Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Thursday, April 30, 2020

Taking Our Temperatures

Gross Domestic Product (GDP) data is like taking the temperature of the economy. It is measured quarterly, with annual numbers calculated from the quarterly data. Revisions are common. First quarters are typically anemic, since it’s after Christmas and things have slowed down. Usually, we pick back up by the second quarter. 

Common measures of a recession are “two quarters of negative GDP,” but economists use broader measures to make this determination. Often, we don’t know if we’re in recession until much later, and we certainly don’t know if we’ve turned a corner till even later.

The Great Recession knocked a hole in GDP, with the last quarter of 2008 logging nearly a 9% decline. Despite this, the annual GDP number was only -0.1%. The next year (2009) gave us a -2.5%, but it’s been in positive mode ever since. While most of Americans struggled to get through the Great Recession, GDP numbers show us turning positive fairly quickly, with a GDP rate of 2.6% in 2010, just over one year into the crisis.

Since then, there have been complaints about the slow pace of growth. Why weren’t we growing at 4-5% rates like we did in previous expansions? Meanwhile, Fed economists tamped down these expectations with long-term projections in the 2-2.5% range. What is holding us back?

Well, we are a mature economy. Once an economy reaches a certain size, it’s difficult to maintain higher percentage growth to get EVEN bigger. It’s just math. Plus, our citizens are reaching a certain maturity. We’re getting older, and population growth is slowing. In order to fuel growth, we need a young and growing population. 

While we are better off than Europe and Japan, we are slowing. Yes, we are still reproducing ourselves, with about 2.2 children per family, but that’s less than previous decades. Young families buy more things, and young workers are needed for the labor force. Improvements in production through technology help but can’t bridge all gaps.

Which brings us to today’s numbers. What I wouldn’t give for a 2% GDP growth rate! Instead, the coronavirus has knocked another hole in the economy. While we suspected we were already in recession, the most recent data prove it. The first quarter of 2020 yielded a negative GDP of 4.8%. Whoa!

But that’s not the worst of it! We only got the wind knocked out of us in the last few weeks of the quarter. January and February were good. That means a full second quarter of an economy in lockdown will be much worse. How much worse? Economists are projecting negative rates in the 30-40% range!

I don’t think we need a bunch of economists to tell us we’re in deep you know what! 30 million people are unemployed. Savings increased to 13%. Consumption declined 7.6% last month, putting the driving force in our economy into reverse. What did we stop spending on? Autos and healthcare. Healthcare, you say!?! What’s up with that?

While we are looking to the healthcare profession to save us from the virus, we are stopping all kinds of other health procedures. Of course, we are ramping up spending on groceries. When this is all over, we may need to head back to the doctors to help us with the damage we’ve done with our comfort eating!

When does this all end? Going forward, we hoped for a V shaped recovery. That’s a big drop, with an immediate climb back up to the top. Because of the nature of the illness and our response, we are now expecting a U shape. Yes, by the third quarter, things will be improving but expect to hang around at the bottom of that U until sometime in 2021.

At that point, what will be our biggest worry? Inflation! Pent-up demand may push prices. Combine this with high levels of debt and—yikes! Well, we’ll worry about that one tomorrow. For now, 2% GDP looks pretty good to me, if only we can get back to those days.

Wednesday, April 22, 2020

Free Oil!

"They're going to be giving this stuff away soon" I mumbled to myself
as I shook change out of a fifteen dollar bill to fill my tank.

When I drive by a gas station with low prices, I remark "they're going to be giving it away soon." It's my inside joke that gets a guaranteed eye roll from whoever else is in the car. Sometimes that is just me. Recently, some gas stations have come close to giving gas away, one near my house sold gas for $1 and gave free sandwiches and water away with a fill up recently. Costco was selling gas $1.17/gallon.

But yesterday - they really were giving it away for free.

To be precise, the price of oil went below $0. People were PAYING to get rid of oil. What's up with that?


First, a primer. If you're trading oil for financial purposes (speculation, hedging, fun or profit, etc) you don't go out and secure a few barrels of the stuff, you trade contracts on a bunch of it. These standardized futures contracts state what type of oil, how much ($10,000 barrels, generally), what type (West Texas Intermediate, in this case) and when it will be delivered (there is a monthly schedule). If you hold the contract when it expires, congratulations, you own the oil! You just need to go to Cushing, OK to pick it up. This is all very standard stuff, and it's right there in the contract:

Delivery shall be made free-on-board ("F.O.B.") at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to Enterprise, Cushing storage or Enbridge, Cushing storage. Delivery shall be made in accordance with all applicable Federal executive orders and all applicable Federal, State and local laws and regulations.

At buyer's option, delivery shall be made by any of the following methods: (1) by interfacility transfer ("pumpover") into a designated pipeline or storage facility with access to seller's incoming pipeline or storage facility; (2) by in-line (or in-system) transfer, or book-out of title to the buyer; or (3) if the seller agrees to such transfer and if the facility used by the seller allows for such transfer, without physical movement of product, by in-tank transfer of title to the buyer.

If you don't want to own the oil, easy, just sell the contract and pick up the next month. Generally, this works pretty smoothly. Again, oil is a widely used commodity and if you don't want it, someone else probably does.

But lately, oil prices haven't been working the same way they generally do. With heavy travel restrictions and everyone working from home, demand for oil in the form of gasoline and jet fuel has declined precipitously. On top of that Saudi Arabia and Russia decided start a price war, pumping as fast as they could and pushing the price down even further. American producers, indebted since the last oil price shock in 2016, kept their rigs pumping even though they starting losing money on every barrel. Having a little money and a lot of bills is better than having no money, and still a lot of bills, they figured.

So oil prices kept dropping, but how did they get negative?

If you're pumping oil, but nobody wants it, you've got to store it. People with storage space, in huge above ground tanks, massive ships or a salt dome in their back yard, charge for storage. That storage was filling up fast. When storage is full, and nobody will buy from you, the price will plummet more. Eventually, you've got to pay someone to take it from you.

A particular problem emerges when people holding contracts for oil realize that they can't store the oil either. If you're just holding the contracts in your brokerage account, or a fund like USO you can't take physical delivery of oil. You have to get rid of those contracts at any price - even if it means paying someone to take them.

That is what happened Monday. Nobody had storage space for oil and nobody wanted to hold their contract as it expired. Brokerages dumped the shares as fast as they could, which meant in some cases they were paying to get rid of them. The price of oil to be delivered in May dropped as low as -$40 at one point!

Could this happen again?

It is not impossible for oil prices to go below zero, but this has been a lesson learned for a lot of market participants. Brokers don't want to be on the hook for closing out customers positions at such a large loss (these are traded using money borrowed from the brokerage, if the value goes negative again, and you can't pay the broker back, that is the broker's problem!). Many will likely update their policies and procedures to keep that from happening again. Plenty of investors will continue to buy oil futures or funds though and storage will continue to fill up. The price action may not be as dramatic next time, but there certainly can be a next time.


Tuesday, April 07, 2020

Unemployment in Mississippi

Today's radio topic was unemployment in Mississippi. We were joined by Jackie Turner, Executive Director and Timothy Rush, Director of Unemployment Insurance, of the Mississippi Department of Employment Security.

Here are the highlights:

  • Unemployment insurance applications, amounts and rules are determined by states. The Federal government is providing an additional $600/week on top of what states provide.
  • Self employed and other 1099 employees are generally not eligible for unemployment benefits. The $600/week Federal benefit will be available to self employed and other 1099 employees.
  • Systems are heavily bogged down with claimants right now!
  • The eligibility requirements for the Federal benefit are new: Mississippi is updating their programs to accept these claims.
  • If you think you are eligible for unemployment, go ahead and start a claim. Even if it is rejected initially, they anticipate being able to accept more claims under the Pandemic Unemployment Assistance program soon.
  • If you are already receiving benefits, the $600 is coming soon, and you don't have to do anything else to receive it.


There have been numerous ways that the Federal Government is getting money out to people and business affected by the Covid-19 related shut downs, and unemployment payments will be a much needed benefit for the record number of people who have found themselves unemployed, furloughed or otherwise very restricted income lately. As part of the CARES Act, there is an additional $600/week benefit to those claiming unemployment.

A few rules have been waived with filings. An order from the Governor waived the initial week wait that was required and you are no longer required to be searching for other employment while receiving benefits. This makes a ton of sense as everyone has been let off for the same reason - their jobs are simply not feasible now.

The unprecedented volume of sign ups has created some issues. Their call center has 900 lines and they are working on adding more. MDES has recently started using employees of the WIN Job centers to receive calls as well. There are a host of other logistical issues too - with many new requirements and regulations on the federal funds, MDES is working overtime to get their systems programmed to accept applicants and get funds out to them.

One huge difference is in how Self-Employed, Sole Proprietors or people paid on a 1099 are able to apply. Previously, if you were self employed, you generally were not eligible for unemployment benefits. The CARES Act does say they should be covered, but the state system is not set up to allow them yet. New guidance which they received over the weekend is helping them accept those workers. This particular program is called Pandemic Unemployment Assistance, Jackie and Timothy strongly recommended that people follow their press releases via social media to see when those applicants would be accepted.

If you were a self employed or 1099 employee, you are encouraged to go ahead and apply. Your initial claim will likely be rejected. Jackie estimates that within a week, they will be going back through rejected claims to see if any are eligible under the new requirements. There will be some more application effort and reporting, but you should be able to receive the benefits.

A truck driver passing through asked about his wife, she had only been employed for a few weeks before being laid off, would she receive any benefits? While the Mississippi Department of Employment Security couldn't speak for Arizona, they stated that her situation would be covered under the new Pandemic Unemployment Assistance rules. Notably, the unemployment system generally looks at the last four quarters of employment to see what your wages were, someone only recently employed would not have any wages there. The new rules should accept them.

A caller asked about a friend who was cut to 30% of his previous salary. Timothy explained that while he would have to report that he was employed and receiving wages, reduced income and forced part time work was still eligible for benefits. The state benefit would likely be very reduced, but the $600/week federal benefit would be on top of the state calculation.

A caller asked when the $600 benefit would start to come. Jackie explained that there was nothing additional that you needed to do to get the $600/weekly benefit. They hoped to have the funds to send out, alongside the state benefit, within a week. The $600/week benefit will continue through July 31st.

Friday, April 03, 2020

Protect your Payroll with (almost) Free SBA Funds

Twitter is one my my most used sources of information. It's a place for great minds and experts who wouldn't otherwise have a very big platform to share their best ideas. One of the most useful people to follow recently has been Jeff Levine, a CPA and financial planner who really gets into the details of any tax plan, announcement or otherwise dreadful 500 page government document.

I found this thread on the "Paycheck Protection Program" very useful. Essentially, the Federal Government is guaranteeing forgivable SBA loans that can cover payroll, rent and utilities for small businesses! This effectively turns the loan into a grant so long as the business keeps up its payroll throughout the Covid-19 crisis. If you find this useful, its just a summary of what Jeff has posted on his twitter page @CPAPlanner, give him a follow!

For those that want to dig into the rules themselves, you can find the Final Regulations on the Treasury website here.


  1. This is roughly $350 Billion dollars distributed through existing SBA infrastructure. A lot of due diligence requirements have been shed, so as he describes, it is essentially an honor system.
  2. Section 2 goes over eligibility. The business must be under 500 employees, but it can't be a "household employer" (such as a nanny) or an illegal business (so, keep that under wraps, y'all).
  3. This does not cover payroll in excess of $100,000. An arbitrary number that ensures that people aren't just lining their own pockets with inflated salaries. Employees with salary over $100,000 are still counted, but their compensation that exceeds the limit is not.
  4. IMPORTANTLY: You can only apply once! If you want to access this, write an application for the largest amount you might need. You can't come back to this watering hole.
  5. ACT FAST! It's first come first serve. Will there be more later? Call your congressmen.
  6. You must certify that the loan was necessary. It's free money, but only for those who need it. It's still basically the honor system, but Americans love following rules, and the punishment is severe if you don't.
  7. If someone tries to charge you to hep you apply - that is illegal! Agents may not charge the borrower, or keep any loan proceeds. If someone offers to help, make sure they are not scamming you for money.
This is a great program meant to keep small businesses afloat during what is sure to be a tough economic time. Importantly, this protects those who protect their employees payrolls. If you have a small business, or know and love a small business, look into this ASAP. The SBA and your local SBA lender has more information on how to apply.

End
Fisted hand

Thursday, March 26, 2020

The Ultimate Work From Home Resource

New Perspectives has been working from home for two weeks now! For our own safety, our clients and society at large, we are working from home and minimizing contact with other people.

I work almost exclusively on my tiny laptop anyway, and have taken my "office" to Hong Kong and Atlanta for stretches in the past, so setting up in my home office is a breeze. From anywhere in my house (or the back yard if the mosquitos would stop biting!) I have full and secure access to everything that I have in the office. Many of our partners are also working from home - on service calls with TD Ameritrade this week I have heard babies, cats and Mozart in the background as the work flows on!

Don't forget to take care of yourself first. My gym has been posting at home workouts that I still wake up at 5:45 AM for. Every evening, Blair makes a different single serving, chocolate chip cookie (this was our favorite)!

We've been conducting remote video meetings via Zoom for a some time, but these are more of a necessity now! While it is easy to get started with Zoom, there are a lot of features you can make use of, so check out their tutorials here. During a Zoom hangout with friends and family the other day, one friend learned that she could change her background as often as she wanted... so have fun with it!

Personally I found this the best article for adjusting to working from home. Particularly useful to me was the reminder to Communicate Fully and Frequently: Nancy and I are used to being able to yell at each other down the hall, now we keep a constant flow of text messages and the intercom feature of our landline phones. If you just want to kill some time reading other tips and tricks, here are 30 more, with links to other articles as well.

The McLaughlin Law Firm has compiled great resources for individuals and small business owners in Mississippi and surrounding states. Their blog also breaks down some of the latest stimulus bill and how it meets the needs of individuals and small businesses.

Do you have K-12 students in the house? The Parents Campaign has an excellent set of resources for all ages of student and their parents. They also have a good compilation of announcements from the State Department of Education and other State Agencies.

The National Alliance for Mental Illness has a wonderful list of resources for those who are too stressed or anxious about being cooped up or stepping foot outside. This is a resource that any of us may need at some point, so it is best to be comfortable with it now.

Tough day at the home office? Put on some Dolly Parton and look forward to a better day tomorrow:


What resources have you found useful in these times?