At this point, the stimulus is already complete. We’ve taken interest rates to zero, gave no money to the middle class and created a barbell in American society where only the lowest income brackets (temporarily benefit) along with the ultra wealthy (think market cap north of $100B+). We’ll explain what this means for you and fortunately our advice still doesn’t change. While many people laughed at our strategies they’ve worked over the past 8 years and if you followed “the plan” you should have at least 2 streams of income each generating a living wage (or better). This creates a level of stability that will allow you to survive in the coming years as well (and potentially move up the socioeconomic ladder).
What Happened? The income being sent to people is flawed to say the least. People who were making around $100,000 in high cost of living cities like NYC, San Francisco, Los Angeles etc. get nothing… Even if they were laid off. If someone kept their job and is still earning $100,000 we can see why they didn’t need money. But. Take five seconds and look at the map. New York is the hardest hit, has one of the highest cost of livings in the world and yet the vast majority there will receive nothing. That doesn’t make any logical sense. Using a $75,000 marker actually helps middle america the most… Where there are practically no cases (comparison to NYC, Los Angeles, parts of Florida etc.). As many of you remember our view as to imply issue everyone money quickly and have a 100% tax if you made over $XYZ in 2020 income. And. Of course it didn’t happen.
The second thing that happened was a massive debt bailout for airlines, Boeing and several other companies that were simply levered up for no reason. Don’t even get us started on people who levered up to use an apartment for AirBnB rentals… That one is going to end in tears as we doubt people will suddenly ramp up traveling in 2020. A full year of next to no income is not a situation most can survive (assuming they are levered up)… The ones who were debt free will make it through.
The last item that happened? We saw a significant decline in interest rates and we’re even seeing negative yields on treasuries (3 month and 6 month). In fact, the 12 month treasury yield is also near zero and could go negative! This means we’re inching towards an environment where banks are going to be forced to charge fees to simply hold onto your money. The system was hit so hard that we may end up like Europe where you’re better off buying a complex safe and storing physical cash in a secluded area.
#1 Small and Medium Sized Businesses (SMBs) Get Crushed: This is the first implication. Since they do not receive any serious consideration, they will be under massive pressure coming out of this. The current set up to give them a 3-4 month “forgivable bridge loan” if they keep their employees is laughable at best. Anyone smart (who runs a small business), will not take this loan. They do not know the revenue line when they start back up again. If they have to keep the same headcount they would avoid this insane amount of risk. At best, they will hire part of the staff back and use the bridge loan for a smaller company size. So no matter what those SMBs just got smaller and likely less profitable. In order to catch up they will have to find a way to make use of technology to decrease back-end costs.
Oh and by the way… They will get absolutely dismantled by the large corporations. This is because large corporations are first in line for the cheapest debt. Apple is much more likely to get 0% (or negative) coupon debt vs. Mom and Pop’s Pizza Shop. So take a wild guess what they will do? They will take out 0% debt and cut prices putting consistent pressure on the SMBs (Yes we realize Apple won’t compete with Pizza shops but if someone doesn’t understand the point they should probably leave this website for good).
So you’ve got large companies who now have near infinite ways to make returns. If your hurdle rate is “0%” all you do is borrow as much as you can and buy anything with operating profits. This may lead to the creation of monopolies in the future. The mega companies win the most in this situation (assuming they are not massively levered today). Also. The good businesses with leverage already, can take down their rates through refinancing and survive if they make it through the current downturn.
#2 Middle to Upper Middle Class Killed: A large amount of the jobs in the USA that pay $75,000+ a year are in major cities (NYC, Bay Area, Los Angeles etc.). They get nothing. If they keep their job they may get to survive but they certainly do not participate in the $1,200 checks or the 0% loans. So if you are in this camp and make around $75,000-$250,000 a year, you got crushed. Not only did you get nothing, but upper-middle class income is one of the highest “expense” lines for a firm. Take a wild guess on what area major companies will target to improve their profit margins. There is a reason why VPs are first to get fired in investment banking during a downturn. Unsurprisingly the SMBs getting killed lines up with the middle to upper middle class. This makes sense given the barbell approach the stimulus plan took.
#3 Real Estate Will Suffer: Coming out of this there will be a lot of bankruptcies and distressed properties. Sure, unless you’re connected you won’t get the “best ones”. That said, there will be a lot of opportunities coming out of it. If oil prices were at $20 in any other time frame it would be on the news 24/7/365. However, the global pandemic is making many people forget about this issue. If oil prices really stay at $20 (or even drop below for a long period of time!) parts of Texas will have a lot of economic problems.
What to Do? In our typical fashion, there is a lot more to this beyond the main items we highlighted… But these main points are the most important. If you are in the middle to upper middle class you have no choice but to start some sort of second form of income that utilizes low operating expenses (Ie. Online sales). There is just no other option and fortunately we’ve already explained how to do this 100x on this blog alone (and in our products).
Why? Well, the only way to grow and compete is by running LEAN. If you think you were running lean before, think of ways to run even leaner. You have to find a way to ratchet up your use of technology and decrease your use of anything manual. Yes… this means services based revenues will take a bigger hit and people will have lower disposable income. In simple terms, all of these policies have accelerated the use of high-end technology. So if you don’t use them… you will have no shot at competing.
Fortunately our step by step recommendation is essentially the same. Get a white collar job (as high paying as possible), ramp up your political standing, get a high rating and then spend 100% of your extra time earning money online. Until your online income is 2x your regular income, you’re not allowed to relax. This is 100% possible and we get tons of thank you messages every month now. Why? It works. The people who say it is not possible are just inefficient and ineffective at work. They make excuses and spend their downtime watching Netflix and YouTube at work (or texting). Example below of a successful person, not only did it work but he was one of the people *who didn’t* get let go… Gee wonder why?
The one item of warning we’d add? Financial services are worse. Much worse than before. If you can choose between tech sales, software and investment banking, avoid investment banking at all costs. The only area you should even consider is pure M&A at a high quality firm. The rest will see fee compression. No one is going to try and take their company public in a massive down turn.
Investing: Luckily we’ve somehow called this stuff right. Pure luck saying it’d hit 2,100s and then go up. That said, at 2,600 it’s no longer attractive again but you’re forced to find ways to “maintain your wealth”. For the vast majority, our view is that you should stay heavy in cash and try to buy a place in an area you like when the dust settles (if you’re fortunate enough to have this type of money). If you’re not wealthy, investing isn’t even on your list of priorities. Again. If you don’t have $1,000,000 or more, investing is a colossal waste of time and you’re better off just buying indexes or the items recommended in Triangle Investing. Every hour you spend researching “ideas” could have been spent building up a life-long income stream which we promise will generate WAY more than $1,000,000 (probably 7-10x if you’re above average). The return is always highest in investing in yourself.
Final Notes: The tone of this post is probably a lot angrier than usual and this is not surprising, we’re furious with how this was handled. While there is nothing we can do to stop it we do want to highlight that we’re aware that the tone is much more abrasive (should really show how bad this stimulus plan was). For the wealthier readers, we’d also recommend hiding your wealth for a good 3 years or so… Having 10M+ (potentially) unemployed and showing you have money in public is going to attract crime. We wouldn’t be surprised to see a lot more home break-ins over the next 12 months as stock markets don’t correlate with people having jobs or not. In short, be careful out there.
Newer Readers: For those that are unfamiliar with our blog we have three high quality products in order: 1) Efficiency, 2) Triangle Investing and 3) Spending for Maximum Return. In order, you learn how to make a good amount of money (a million liquid within 10 years or so), how to correctly invest it and finally how we’d avoid blowing it all with intelligent spending. We hold Q&As 1-2x a month for purchasers only.