Categories
Life Wealth

True Stories from the Covid-19 Front Lines: Small Business Collapse

I am posting this information to show you the devastation facing millions of small business owners right now.

The headlines make it seem like the government is providing tons of support. However, for most small business owners the support is failing them. These people are the lifeblood of the economy, yet are on their own fighting for their lives.

Authorities predict about 50% of small businesses will disappear before the Covid-19 coronavirus economic crisis is over. This is not something the economy can quickly recover from. It will take significant time, effort and risk appetite for entrepreneurs to once again start new businesses and hire staff.

I’m afraid the neighborhood landscape will look very different once this quarantine is over. Local drycleaners, restaurants, yoga studios, pet stores. Half gone.

Here are their stories:

u/rexruther99

The future is truly uncertain for small business owners.

I own a bar in Downtown Atlanta. It’s not really a residential area and 80% of our business comes from traffic going to nearby stadiums, arenas, hotels, and concert venues.

We are closed right now, and I don’t see how we could survive as a business without international travel opening back up, restrictions being completely lifted, AND people are eager to get close to each other once again without fear. I would say we have *at least* a year before that would happen.

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Not to mention, this happened right at the end of the slow season. So we had completely depleted our resources and had acquired a little (~15,000) additional debt to cover us until we got to the busy season again that starts right around the middle of March.

Now bills are stacking up, I have no money, and the PPP loan really won’t help my business until we know when we can open again (so we can use the forgiven portions of the loan to help float payroll cost as we get back on our feet).

This is just a bad, bad situation. I don’t know what to do either. I don’t know if it’s smarter to begin the process of putting the business out of its misery now or “wait and see” while more bills pile up and more debtors coming after me.

I definitely feel abandoned. Like I fell off the ship that is the USA along with many others. Now we’re all stranded in the water flailing, screaming for help while the ship slowly but steadily sails away, leaving us.

u/Silvex020

The biggest problem for many businesses is the Lease. It no longer makes sense.

Revenues fall? Well, you can always cut some staff to lessen the payroll burden, and figure out other ways to survive until customers return.

But what are you going to do about your crazy lease? You can’t downsize and ask the Landlord, “I’m only getting half the customers vs what I used to… can I change the Lease so that I’m renting only half the store now and pay you half the rent?” The LL will of course say no, especially if you Personally Guaranteed (which is most of the times for small businesses because if they don’t the LL won’t lease the space to you).

Also, if the LLs have a mortgage on their property, even less likely they will adjust your lease since LLs have to pay their bills too. Which is why the commercial real estate market will tank.

If I were you, i’d seriously consider bankruptcy (or closing shop if you have a Good Guy Clause in your lease). Survive the downturn. Meantime, scrounge up whatever you can and launch a new business when the time is right (once the LLs take a beating, new leases/rents will drop significantly and people will be able to find great opportunities).

u/Farm_Boss826

I qualify for all the loans approved by the government and have applied for the EIDL, PPP past Saturday and Monday respectively, and for the $10K (three day express funding) since March 30th. It has been now nine business days since I applied for $10k express, however, I haven’t heard from anyone. I believe at this point they are not worried about businesses with 10 employees or less. Each day trying to stay afloat makes the debt bigger. SBA classification for small business stand for 100-500 employees which makes me think there is no way they will come to the rescue of a tiny micro business of 10 or less employees. I am losing hope every hour, I am within days of running out of oxygen.

The truth is anywhere from 30 to 50% of the small businesses will not survive this pandemic.

u/jims2321

The truth is anywhere from 30 to 50% of the small businesses will not survive this pandemic. A lot of the financial assistance is focused on getting thru the lockdown and the economy shutting down. But little has been focused on what happens afterwards. Do not believe what this administration is selling. The economy is not coming back instantly, nor in a few months or even this year. I have seen articles by economist saying that the US economic will snap back in the 2nd half of the year.

It is the consensus from the medical community that continued social distance is going to be with us for the foreseeable future until a reliable vaccine is available. Which directly contradicts what the government wants.

u/evergreenyankee

At this point it is like screaming into the void – somewhat cathartic but ultimately useless.

People in my state are basically 100% against anything opening up before June. There is no help, and no help is coming. No one in the general public gives a fuck about what small business owners are facing right now, or more importantly, the looming economic doom that is on the horizon because of that. Even with agriculture being “essential” we can’t get the required inputs for production because everything is shut down and we can’t get the employees to come in because everyone is paralyzed with fear. No one wants to compromise on measures to ease up on things a bit before May 20th in my state, which in this growing region the window will be missed and the damage will largely be done (although the effects of which won’t be felt until August or September). A friend of mine killed himself the other day because he couldn’t take the burden and the abandonment by everyone, not just the government but mostly the abandonment of support of the public to allow some businesses to reopen with precautions.

At this point I have already given up. I’m doing what I can to provide for myself and my family, and when the bankruptcy comes I’m going to use this as a chance to start over in a state or country that is more hospitable to liberty and more supportive of small business owners.

u/MasterChief813

I’m feeling miserable myself. I’m running a hotel in middle ga and we’re hemorrhaging money. Last year was slower than usual but we got by. This year started slower than normal and turned into the catastrophe we’re in now.

I’ve applied for the EIDL advance (was told it will take a week to get back to us if we’re lucky) and the PPP (I’ve been waiting for BB&T to send us an application for 5 days now). The rules for PPP are such a clusterfuck that I have no doubt that it will take a lot of back and forth before we get approved (i.e. they are using payroll # of employees from January and in my industry we have high turnover so I have to find 3 more employees to hire if I get approved since I’m down 3 housekeepers from Jan and I want to the loan to be forgiven given that we’re barely making any money on hotel rooms right now).

Don’t get me started on getting the mortgage on a hotel paid every month. Thankfully there is enough money in reserves to get by but if this continues then we are totally screwed.

u/BrioRainbows

My business is in live events… we have no clarity on when our business will come back. We might have to wait possibly a year or more? Many in the 2.5 trillion dollar live global events business will go under. MSM is promoting this rosy picture of trillions of dollars in assistance, we’ll all get back to work in a month or two… stock market zooming back up. Not true for many of us… I don’t think anyone knows how bad it’s really going to get and the current optimism and stock market is not reflecting what’s really happening on main street.

u/MeatPopsicle_AMA

I own a bakery/cafe in a small town that is almost 100% reliant on tourist money. The main tourist draw is closed until September, at least. The PPP money will be minimal for us- barely covers 2 months rent if that. EIDL seems to be a bust. My partner is optimistic that once things get back to “normal” our local regulars will show up, but I doubt many folks will have disposable income to keep us going until the festival opens. It’s not looking good for us. If it was just me I’d walk away and deal with the consequences of breaking my lease, but it’s not just me.

u/madonnaofroses

Woke up with some anxiety this morning. Still no emails from the SBA regarding my EIDL loan. Since it was just my partner and I in our LLC with no employees, we couldn’t apply for the PPL either.

Made myself some coffee and sat outside for a and listened to the birds for a few.

I have a small but beloved massage therapy business here in downtown Jersey City. My business partner voluntarily withdrew from the LLC last week, has taken the couch (good thing I bought everything else) and will not be renewing the lease with me in May.

Technically, I won’t be able to renew the lease either if the EIDL loan doesn’t come through and I’m saddened by all the effort and money I put into our business the past year only for me to have close doors. I wasn’t done yet. We were building the foundation of things still.

I’m still kinda positive about things in my heart but I’ve mostly given up on that EIDL loan. It was kinda nice to come on here and see others share my disheartened feelings as well. Got to be realistic at the end of the day and be able to adapt or cut losses.

Tragic to have read someone took their life last week in the chaos.

Still grateful my family and I have our health and if you’re reading this, I hope you still have that too and will continue to have it until this is over.

God bless.

u/PleasureDoingBiz

I’m in Mexico, which in official terms, has reacted way worse than how the USA has, according to many criticisms.

The President (AMLO, as we call him) textually said “don’t stay inside… I’ll let you know when you really have to stay inside.” I could write several paragraphs describing his reasons and the background, but all you need to know for context is that he divides opinion just like Trump does. And he’s trying to wash his hands from the economic recession. Just days before they acknowledged the pandemic, the US dollar jumped from around 18 Mexican pesos to 24.

The government stance on business is this: There are no governmental aids. You’re expected to pay all taxes as normal, all bills such as electric or water. Businesses are told to close (even though the citizenship is told not to stop going out), but it’s not enforced. However, a worker that contracts coronavirus in whatever circumstances and isn’t being paid in full to stay home, can sue their employers for getting the virus. So they pretend every single business is a massive corporation that can pay full wages indefinitely. To add to this take into account that 90% of Mexicans live day-by-day and can’t afford to go a single day without pay, or else they and their family don’t eat that day.

I have a couple small businesses where I sell flooring and window covers, plus a few other related products like awnings. Traditionally we sell in person, but I had worked a long time on trying to build an eCommerce sales channel, to some success (boomer mentality runs rampant in Mexico, where even Zoomers doubt the legitimacy of eCommerce). However, we install our products and most people aren’t interested in DIY and would rather have the technician perform the installation.

It’s a family business, my dad owns and runs the factory that supplies about 75% of the products I sell. The factory is still operating at a limited capacity, as it has a relatively small team with large space. But mainly, the workers asked my dad to continue working because they can’t survive without steady salary. About 90% of what we call small sales vanished overnight when Mexico announced the first case, which was about three weeks before the government even talked about the pandemic. These small sales provide most of the cash flow and account for about 60% of revenue on an average month.

My own sales dried up by about 85%. Only wealthy clients are buying, since they can survive their entire lifetime without working again (or thereabouts) and are now getting bored of looking at the same decor in their homes.

I’m trying to complement my earnings with Appen (have waited two weeks for project validation, still waiting) and I recently opened another business thanks to my cousin. We are selling construction materials remotely (again, normally done in person) as construction hasn’t halted yet.

AMLO is trying to pit business-owners (whom he has referred to as the cancer that’s killing Mexico even long before he was elected; he makes no distinction between tiny stores and cafés than multimillionaire CEOs) against the workforce and vice versa.

Get your free copy of DumbWealth’s 47 page guide to surviving the Covid-19 economic crisis:

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.

Categories
Investing

14 Ideas from Howard Marks to Help You Invest in this Bear Market

If you are wondering how to invest during this bear market, this article is for you.

Investing during a bear market isn’t easy. However, it is when good money can be made. Although it might feel like the world is falling apart and markets are riskier than ever, in reality the risk of investing is actually reduced AFTER stocks have already plummeted. In contrast, the most risky time to invest is when investing feels most comfortable.

Do you wait for the bottom? What if you’re too early or too late? How do you even know when a bottom has occured?

Howard Marks, Director and Co-Chairman of Oaktree Capital shares his valuable insights on how to invest during a bear market. He is a market veteran so he’s seen a few bear markets and financial crises in his day.

howard-marks

Howard Marks, CFA
Director & Co-Chairman
Oaktree Capital

Since the formation of Oaktree in 1995, Mr. Marks has been responsible for ensuring the firm’s adherence to its core investment philosophy; communicating closely with clients concerning products and strategies; and contributing his experience to big-picture decisions relating to investments and corporate direction. From 1985 until 1995, Mr. Marks led the groups at The TCW Group, Inc. that were responsible for investments in distressed debt, high yield bonds, and convertible securities. He was also Chief Investment Officer for Domestic Fixed Income at TCW. Previously, Mr. Marks was with Citicorp Investment Management for 16 years, where from 1978 to 1985 he was Vice President and senior portfolio manager in charge of convertible and high yield securities. Between 1969 and 1978, he was an equity research analyst and, subsequently, Citicorp’s Director of Research.

Below are several quotes taken from Howard Marks’ recent market insight pieces available on the Oaktree Capital website:

  1. These days everyone has the same data regarding the present and the same ignorance regarding the future.
  1. Future scenarios comprise a large number of variables: today even more than usual. It’s relatively easy to build a spreadsheet listing the many things that will contribute to the future and rate them as likely to turn out well or poorly. But merely toting up the plusses and minuses won’t tell you whether the future will be favorable or unfavorable. The essential element is figuring out which ones will be most influential. That’s often where optimistic or pessimistic biases come in. The optimist takes cheer from the favorable outlook for the positive data points, and the pessimist is depressed by the unpleasant possibilities for the negative ones . . . even if they’re both working from the same underlying spreadsheet in terms of elements and ratings.
  1. I don’t think I’m likely to have superior knowledge regarding the outlook for the virus, its impact on the economy, the success of Fed/government actions or the direction of oil prices. I organized and discussed the possibilities for each of these things in the March memos, but I’m unlikely to be a better predictor than anyone else.
  1. Buy, sell or hold? I think it’s okay to do some buying, because things are cheaper. But there’s no logical argument for spending all your cash, given that we have no idea how negative future events will be. What I would do is figure out how much you’ll want to have invested by the time the bottom is reached – whenever that is – and spend part of it today. Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left (and hopefully the nerve) to buy more. That’s life for people who accept that they don’t know what the future holds. But no one can tell you this is the time to buy. Nobody knows.
  1. The best time to buy generally comes when nobody else will; other people’s unwillingness to buy tends to make securities cheap. But the factors that render others averse to buying will affect you, too. The contrarian may push through those feelings and buy anyway, even though it’s not easy. As I put it, “All great investments begin in discomfort.” One thing we know is that there’s great discomfort today.
  1. “The bottom” is the day before the recovery begins.Thus it’s absolutely impossible to know when the bottom has been reached . . . ever.Oaktree explicitly rejects the notion of waiting for the bottom; we buy when we can access value cheap. Even though there’s no way to say the bottom is at hand, the conditions that make bargains available certainly are materializing. Given the price drops and selling we’ve seen so far, I believe this is a good time to invest, although of course it may prove not to have been the best time. No one can argue that you should spend all your money today . . . but equally, no one can argue that you shouldn’t spend any. The more you want to garner potential gains and don’t mind mark-to-market losses, the more you should invest here.On the other hand, the more you care about protecting against interim markdowns and are able to live with missing opportunities for profit, the less you should invest.
  1. One way to think about the balance between offense and defense is to consider the “twin risks” investors face every day: the risk of losing money and the risk of missing opportunity. At least in theory, you can eliminate either one but not both. Moreover, eliminating one exposes you entirely to the other. Thus we tend to compromise or balance the two risks, and every individual investor or institution should develop a view as to what their normal balance between the two should be.
  1. Now, however, as opposed to the conditions of 2, 6, 12 or 24 months ago the risks in the environment are recognized and largely understood, prospective returns have turned from paltry to attractive (for example, the average yield on high yield bonds ex. energy has gone from 3½% to almost 9%), security prices have declined, and investors have been chastened, causing risk-taking to dry up.
  1. Given these new conditions, I no longer feel defense should be favored. Yes, the fundamentals have deteriorated and may deteriorate further, and the disease makes for risk (remember, I’m the one who leans toward the negative case). But there’s a big difference between a market where no one can find a flaw and one where people have given up on risk-taking. And there’s a big difference between one that’s priced for perfection and one that allows for bad outcomes.
  1. …we never know when we’re at the bottom. A bottom can only be recognized in retrospect: it was the day before the market started to go up. By definition, we can’t know today whether it’s been reached, since that’s a function of what will happen tomorrow. Thus, “I’m going to wait for the bottom” is an irrational statement. If you want, you might choose to say, “I’m going to wait until the bottom has been passed and the market has started upward.” That’s more rational. However, number one, you’re saying you’re willing to miss the bottom. And number two, one of the reasons for a market to start to rise is that the sellers’ sense of urgency has abated, and along with it the selling pressure. That, in turn, means (a) the supply for sale shrinks and (b) the buyers’ very buying forces the market upward, as it’s now they who are highly motivated. These are the things that make markets rise. So if investors want to buy, they should buy on the way down.
  1. The old saying goes, “The perfect is the enemy of the good.” Likewise, waiting for the bottom can keep investors from making good purchases. The investor’s goal should be to make a large number of good buys, not just a few perfect ones. Think about your normal behavior. Before every purchase, do you insist on being sure the thing in question will never be available lower? That is, that you’re buying at the bottom? I doubt it. You probably buy because you think you’re getting a good asset at an attractive price. Isn’t that enough? And I trust you sell because you think the selling price is adequate or more, not because you’re convinced the price can never go higher. To insist on buying only at bottoms and selling only at tops would be paralyzing.
  1. So it’s my view that waiting for the bottom is folly. What, then, should be the investor’s criteria? The answer’s simple: if something’s cheap – based on the relationship between price and intrinsic value – you should buy, and if it cheapens further, you should buy more.
  1. I don’t want to give the impression that it’s easy to buy while prices are tumbling. It isn’t, and in 2008, Bruce and I spent a lot of time supporting each other and debating whether we were buying too fast (or too slow). The news was terrible, and for a good while it seemed as if the vicious circle of financial institution meltdowns would continue unchecked. Terrible news makes it hard to buy and causes many people to say, “I’m not going to try to catch a falling knife.” But it’s also what pushes prices to absurdly low levels. That’s why I so like the headline from Doug Kass that I referred to above: “When the Time Comes to Buy, You Won’t Want To.” It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration.
  1. The bottom line for me is that I’m not at all troubled saying (a) markets may well be considerably lower sometime in the coming months and (b) we’re buying today when we find good value. I don’t find these statements inconsistent.

Get Your Copy: 47 Page Guide to Help You Survive the Coronavirus Economic Crash

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.

Categories
Investing Wealth

Great Depression 2.0?

“When the facts change, I change my mind. What do you do?…”

— John Maynard Keynes

As time plods on, my thoughts on the economy grow increasingly dire. The reason is not the drip of horrible data releases – that was to be expected – but the mere fact that time itself makes our predicament more inextricable. It is becoming increasingly clear that the Covid-19 coronavirus exogenous shock is not a one-quarter phenomenon. 

Governments are increasingly ‘socializing’ the idea that quarantines could last not weeks, but months. We’ve heard rumblings of this from officials in the UK, Canada and the US. Even as China appears past the peak on paper, it too continues to suffer from moderate forms of quarantine (e.g. movie theaters are still shut) and prolonged weakness as both domestic and export markets collapse. China’s experience shows that a v-shaped recovery is highly unlikely.

Except for the occasional grocery-store mission, I have not left the house in weeks. Other than food and utilities, I have not spent a penny. My ‘win’ however, is someone else’s loss and is a microcosm of the type of world we are approaching.

The epic collapse

March payrolls declined by over 700,000. This is just getting started:

Source: BLS, CNBC

Weekly initial claims are up 6.6 million. An unprecedented number. (I’ve highlighted the increase because it just looks like part of the chart’s vertical frame otherwise.)

Source: St Louis Fed

The world economy has come to a standstill. 

On April 4, 2020 the IMF Managing Director, Kristalina Georgieva, said this is worse than the global financial crisis:

“Never in the history of the IMF have we witnessed the world economy come to a standstill. This is in my lifetime humanity’s darkest hour, a big threat to the whole world and it requires for us to stand us, be united. It is way worse than the global financial crisis. This is a crisis like no other.

This is clearly not priced into the market. Currently, the S&P 500 is 27% off it’s all time high. During the 2008-2009 financial crisis, the market fell 57% from it’s highs. It would seem to me that there is considerable room for downside, if this is worse than the global financial crisis.

Chart
Data by YCharts
Chart
Data by YCharts

Notably, during the global financial crisis S&P 500 earnings per share bottomed roughly the same time as the market. Given the current Covid-19 lockdowns could continue for at least several more weeks, it is entirely plausible that S&P 500 earnings – and the S&P 500 Index – won’t bottom at least until early summer 2020. 

There is clearly more room for downside. Perhaps 30% more downside, if the global financial crisis is our yardstick.

Chart
Data by YCharts

Great Depression 2.0

Even more troubling, however, is that this isn’t a normal cyclical downturn that can simply reverse after inventories are liquidated, companies create new efficiencies and new investment opportunities arise. Like during the Great Depression, the entire world economy is unraveling due to a sudden and widespread shock. This will only worsen with time.

Think of it like a cat playing with a ball of string. If some of the string comes unraveled from the ball one can easily re-wrap it around the remaining ball. However, the more the string comes unraveled, the harder it is to re-wrap.  Eventually, the ball ceases to exist and you’re just left with a pile of string. 

The longer the Covid-19 shutdowns continue, the more difficult it will be to put the economy back together. The economy will experience a permanent destruction of aggregate demand.

If I could snap my fingers today and return everything to normal, enough animal spirit still exists to spring the economy back to life. Restaurants could quickly re-hire staff with confidence customers would return. There are plenty of fully employed people to fire up aggregate demand once again. 

However, as time goes on more restaurateurs will throw in the towel. More businesses will disappear. More people will become unemployed – many permanently so. The knock-on effects on commercial mortgages, loan losses, homelessness and wealth erosion will increasingly get out of control.

After a prolonged drought, people become very conservative about water usage. The same will happen with money. Those who do have discretionary income will stuff it in their mattress in fear that their time will come. Businesses won’t invest or hire. Even if banks are willing to lend, who’s going to borrow and invest?

This is our WWII moment. Even after the virus is defeated, if the battle is long and difficult the fear will remain. Everyone will be waiting for the other to make the first move to spend, invest or hire. In doing so, nobody will make the first move.

The world will enter a liquidity trap not seen since the 1930s. 

Luckily, today’s world might by-pass some of the policy mistakes made during the 1930s. We have faster access to information and broader understanding of monetary and fiscal policy. There might not be bread lines, but the scale of economic devastation could certainly surpass that seen after the 2008/2009 crisis, looking more like a Great Depression 2.0. 

Even after we won WWII, many feared a return to the depression economy. At that moment, however, the United States became the most powerful nation on the planet. It retained massive production capacity and became the cornerstone of a new global monetary system. Moreover, huge global fiscal spending to rebuild Europe and Japan began, which helped prevent the world economy from slipping back into depression. 

Today, if the world economy remains shut for much longer our only salvation will be massive government fiscal stimulus not seen since the WWII era.

Chart
Data by YCharts

How to Survive the Coronavirus Economic Catastrophe:

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.