By: Adam D. Koós, CFP®, CMT®
President / Portfolio Manager
Libertas Wealth Management Group, Inc.
We’re living in unprecedented times - there’s no doubt about that.
There aren’t too many people today who can say they were alive when the “Spanish Flu” pandemic killed 675,000 Americans in 1918. The disease came back again in 1957 and was deemed the “Asian Flu,” causing nearly 70,000 deaths before a vaccine was finally developed. What’s interesting is that this mutating flu didn’t technically originate in Spain. Rather, it’s known as today’s run-of-the-mill influenza virus, for which most of us are vaccinated each fall and winter.
Even Polio, which killed 3,145 people during its peak in 1952, isn’t a disease many people think too much about today. In fact, the CDC (Center for Disease Control) has stated that the United States is officially “polio-free” since 1979.
Today, we’re all dealing with the initial effects of Coronavirus 2019 (or COVID-19), which as of the early morning of March 25th, has killed 582 people, primarily those over 65 years of age and/or individuals with autoimmune deficiencies.
The bad news? This is no fun… For those in the highest-risk demographics, it’s terrifying. No one wants to catch this thing if they have respiratory issues in their later years. For the healthiest among us, being stuck in our homes for the most part, not knowing just how bad this virus is – it’s anxiety provoking, to say the very least.
The good news? When this is all said and done, COVID-19 will likely come back in the fall, medications that help those with arthritis could become part of a future vaccine, and eventually, we’ll be getting a “COVID Shot” every November or December, just like we do as a prevenative measure for the common flu.
The bigger, not-so-great news, is the economic fallout that is likely to transpire as a result of the reaction to this virus…
If the Coronavirus represents the “impact” that everyone is so focused on, then the “shockwave” is the aftermath that transpires shortly after everyone realizes that “this too shall pass.”
I own my office and have a neighboring tenant that reached out to me last week, asking if I would allow a 60-day deferral of their lease. Why? Because their clientele isn’t showing up for appointments any longer, and many are cancelling for future visits, as a direct result of the risks of contracting COVID-19. I granted them the deferral and we came up with a plan that keeps their employees getting paid while floating the business for another couple months, but what happens in two months from now? I honestly don’t know just yet.
Whether the U.S. will be in a position where it’s safe for the 65+ crowd to go outside weeks from now is yet to be seen, and if “life” feels anything to you like it does to me, a week can feel like a month these days!
The “stay-at-home” order dramatically increased the ability for our healthcare providers to wrap their arms around this pandemic. By cancelling non-elective surgeries, for instance, hundreds of beds were freed up for the sake of taking care of COVID-19 patients. That being said, there are much bigger, longer-term potential risks at stake, and we’ll continue to refer to this as “The Shockwave.”
What is this Shockwave, you ask? It’s the upstream “domino-effect” resulting from the reaction to the Coronavirus.
“Big Business” (with the exception of many luxury businesses, as well as many sectors within the travel, leisure, and other discretionary industries) can make it through this thing, especially with huge government bailouts. On the other hand, while the numbers surely vary within a marginal variance, Inc.com reported that 49.2% of individuals in the U.S. are employed by small businesses – which represent more than 120 million people – and they aren’t getting any substantial bailouts by Uncle Sam.
So, when the most prominent, upscale restaurant brand closes their doors, there is a fallout that takes place on an economic scale not seen in a couple generations.
- Payrolls don’t take place any longer, so payroll companies don’t get paid.
- Uniform companies no longer get paid to replace and clean restaurant clothing.
- Janitorial services are told to forego cleaning until further notice.
- Distillers and breweries who sell a good portion of their goods feel the pain.
…but the list goes on.
Contrary to popular belief, many businesses live paycheck-to-paycheck, meaning that many small entrepreneurs have no “emergency fund” to fall back on, in the case of a global pandemic. Let’s all be honest here. No one saw this coming! The adage reverberates indefinitely that, “It can’t happen to me,” but I digress…
At this point, if you’ve even made it this far, you’re probably trying to figure out the point of this article’s title. Let me be clear: When I talk about selling your “babies,” I’m not talking about your kids (hopefully that goes without saying). Rather, I’m talking about your “toys.”
As a born and bred “car guy,” I love (and I mean love) cars. Hate me for it – I’m truly sorry. But since I was a kid, I’ve always been able to identify the year, make, and model of a car by its taillights at night – and sometimes even its headlights in my rear-view mirror. The funny thing is, I don’t even watch a lot of television! Still, whenever a car commercial comes into the spectrum of my vision, whether it be on TV, online, or otherwise, my brain locks-in like Maverick on a bogey, and subconsciously, I hone-in on the vehicle in question.
A lot of those who share this passion know what I’m talking about. Maybe you’re not a “car person,” but perhaps it’s something else… boats, vacation homes, travel, planes, or expensive clothing, shoes, and other apparel.
Today, however, we’re going to focus on that exotic sports car or muscle car. Whether it be a Porsche 911 GT3, a Lamborghini Huracan, one of my favorites, the Ferrari F430, or an original Shelby Cobra… unless you’re uber wealthy (or even so), you’ve likely asked yourself this past few weeks, whether or not unloading your “toy” of choice might make sense, considering the economic turmoil we’ve come face-to-face with in 2020.
The stock market has already been down as much as -34%, it’s more likely than not that we haven’t seen “the bottom,” and we haven’t even had a chance to feel the economic impact of all the business closures just yet. Adding insult to injury, companies that previously forbade remote, work-from-home policies have not only been forced to retain employees who have been working from home, but they’re going to realize that maybe it’s not that bad. In fact, maybe they don’t need all that office space, after all… and what do you think might happen to the value of commercial real estate as a result?
Trust me, I’ve thought about this. Recall above, I’m an owner-occupant of the building where my business resides. I realize COVID-19 won’t be the best thing for the growth or value of my property. However, I got a great deal on the purchase price as a direct result of the prior owner foreclosing, so I’ll be okay… but what about the other companies, both big and small? Will they want to keep leasing so much space, understanding how easy it was during this outbreak to simply allow their employees to work from home?
“But wait, there’s more…” It’s not just commercial real estate that might struggle. What about all the employees who have been working in the childcare industries, sales teams, the travel industry, flight attendants, staffing, background checks, construction, property management, hospitality and hotels, event planning, and so on?
All of those who work in these industries (and more) could struggle to pay their rent and/or mortgage, and I can’t imagine we’ll see an uptick in potential homebuyers. Very much the opposite, actually.
So, with stock market prices depressed, jobless claims and unemployment rising, potential commercial and residential real estate foreclosures on the horizon, and several “unknowns” regarding the outcome of this pandemic, should you sell your “baby?” That beautiful, heavenly toy that you enjoy driving, sailing, or flying in each day?
I think the answer is a solid “Maybe.”
If you’re in a financial position to where you can absorb the impact of a full-blown recession – or even a depression – then without a doubt, keep your “baby.”
However, if you’re nervous – even in the least bit – about your ability to make ends meet, or even if you’re analyzing the marketplace, looking for financially intelligent opportunities to jump on (such as the ability to buy real estate or stocks at a deep-discount), then perhaps it’s time to give that “baby” up.
Because on the other end of this thing, there are going to be so many, amazingly rewarding opportunities that you’ll be able to utilize for the sake of stabilizing and furthering your financial position. One thing is for certain – after taking our clients through 3 (yes, that’s three) market crashes at this point in my career, from the deepest and darkest market crashes and recessions, come the best and most rewarding recoveries!
While we continue to remain positioned largely in cash and money market equivalents in our clients’ portfolios, the time will come when a “bottoming process” takes place in the stock market. And when that happens, we’ll deploy our cash and take advantage of the opportunities that exist in the market, with the sole purpose being to grow our retirement portfolios as efficiently, but as safely as humanly possible.
Meanwhile, for real estate investors, your time will come as well. The key is to be prudent and patient – and never to get anxious and make emotional decicions to jump on something without objectively analyzing the opportunity at hand.
Financial success takes time, strategy, and patience – but most of all, intelligent and proactive planning. Always remember, even if you end up parting ways with your favorite depreciating asset, there will more-than-likely be additional opportunities when this market crash ends to buy something else, and perhaps something even more fun, at a better price.
Till next time…
The opinions included in this material are for general information only and are not intended to provide specific advice or recommendations to any individual or business. To determine which strategies may be appropriate for you, we highly recommend you consult with a fiduciary, fee-only financial advisory firm prior to investing.