Sunday Evening Thoughts, +6 Weeks…

Dear Clients and Friends,

Open for Business

Five more states are slowly opening up this week, four states already started over the past week, and eight states never implemented a lockdown.  The larger looming question regardless of what type of shutdown or lack thereof occurred within a state, is how quickly the general public will feel comfortable enough to return to normalization.  As if sitting in an empty restaurant wasn’t already uncomfortable, now you may be greeted at the door like you’ve arrived for your annual check-up with mask and temperature taking.  Most state openings are following a phased plan approach which will continue to monitor new Covid-19 cases.  This will most certainly lead to some states taking a one step forward, two steps back approach as they come in and out of varying lockdown phases.  Some are requiring masks to be worn within different venues and just how will all these “requirements” be regulated.  Confusion and uncertainty come to mind, welcome again to 2020.  There are no refunds, I’ve already asked.

Another Round of Firsts

Last week oil futures were trading in negative numbers, meaning people had to pay others to take their oil.  Don’t read too far into this.  Yes, on one hand oil/gasoline demand has drastically changed, but this negative trading problem was mostly due to inexperienced investors with their backs against the wall on contract expiration day.  Not a good position to be in.  Following expiration, trading resumed in a more normalized pattern, albeit at cheaper prices.  Drivers are experiencing reasonable per gallon prices at the pumps, now if we only had a place to go.  Pump prices will probably remain subdued in the coming months for a couple of reasons.  First, demand will remain lower than usual as the U.S. economy continues to slowly phase back in and secondly, there are dozens of full oil tankers off the coast of California being guarded by the U.S. Coast Guard waiting for buyers and to be offloaded into the already full supply chain.

Mixed Messaging

As if we don’t already have enough of this to deal with.  Over the weekend, news sources reported North Korea’s leader Kim Jong-un is either perfectly healthy, in a vegetative state, or dead.  How’s that for a medical assessment during the pandemic?  My guess would tend to believe he’s definitely not perfectly healthy and probably closer to the later.  Regardless, Kim’s sister would take over until his oldest son is ready to lead the country.  North Korea will remain a communist country, led by a vicious dictator, have little-no global economic influence, and search for nuclear alternatives to remain relevant.  Not much different than their last 75 years.

Required Minimum Distributions for 2020

Part of the stimulus program and various other IRS modifications have taken place this year, for what will be known as the very strange year of 2020.  Please note, those of you who are required to take minimum distributions or who were required to start their distributions this year, are not required to do so.  Required minimum distributions are required for those who meet the age requirement, either age 70.5 or 72 and require you take a minimum amount of money from your IRAs or various retirement plans that qualify.  If uncertain, always check with your advisor or tax professional.

SBA Loans 2.0

This measure did pass the house and senate this past week and was signed into law by President Trump. We are told there will be greater focus in this funding round on small businesses.  Public ridicule has already started with some larger publicly traded companies paying back their loans in full, because it is believed they were taking advantage of the system and didn’t necessarily need the money.

High Frequency Data Changes

Data Set % Change year over year
Initial Jobless Claims, April 18th  1,858% year over year
Weekly Retail Sales, April 18th   -6.9%
Box Office Receipts, April 10-16th  -100% year over year
Rail Car Traffic (cars), April 18th  -23.3 year over year
Steel Production (net tons)        -33.6% year over year
Hotel Occupancy            -64.4% year over year  
Hotel Revenue per Room Available  -79.4% year over year
Open Table Restaurant Reservations  -100% month ago level
TSA Checkpoint Data                   -95.8% year over year
Supply of Motor Gasoline in US               -43.6% year over year

Portfolio Positioning

As we continue to review client portfolios, many factors are taken into consideration.  A recurring theme I’ve found, and I think everyone should take note of, are you dependent on cash flow?  If this is the case and you’re required to meet day-to-day spending needs from your portfolio, cash reserves and less risky assets should be heavily favored to meet these goals.  You may want to have six-twelve months of needed distributions allocated here, and possibly even up to twenty-four months or greater.  Why?  This allows you to be much more patient with whatever shape recovery this market gives us.  We’re hearing V, U, and W shaped like recoveries can occur over the coming months and years.  One thing I have learned during my 20+ years of experience, the shape doesn’t necessarily matter if you’re too scared to participate.  Take the scariness out of the equation and manage any cash flow needs with greater certainty.  This may help you sleep better and worry less.  A question on some investor minds, what about a second wave of the virus or second shutdown?  This is a possibility and may happen late summer, early fall, or during the next flu season.  Depending on your individual appetite for risk, you may want to de-risk certain asset categories by selling into market strength and reposition more assets into those less risky more dependent asset classes.  Every client situation is different, based upon cash flow needs and overall risk tolerance.

As always, if you have concerns about your own portfolio, give us a call.  Where are here to help you through these challenging market conditions.  Don’t forget you can follow us on Twitter, Facebook, and LinkedIn for other important updates during the week.

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