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7 Major Values of a Financial Advisor
Risk vs Reward in Retirement
Q2 2020 Warren Financial Market Strategy
Jan and Feb roar while March hits the skids.
Wow, what a change, what an impact. Johns Hopkins Coronavirus update as of March 31, 2020.
We want to take time to thank our Doctors and Nurses at this time as they are on the front lines, fighting this pandemic – THANK YOU. Thank you for your tireless work to keep our communities safe and your willingness to risk your own health to help save others. May God bless you and keep you safe during these times. At Warren Financial, we are healthy and working for you. We pray also that you, our clients, are healthy.
Feb 19 the stock market hit an all time high. Nothing new. The stock market had been setting all time highs for months. The stock market grows your wealth by hitting all time highs. The surprising thing is not that it hit an all time high on Feb 19th, but the speed with which it has dropped back.
Is this a recession?
January and February were nice months with economic activity expanding nicely. If January is a +3% GDP rate, and Feb is a +3% GDP rate, but March is a -20% GDP rate, when you average it all together, then this is called a recession. It seems like a bit of a “technicality” because the whole quarter was not negative. Next quarter, April will again be terrible, May and June may see recovery. When we add it all together, will April be bad enough to throw the entire quarter average into “recession”? Probably.
So, it seems like we will have a 2-3 month recession. Very strange and unprecedented. Nothing like a typical 9-18 month recession.
How fast will the economy recover? Will people act like this has been nothing but a prolonged spring break? Will they get back to work quickly? Will people be filling up airplanes in June? Impossible to tell. Some social changes will become permanent. It looks like working-from-home has been a real hit and will become much more wide-spread.
How will we reposition our portfolios to best take advantage of this new reality?
At the current time, we look at our portfolios and we like what we own. Collectively, our clients own a lot of Amazon, Microsoft, Google, Visa, Apple, Intuitive, medical devices, Proctor and Gamble, Facebook, etc. In summary, we own a lot of big cap tech names, we own strong companies that will hold up well in this environment. But every portfolio can still be improved as time goes along.
We will probably be trading out and reducing mid-caps and small caps in favor of more large companies. Nasdaq type companies seem to be consistently outperforming mid and small cap names.
Stimulus: The CARES Act
Small Biz: apply for the Paycheck Protection Loan directly through your local lending institution.
Here are the particulars of this loan program:
Offered to small businesses with fewer than 500 employees, select types of business with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(C)(19) veteran organizations (have to be in operation before February 15, 2020)
Self-employed, sole proprietors, freelance and gig economy workers are also eligible to apply
Loans are given up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs – including wages for employees making under $100,000, as well as expenses for paid sick leave, healthcare and other benefits – during the 1-year period before the date on which the loan was made
The maximum interest rate under this program is 4%
The loan term is up to 10 years
No personal guarantee or collateral is required for the loan
Payments are deferred up to six to 12 months
Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first eight weeks on operating expenses
Loan forgiveness provisions are generous. Loans are forgiven when the proceeds are used for any of these costs:
Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000
Rent pursuant to a lease in force before February 15, 2020
Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020
Group health insurance premiums and other healthcare costs
Be careful here. In order for the amounts to be forgiven, you must maintain the same average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 – June 30, 2019 or from January 1, 2020 until February 15, 2020. If you don’t meet this requirement, the amount forgiven is reduced. You incur additional reductions if you cut compensation for employees who make under $100,000 by more than 25%, as compared to the most recent quarter. The US Chamber of Commerce offers a step-by-step calculator
And of course there’s an exception: you won’t be penalized for a reduction in employment or wages during the period from February 15, 2020 to April 26, 2020, if you rehire employees that you previously laid off or restore any decreases in wages or salaries by June 30, 2020
Strategy Update for 2020
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Here are some critical insights:
The USA came into the Coronavirus epidemic in great economic shape, but the “rest of world” was already weak (perhaps improving, but from a lower level). We continue to expect the US to outperform the rest of the world. We are scanning the world looking for change. We just don’t see it yet.
If the “rest of world” is improving from a lower level, that will still help the US
The US stimulus package hit the spot (apparently, although it’s too early to make any real judgements)
The WF Conviction Buy list is certainly no longer frothy, but it is very difficult to get a read on where our companies are from a fundamental basis. Even earnings reports in April and May won’t tell us much because they are by definition, backward-looking and no company can tell you how fast business will return to normal.
Interest rates are even lower now than ever before. We expect housing to benefit.
Predictably, due to the Coronavirus, unemployment surged – the worst numbers are yet to come. But the CARES stimulus package will help get people back to work and the stimulus will likely be extended as long as it takes until the economy is humming again.
Sometimes government is a bit slow to act (a diplomatic statement). Congrats to the Congress and the President for moving fairly quickly in this crisis. Let’s hope more stimulus is not needed, but that may in fact happen.
Warren Safer-Equity Fund
Cushioning the blow.
The WSEF has been outperforming the SP in this crisis and the volatility strategy has been paying benefits. The epidemic moved too fast to completely eliminate the downside, or cap-it. But the volatility part of the strategy has certainly been paying benefits.
Cash money market now paying almost 2%.
If you have any cash in the bank or CDs or other sources, you should consider moving it over to your Warren Financial TD account so you can get almost 2% return.