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Economy Reopening & New Risks and Opportunities

Thoughts & Strategy

Financial Journey’s perspective of the viral impact on the economy, personal finance, business and investment

I was driving home late on October 21st, 2019 with my family after an all-day outing. Heavy rains pounded our SUV. Tumultuous winds caused me to weave in my lane. Rains gave way to nickel sized hail. We pulled under a freeway overpass to take shelter. Street lamps flickered and swayed precariously with the wind.  Hail gave way to debris swirling around us. My wife’s father called to warn of a tornado cutting a line through Dallas, Texas towards our home.

In 10-15 minutes it was over. A tornado tore through our neighborhood leaving crisis in its wake. As we neared our home we wondered about our dog and if we still had a home. We drove methodically around various obstacles including sheet metal roofing, fallen trees, and downed live power lines. Neighbors were out in the streets assessing the damage and helping each other.

Thankfully, our home was intact despite the debris from other homes all over our yard. One block over, the homes weren’t so lucky. People were injured, trees had fallen on homes, and parts of homes were missing. In the days ahead many people helped those in distress in whatever way they could. Neighbors, churches, charities, and city workers all pitched in. Within 48 hours streets and services were functional again. Within a week you only knew a tornado had hit if you knew where to look. Why? Because so many people showed up to serve without asking for anything in return. Strangers loved and served strangers. This is the most beautiful part of any crisis.

In this viral crisis there are unlimited opportunities to serve. Where do you see your opportunity to serve with your time, money and resources?

Viral Mutation

The virus has mutated into a more contagious version called SARS-CoV-2, which has already spread around the world. We don’t fully understand how the virus affects its victims in the long-term. Doctors indicate the virus attacks the vital organs including your nervous system, lungs, digestive system, cardiovascular system, musculoskeletal system and kidneys. Young patients have lost their sense of smell & taste, experienced seizures & hallucinations and even suffered strokes.

In about 5% of cases, young children are developing symptoms that resemble rare illnesses like Kawasaki disease and toxic shock-like syndrome. Most concerning is the problems with heart function. We’re not going to fully understand the permanent damage from the virus for years.

In the past, I’ve thought “I’m young and healthy, I’ll fight the virus just like the flu. I’ll be over it in 2-3 weeks and then I’ll have immunity to it.” I’m no longer so cavalier considering the potential long-term virus effect and some patients are getting the virus again.

Governors Determine the Value of Life

Even as states begin to re-open I believe the worst of the financial distress is yet to come.

I understand the drive by some to re-open the economy, they’re suffering financially. As jailed salon owner in Dallas said, “I have the right to feed my children.” How do we balance “right to work” with “right to live”?

What’s the dollar value of a life? Governors have indirectly answered that question:

Based on the math from the figures above a life is worth:

  • $269,091 in New York
  • $275,758 in Florida
  • $253,846 in Texas
  • $700,000 in California – Likely higher due to all the less affected technology companies based there

These are only the short-term costs from immediate loss of life not long-term health consequences for survivors.

Heart disease and cancer, the two biggest killers of Americans, may do extra damage this year, beyond the Coronavirus, as patients delay testing and treatment.

People react to what they fear most. If someone fears the virus, there will be a strong visceral rejection to reopening the economy. If instead they fear economic loss or loss of liberty, there will be a strong visceral approval of reopening the economy. Where do you place your hope?

I have a healthy fear of this virus, similar to you having a healthy fear if you were dangled outside of an airplane without a parachute. I don’t want to get the virus and I will take precautions to avoid it but I won’t be anxious about it.

Personally, I place my hope in Jesus Christ. If I die tomorrow, I know where I’m going. I know He won’t let me die until His plan for me is completed, that brings me peace. I can speak to the evidence for Christ, incredible answers to prayer and even some supernatural events in my life (I hear your unbelief, I have the same western plausibility structure you do). Ultimately, those points don’t matter for most. The issue is the heart, people don’t want to believe. Most think their plans and desires for their life are better than His plans and desires for your life. It’s not easy, I have to regularly surrender my worldly passions but ultimately what I receive from Him is so much better, fulfilling and life giving than anything I could have planned.

Economic Earthquake – Tsunami on the Horizon?

When there’s an earthquake in the ocean, I don’t fear the earthquake itself. I fear the potential resulting tsunami. Waves of financial distress are coming and no one can truly know how strong or how long the tsunami will last.

The black swan event was not the Coronavirus it was the economic shutdown. GDP fell 4.8% in the 4th quarter, mainly the loss of economic activity in March. Expect annualized GDP to fall 37% in Q2 of this year according to HIS Markit, a global data analytics company. This is HUGE! It’s tough to imagine the lasting impact this will have.

The unemployment numbers for those looking for a job are at 14.7% in April up from 4.4% in March. A more inclusive statistic, those who lost their job who are looking and aren’t looking are at 22.8% for April verses 8.7% in March. Why look for a job if unemployment pays more than your old job? There’s several businesses in my network struggling to re-hire employees since they’re competing against higher unemployment compensation.

I think the recovery will take years not months.

Several financial experts have called the recent stock market rally a “dead cat bounce”. There’s a lot of excitement in the market about the reopening of the economy leading to a rebound in the market. I predict (guess) there’s going to be another big drop in the market after the economic data on how Covid-19 has damaged our economy and people feel its longer term effects. We have yet to feel the waves of unemployment, high debt and future ongoing financial stress in our economy.

The theme in the media is still the government, charities and some private businesses trying to help those in need. That’s great but at what point does this change? The government either slows the printing of money or we begin to lose faith in our currency.

Some politicians are pushing for stimulus checks every month for a year and will continue until the unemployment rate has dropped. $2,000 per adult and $500 per child for those making under $120K.  How is the unemployment going to drop if it pays more than most jobs?

Which politician wants to end the “free money” most of the population is receiving? I’m sure this program would eventually get transformed into a milder version for the long term.

This is a fantasy: we print money so now no one has to work. This would destroy our economic system as we know it, but maybe that’s the point. I doubt this senate bill will pass but as a 30 second sound bite “free money” has popularity. Few take the time to understand the real effect.

Honestly, I doubt this bill will pass but it does show the growing frustration Americans have with the widening wealth gap. Some are willing to take the easy route by voting in a government that will hand them their slice of prosperity despite the expense to others (see “free rent” for a year) or the long-term economic consequence for all Americans.

At some point people have to take personal responsibility for themselves and stand on their own or we will never recover. Your success out of this crisis is a function of your ability to adapt to the current market environment.

Unplanned Retirement

A lot of baby boomers are heading into retirement earlier than they planned with less money than they planned. In an effort to protect the vulnerable, the government is suggesting those 65+ plus stay home unless they absolutely need to go to work. For those already fighting stereotypes about being less capable with technology now also have to risk their health to work. Many will simply accept the social security check and quietly head into retirement with their depressed stock market investments. It’s sad.

Plan for the Unexpected

Unfortunately this isn’t the last financial crisis. How many “once in a life time” crises can you have? We should expect them to occur. Risk Management should be an integral part of your Wealth Plan. As debt at all levels rise we should expect increasingly difficult crises and less resources available to control and avert the crises. How do you plan for an unpredictable crisis? That’s what Financial Journey teaches.

Throw a Lifeline to a Sinking Business

Many businesses are rethinking their business plans to thrive in a post viral crisis. Many others are quitting.

In the way the 2008 financial crisis provided many opportunities for real estate investors this viral crisis will provide opportunities for business buyers. Business owners who were already struggling to break even are likely to not re-open. They’ve likely already fired their employees, disposed of inventory and cleared their physical assets from their leased spaces so they can stop paying rent, stop the bleeding. Coronavirus provides a good excuse to shut down and not bruise their ego.

Baby boomer business owners are also likely to quit, especially those who were already thinking about retirement. People don’t typically quit when business is good, they quit when it becomes difficult. It can take a lot of energy, time and money to re-start business that’s been shut down for a couple of months. To re-open means accepting the risk of not turning a profit for a few years.

It’s understandable why a business would give up. However, this is the greatest opportunity ever for the young and inexperienced but full of energy. You could approach a business owner and say “with your experience and my energy, we could reopen our business.” There are endless ways to structure this, but you could likely take over a business with no cash, only sweat equity. Many business owners would be thrilled to give you the keys if they knew their employees were being taken care of and you continued their legacy. If the financials allow for it, you could structure the business sale to payout the owner over time from the profits of the business. The owner, in effect, could get an annuity (AKA “earn out”) from their business. They’re incentivized to help keep the business successful to ensure their “annuity” flows and you get a “free” consultant (former business owner) on your new business from the person who knows the business best. A solid “win/win” scenario.

I’m not going to say you’ll find the best deals on these websites but there’s not much competition at the moment and they’re a great place to get a feel for what’s available:

  • BizBuySell.com
  • Loopnet.com

Service businesses with lots of employees are especially plentiful. There’s a reason for that.

If looking for business purchase opportunities organically look for “closed signs” they’re really “for sale signs”. Consider all the places you love or are nostalgic in the community, or both. If you have a passion for it and others love the product, you have a winning recipe.

Other considerations:

  • You can buy a business with sweat equity now and sell it for money a few years from now.
  • Buy businesses that build equity quickly. Consider how a business will be valued at sale.
  • Businesses typically do better in an inflationary environment than cash in the bank.
  • Buy a business with a SBA loan prior to September 27th and the SBA will make your first six months of payments for you.

Leverage Inflation to build Real Equity

In 1982, a dollar was only worth 35 cents when compared to its purchasing power in 1968, a loss of 65% due to inflation. If you timed the market perfectly and received a 62% portfolio gain you would have still lost money due to a loss of purchasing power and having to pay “inflation taxes” on the 62% gain. (The IRS doesn’t factor in inflation when calculating capital gains, this 2% targeted inflation is in effect a 2% asset tax.) Late in the 1970’s we had inflation at 12-14% which led to 20% interest rates to stop inflation. This decade led to a 70% real loss to portfolios once inflation was factored in.

How much money can the federal bank print before people stop believing it is “real” money? If there is a rapid rise in inflation we will have a stampede towards hard assets like precious metals and real estate.

I know this approach won’t be popular with the debt free movement, but I’ll share the strategy and let you be the judge of what’s right for you.

Use opportunistic investing, to purchase a business or real estate subject to long-term, low-interest, fixed-rate debt. As inflation increases the value of the asset will increase but the loan remains constant with the loan amortization schedule. You build equity with asset inflation since the loan amount doesn’t rise with inflation. In time, you’re using inflated dollars to pay off a deflating mortgage fueling further equity growth. At 2% inflation the effect is less noticeable but at 5-7%+ this translates to a significant way to build equity.

Bonus points if you can get an assumable loan and interest rates spike (likely in an effort to crush inflation) then your low-interest, assumable financing means your asset sells at a premium in the marketplace.

Mortgage rates are the lowest on record. I just rate locked a new 30 year fixed rate mortgage refinance on my primary residence at 2.875% with no points, appraisal or lender costs. If inflation remains constant at the targeted 2% then it’s effectively a .875% loan. If inflation rises much above 2% (remember 4.5 Trillion dollars printed last month) then the bank is in effect paying me interest since the purchasing power of my dollar will have increased. At this stage in my life I’m prioritizing wealth growth via debt over peace of mind via debt freedom.

From Globalism to Protectionism

The UK ordered N95 masks from a French company, which were seized by the French government on behalf of their citizens. Germany subsequently closely monitored a US company operating in Germany to ensure those N95 masks stayed in Germany. The USA is suffering with faulty masks constructed internationally.

Companies will pay a price in terms of cost efficiency to bring manufacturing home or someplace close like Mexico. Sometimes greater control is worth the greater cost. In the short term, domestic manufacturing will continue to hurt, but in the long-term USA manufacturing will grow over the next 5-20 years. Now is a fantastic time to learn that business or buy into manufacturing at a strong discount.

Backdoor Commercial Real Estate Investing Strategy provides a Deep Discount

I’ve discovered a backdoor in this economic market to enter some very lucrative commercial investments at a steep discount. One of the best ways to discover opportunity is approaching investments from a different perspective. While analyzing what was cheap and pondering how to get into what’s expensive led me to this discovery.

I expect this investment strategy and particular project will provide a high ROI, amazing investment for my investors. As an added bonus, this strategy will provide a tremendous discount and subsequent growth for those looking to roll traditional retirement funds to a Roth account. I’ll share the particular project and strategy with my clients and potential investors when the time is right. We’re in due diligence now.

What is Financial Journey and what do we do?

How can I serve you?

At Financial Journey we help you build a customized wealth plan that makes the most of your money, time, and resources. We can best serve those who are business owners AND accredited investors. If you fit those two categories we should be talking. If your business is shifting, you’re selling assets, or restructuring your finances, now is the best time to talk.

The 2X Guarantee – Past CPA clients have legally saved roughly 5-10% of their adjusted gross income in taxes or more. If your estimated potential tax savings doesn’t cover double your freedom plan cost over the next three projected years we will reduce the cost of your entire Freedom Plan accordingly. Several clients this year saved 10X their fee on their 2019 tax return alone.

Admittedly, we’re not cheap but we go deep. When I owned a CPA firm focused on high net worth real estate investors, I could help a lot of people a little. But now I enjoy helping a few people a lot.

You can write a big check to the IRS or a much smaller check to Financial Journey. The IRS will collect on their bill. I’d like to help you lower that bill and give you a lot of other benefits including a wealth plan to accelerate your journey to financial freedom. If I can’t save you money, then you get a refund. What do you have to lose? Seems like a no-brainer to me.

If you’re interested, let’s chat. It’s difficult to communicate all the potential value without knowing your personal circumstances. Business owners and accredited investors will be best positioned to take full advantage of our services.

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