April 2020


Our governments should have taken action at least three years ago regarding a looming pandemic threat. Even in January of this year the US Government was warned at the highest levels. But not enough it appears, was done. America was and still is, consumed by an ideological divide that threatens its democracy. On the other side of the pond Europe and the UK were engaged in the exhausting Brexit divorce. Most likely the lack of planning and cohesion among governments has led to the reality we now face, that Covid-19 may persist for many winters to come if the experts are correct.

There is a great deal of advice from qualified health experts, so there is no need to address medical issues dealing with survival in this blog. Instead, let's look at a few devil-is-in-the details concerns that may impact your finances.


Stimulus checks, who gets what and how, etc.

Perhaps the best place to go for direct information is at: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know This link has many resources to answer questions such as

  • If I am making automatic bank withdrawal installment payments on a tax bill, can I suspend the payments for now? The IRS is okay with that. Follow the link for more details.

  • Will I get a stimulus check even though I receive Social Security benefits and I did not have to file? Affirmative. Bear in mind that the IRS will only suspend payments for a temporary period, but the clock is still running in terms of interest due on outstanding balances


Loan offerings and their impact on your finances

There are myriad offerings out there and choosing a loan can be daunting. It does not help that often times the mortgage professionals you rely on for advice may not be on your side. You only have to look at the many complaints from people who have dealt with popular “five-star rated” companies. The safest way to look at loans is to identify and evaluate the separate components of the loan, by measuring their respective cash flows in today’s terms. In the example that follows the two cash flow streams are the up-front closing cost and the monthly savings.


A mortgage company might offer you terms that appear attractive if you want to lower monthly payments at this time – for instance you might be offered a new 30-year mortgage replacing the existing loan. The term “break even” is typically used to compare the monthly savings with the new loan versus closing costs, to see how long it will take for the amounts to be equal. If it takes 10 years for the savings to equal the initial cash outlay, then that is frequently used as a guide to determine when you will really start seeing savings over the previous mortgage. But that monthly saving is merely a nominal figure. To figure the real savings over a given period, you need three pieces of information: 1) How long you plan on keeping the house. 2) What interest rate would be applicable to money not tied up in closing costs and 3) The monthly savings from the refinance. Assume that you plan on staying in your home for at least seven years, the upfront fees total $3,000, the monthly saving is $30 and the interest rate is 3.3%. The net present value of the refinance would be over seven hundred dollars in today’s terms. That is, applying the time value of money to the savings and comparing that to your closing costs, you would be better off by $700 or more at closing. If you sold the place in six years instead, you would lose over $200 in today’s terms. This example is perhaps more contrived than real, but it shows another way of looking at loan offerings. You can do this yourself with the aid of a spreadsheet template or ask your financial professional for assistance.


If I am in the market for a vehicle and assuming that my income is not jeopardized by Covid-19, should I buy or lease a vehicle at this time? Apply the same principles as in the prior example. And speaking of vehicles, check with your insurance company to see if a partial refund of your auto insurance premium is possible. After all, you won’t be driving about town for awhile will you?


Whether you are taking out a first time loan, refinancing a mortgage or just shopping offerings from many lenders, the goal should be the same. Evaluate the net present value of each plan to see which is most beneficial.


Investing in a Covid-19 World

No one has a crystal ball as the saying goes. To quote another phrase -don't try to catch a falling knifewhich means one should exercise caution buying securities in a falling market. However unless civilization is coming to an end, remember that society always bounces back. After the stock market crash of 1987, a distraught investor walked into his broker's office in Miami, shot the broker then turned the gun on himself. The Standard & Poor's index rose over 400% in the ensuing 13 years. Actually, five hundred percent at one point near the end of the thirteen years.


If you believe

  • Government will continue to bail out the economy

  • That we will pass through this period of anguish within a year or two or;

  • Society in general and financial markets in particular will adjust to a new normal whatever that norm may be

  • Rational people prevail at the ballot box in November 2020 and create an equitable environment for businesses and consumers.

And assuming you are a long-term investor, some areas you may be interested in pursuing include

  • Big technology stocks and their supplier companies, but avoid suppliers that are overly reliant on a concentrated customer base for revenue.

  • The express transportation industry should also flourish with a ramp up in online ordering.

  • It is estimated that seventy percent of fast food sales come from the drive through lanes. Big fast food chains may respond to the current crisis with increased drive through capacity if consumers reduce in-store visits. See https://www.qsrmagazine.com/reports/2018-qsr-drive-thru-study

  • The aggregate industry and engineering firms may prove to be good investments if Congress puts stimulus money into much needed infrastructure development.

  • Last but not least, medical equipment manufacturers and suppliers in a post Covid-19 world in which online healthcare services expand dramatically as more people opt for digital doctor visits to the extent possible.


Some of these securities are high beta stocks meaning that theoretically they rise faster than the financial markets when the economy starts to rebound.


On the fixed income side rolling over successive short-term instruments, or even long-term bonds maturing in a year or less, might be safer for the time being. Know the transaction cost for buying or selling fixed income instruments as the commission can seriously affect the yield to maturity on your investments if the amounts are relatively small and your broker’s fixed income transaction costs are high.


Now is a time to tread warily. We do not know how long the current novel coronavirus phenomenon will last, although increasingly it looks like Covid-19 could become a seasonal event. But infected people will still participate in the economy if even in a reduced capacity during a regular season. Goods and services will still serve society in a Covid-19 world.