Given the many events that we have had during these times, this Update is longer than usual. Here are a few key developments to take note of:
CARES Act
On March 27th, The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed to assist the country in getting through this Coronavirus epidemic. To briefly recap, stimulus checks will be sent out in the amount of $1,200 per adult and $500 per child. There are income limits based on adjusted gross incomes for the last tax return year filed.
For those who are eligible and filed electronically, many of you may have already received your checks via direct deposit or will be receiving them soon. For the rest of you who are eligible and filed by mail, the checks will come in the form of a physical check within the next 3-6 months. If any of you do not receive your checks, you will actually be able to claim it as a refundable tax credit for the amount you should have received on next year’s tax return. To be clear, this stimulus check is not a loan, and you will not be required to pay it back. In addition, the 2019 tax deadline has been extended from April 15th to July 15th.1
For more detailed information on the Act, please visit the Tax Foundation website here.
Healthcare and Unemployment Options for Furloughed Employees
Many of you have been furloughed and have asked questions regarding healthcare and unemployment options, so we wanted to give you some clarity on what can be done here:
Firstly, if you have had your employer debit the healthcare premium from your paycheck before getting furloughed, be sure to check with your health insurance company, as oftentimes you may be covered for the remainder of the month.
If you are not covered, then you have three options:
- If you have a spouse that is still working, then review the options of adding yourself to your spouse’s plan.
- Apply for COBRA coverage within 60 days of your last employment date. Keep in mind, as your company will no longer be contributing towards your premium, the premium itself will be higher.
- Depending on your state, the Affordable Healthcare Marketplace may allow you to enroll in a plan. At the moment, there is some confusion as to which states are allowing this and which are not, so we encourage you to check your eligibility status by going to their website: www.healthcare.gov
Regarding unemployment, each state has different guidelines and so we have attached the links to each state that we service below:
Texas: https://www.twc.texas.gov/jobseekers/applying-unemployment-benefits
Arizona: https://des.az.gov/services/employment/unemployment-individual
New York: https://labor.ny.gov/unemploymentassistance.shtm
Florida: https://connect.myflorida.com/maintenance
Coronavirus Lessons
There are so many lessons to learn with the Coronavirus, and we want to briefly summarize a couple below:
First, we have learned the absolutely essential value of emergency funds, and as ConCappers, the vast majority of you have between 3 to 6 months at a minimum and many of you have more than that. This vital buffer separates you from 78% of Americans that are living paycheck-to-paycheck and that are truly devastated in these trying times.2
In many of our client meetings, we have discussed the importance of reserves. And this is when reserves are of paramount importance. The sun doesn’t shine all the time, and as ConCappers, we always fix our roof BEFORE it rains. We are very happy that most of you have done exactly that and are sleeping much better at night as a result.
Second, the violence of the selloff is a testament to the dangerous ramifications of leverage. Don’t be surprised if several hedge funds get wiped out given the questionable use of leveraged instruments and financial derivatives to earn their profits. Don’t be surprised to see several weaker companies declare bankruptcy as such firms had very light cash positions and were leveraged to the hilt. This is evidenced by the fact that, on many down days in the last few weeks, not only equities, but even government securities and traditional safe-havens, like gold, fell with the overall stock market. Some folks were so desperate for cash they were willing to liquidate anything to get it, and this undoubtedly exacerbated the sell-off.
And this is why, at ConCap, we will never, and I mean NEVER, use margin or leverage as one of our client’s principle investment strategies. With the exception of a rare put option on a portfolio for downside protection or volatility mitigation, the only way for us to go is to focus on being a long-term shareholder of high-quality companies. Many of you will have heard horror stories from your friends and family who have been wiped out in the stock market with the imprudent use of leverage. We will do our best to not create any such horror stories here for our clients, and you all should consider yourselves the fortunate few who kept their heads while many around you panicked and lost theirs. It may be boring to do it The ConCap Way, but we have a higher probability for success and that’s all that matters.
A look ahead
There is little doubt that we are already in a Coronavirus-induced recession. We have for some time been discussing the possibility of a recession on these Updates, so this should not be a surprise. We, however, did not see this recession happening in an election year, but it was admittedly almost impossible to foresee the Coronavirus pandemic, which ended up being a once-in-a-lifetime event.
Let us be clear, the Coronavirus may impede progress temporarily, but it will not stop it completely. The human species will continue to innovate, and there will continue to be quality companies that will become more valuable in the future. We continue to be very optimistic on the long-term future of the global economy, and a recovery is, very simply, a matter of time.
That being said, the next 45 to 60 days is going to be very, very interesting. Several countries around the world are beginning to restart their economies again and many, especially in Europe, will be doing just that in the next several weeks. We are particularly interested in what is happening in places like Taiwan, Hong Kong, Singapore, and South Korea, which have seen a resurgence in the number of cases, but not anywhere near the amount faced during the first wave of cases a couple of months ago. We must, therefore, take a wait-and-see approach.
Here in the United States, with no real unity countrywide on fiscal policy, each state is basically handling the Coronavirus and opening up as they see fit. Several states, in fact, do not have any social distancing requirements or stay-at-home orders at all. In our opinion, given the variety of responses by each state, we are facing a dangerous and very high likelihood of a second wave of Coronavirus cases nationwide. As a result, it is very unlikely that we will see a ‘V’ shaped recovery in the general economy. It is much more likely that we will see a ‘U’ shaped recovery or possibly a ‘W’ shaped recovery as we face one wave of cases after another. A recent study at Harvard elicited this possibility and foresaw general social distancing until 2022.3 As a side note, if we are still practicing social distancing over the next several months, we will seriously consider using web-interfacing video software for our client meetings, possibly for the remainder of the year.
Timeframe is difficult to predict, because an effective therapeutic or a potential vaccine in the works could totally change the ballgame. It is still questionable whether the Coronavirus cases have truly peaked in the U.S., but, regardless, we are certainly looking at a very likely premature re-start of the economy within the next few weeks. Several of you who have been furloughed will likely be re-hired. It is possible though that we are looking at a thorough recovery that takes at a minimum of a year to possibly as long as 2-3 years to take place. The stock market tends to move in advance of the overall economy, but during this time, we still expect quality stocks to make gains while several weaker ones will wither. If we have a prolonged recession, then we must see this as a longer-window buying opportunity of such quality equities.
If you are not a ConCapper, don’t hesitate to reach out to us to see how we could help in your financial independence journey. Visit our Requirements page to get connected. We invite you to like and follow our company Facebook and Twitter pages to get real-time access to our new articles and company updates.
Sources:
1 https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/
2 https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-in-5-us-workers-live-paycheck-to-paycheck.html
3 https://www.nbcnews.com/health/health-news/social-distancing-may-remain-place-until-2022-harvard-researchers-say-n1184396
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Investment advisory services offered through ConCap® LLC, a registered investment advisor.
The opinions expressed in this commentary are those of the author. Comments concerning the past performance of [e.g. monetary instruments, investment indexes or international markets] are not intended to be forward looking and should not be viewed as an indication of future results.
