And for my flashforward ~ To be continued

Stimulating the Economy...

The hardest question I received so far this year is, "Do I agree with the stimulus bill?" It is a very difficult question because we are facing a very tough economy that has a number of different scenarios currently in play. Consider the following scenarios:

1. Young, middle, and old aged people are unemployed
2. A single mother working retail has her hours cut because demand is slowing
3. Governors fear slashing jobs if the state doesn't balance its budget
4. An employed young man is not going to the bar, eating out, or vacationing
5. A young couple with children did everything right but is underwater on their new housing purchase after buying at the height of the real estate market
6. The parents of a well off family of four still lives their daily but are shopping less and saving more than ever do to declining investments and the declining value of their home.

I went to answer this question and tried to address as many of these different scenarios as possible. The realization I quickly came to is there are a FEW small measures that will help everyone and those should be the focus of the government. Here is what I've got to assist in each of these scenarios:

1. Jobs, Immediate Assistance(to pay bills)
2. Jobs (More work hours or new job options), Immediate Assistance(to pay bills)
3. Immediate Assistance (to balance budget, and maintain Jobs)
4. Confidence (in the economy) and Incentive (to spend his hard earned money)
5. Confidence (in the economy) and Extra Help (with underwater mortgage and kid)
6. Confidence (in the economy and Incentive (to spend their hard earned money)

After analyzing these scenarios a true stimulus bill would address the areas that can help the most people. Here is what my stimulus bill would include:

~ Developing Jobs is needed to provide work and options to those in need and improve the confidence in the overall market (Scenarios: 1,2,4,5,6)

• Create new jobs through state and federal projects that put people to work
• Maintain jobs through by increasing the demand for American goods domestically and internationally

~ Immediate assistance needs to be given to Americans to help buy food, pay for rent/utilities, and help with kids which begins to circulate money back into the economy and builds confidence (Scenarios: 1,2,3,4,5,6)

• Food stamps assist will immediate help and will be spent immediately at grocery stores everywhere (circulating money and keeping jobs intact)
• Cash to only those that need immediate help with Utilities (No jobs and low income)
• Utility and Day Care assistance as an incentive for middle income families to spend money and not hoard any cash given by the government

~ Incentives need to be given to Americans to who have discretionary income which will circulate cash, develop jobs, and improve confidence (Scenarios 4,6,1,2,5)

• Housing and Auto Credits will provide incentives to Americans with discretionary income to help revive two major industries
• Temporary reduction in sales tax (but will this hurt state budgets)
• Tax Cuts will put more money in our pockets but I don't think this measure should be heavily relied upon because it would not cause me to spend the money...rather to save it.

These are the pillars to what I would recommend in a stimulus package. Ironically, I believe that the government has gotten the bill correct but the allocation of the bill is what I believe is out of what. Roughly 80% of the package should have gone towards DEVELOPING JOBS and providing IMMEDIATE ASSISTANCE. The remaining 20% should have focused on providing incentives to those who have been impacted the least but can provide additional help in stimulating the economy.