Friday, May 22, 2020

We Don't Know Them All But We Owe Them All

In observance of Memorial Day, Rollins Financial and Rollins & Van Lear will be closed on Monday, May 25th. Please note that all major U.S. stock exchanges and banks will also be closed in honor of those who died while serving our country.
Image result for memorial day 2020

Our office will reopen on Tuesday, May 26th at 8:30 a.m. If you need immediate assistance on Monday, please do not hesitate to contact our staff via email.

Take time to celebrate, honor, remember, and have a safe and wonderful weekend!

Best Regards,
Rollins Financial

Tuesday, May 12, 2020

Financial Markets are Buoyed By A Tsunami of Liquidity.....

From the Desk of Joe Rollins

I will be the first to admit that the last several months have been trying, not only in my industry, but for all of America. As we read the sobering statistics of the unemployed and think about their plight, we notice that the stock market is rallying, which seems to be a huge conundrum. I have a great deal to say about all these subjects that I would like to cover in this posting.

Josh Rollins & Carter Roberts - Marrying June 20, 2020

I first want to make reference to the entire U.S. response to the COVID-19 Crisis and explain, in my terms, why we will one day look back on this entire event with total disdain. I also want to try to explain why this recession is unlike any other ever seen in this country. As the title of my posting indicates, the reason why we will not see a prolonged and painful recession is the cavalry, that is the Federal Reserve, has come in to save the economy with tons of cash.

I also want to discuss why earnings have held up better than expected and why America is ready, willing and able to hire back the unemployed and to keep America rolling. As I drive by Lenox Mall every day, I note that the number of cars in the parking lot are increasing dramatically. I went by several restaurants on Saturday night and noted that the parking lots were virtually full. Once the greenlight is given, you will see the economy recover quickly, but how much damage has already been done?

And with the absolute success of the ESPN “Last Dance,” the story of Michael Jordan, I want to tell you about the time that Dennis Rodman came to our house for dinner. Dennis is featured in the documentary in many fashions, but I knew him before he became weird. Needless to say, the night he came over for dinner was very interesting.

I have much to cover in this posting and would like to try to emphasize the positives in the economy rather than the negatives. In order to do that fully, I need to give you the financial background that I think will emphasize the quick comeback and why employers want to put employees back to work quickly. One of the true indicators of the optimism seen in America today, is the performance of the stock markets during the month of April. Therefore, to summarize these excellent results, the April total returns are indicated below.

The Standard & Poor’s Index of 500 Stocks had an excellent month of April, up 12.8%. It is true that it continues to be down 9.3% as of the end of April, but still boasts a 10-year average return of 11.7% per year. The Dow Jones Industrial Average jumped 11.2% for the month of April but continues to be down 14.1% for the year 2020. Over the 10-year period the Dow Jones Industrial Average has averaged 8.7% per year. As is usually the case, the NASDAQ Composite was the best performing index of the month, up 15.5%. Year-to-date is only down 0.6% and has a 10-year average of 15% annually over the last decade. As comparison, the Bloomberg Barclays Aggregate Bond Index was up 1.7% during the month of April, year-to-date it is up 5.4% and its 10-year average return is 4%. As you can tell, there was quite a rebound during the month of April, just as I had predicted in my last post. 
Caroline, 6, and Reid, 4 - Danielle & Robby's children

Even though my firm worked during the entire shutdown, I saw damage being done to the economy all around me and I never fully understood why we have taken such drastic actions to basically fight the unknown. Sure, we knew that this pandemic was contagious and that many people would get sick and die. We also know that each year we have similar outbreaks of flu where people get sick and die. It is always a tragedy to see actual people contracting disease and dying. It is, however, a part of everyday life.

I am not exactly sure how to read the headlines and understand what is going on. I see a great divide in the financial and business headlines between those that want to reopen America and those who want to shut it down entirely. I am not sure what the motivation is on either side. You, as an individual, have the absolute right not to go out if that is your desire. However, I am not sure why the liberal press is so adamant about not opening the economy during a time when many people are suffering from lack of work.

I have also read headlines of the many abuses in the handling of the pandemic and am flabbergasted as the true stated reason for why the lockdown was ordered is now called into question. As I understood, the principal reason for the lockdown was to save the hospitals. When we first started this discussion, the projection by the so-called experts was that the hospitals would be overrun with patients and there was no way the healthcare system could maintain any level of normal operations with the avalanche of patients that would be admitted with COVID-19 illness. What we have done is not help the hospitals at all, but essentially bankrupted them completely. 
Ava- hard to believe she will be 9 this month!

It was recently reported that the GDP fell 4.8% during the first quarter of 2020. Did you realize that almost half of that fall of GDP was related to medical related cutbacks? It was recently reported that 1.4 million healthcare jobs were lost during the month of April. Hospitals are not performing routine and elective surgeries due to the overwhelming concentration of emphasis on COVID patients. In fact, now that we are well along in the battle against the pandemic, we see all the abuses incurred during this. Did you realize that the federal government spent $660 million on temporary hospitals and most of these facilities never treated a single COVID-19 patient? In fact, some of the larger facilities have never even been completed. A good example is that the field hospital at McCormick Place in Chicago was built for $65 million with 3,000 potential beds and they only treated 37 patients. In fact, most of these hospitals now have already been closed and many dismantled.

Now I hear from some news sources that the CDC’s reporting of the COVID deaths are wildly exaggerated. As a doctor client of mine told me recently, “There is a big difference from dying from COVID-19 and dying with COVID-19.” Based on my readings, the reported deaths exclusively from COVID are 38,000 as compared to the roughly 78,000 reported in the news ad nauseam multiple times today. When I hear the explanations, I just shake my head in wonder about the information coming from the CDC.

Basically, with the advice of the scientists and not the businessmen, we were misled regarding the severity of this outbreak. Maybe you recall when Governor Cuomo of New York was pleading, almost desperately, that he needed 40,000 ventilators just in New York City. Did you realize that the maximum number of U.S. patients on ventilators never exceed 6,000 during this entire time? Throughout the entire United States, only 6,000 ventilators were in use and he wanted 40,000 in New York City alone. While WHO states that healthy people do not need to wear masks out in public, it seems everywhere I go people have masks. I guess there is just something trendy about maintaining your mask. The state of Georgia was widely criticized for reopening early. My opinion is that it was a bold move on the governor’s part, and he was reading the research more closely than the majority of Americans. I often wonder whether so much of our thought pattern relates to what we see on the national news, rather than on the research itself. This is a classic case where the media created a crisis that was probably unwarranted. Only time will tell the true story. 
Roses at the Rollins house

I also want to discuss why this recession may be not so painful. The difference in this recession is the federal government is taking unprecedented actions to soften the blow of it. In comparison, if you look at the Great Depression, there was no unemployment insurance during those days. If you were unemployed, you had nothing and every meal for the family was a real challenge. Even in 2008 when the recession occurred due to the financial crisis, millions were laid off from their work and while they received unemployment, it more often averaged $300 per week which was barely substantial for most of those unemployed. This year it is completely different.

It seems that close to 30 million will be unemployed in the U.S. shortly, if not already so. They would receive the normal state unemployment of roughly $300 per week. This year Congress and the Federal Reserve came in and funded an additional $600 a week subsidy to the unemployment. Therefore, most unemployed are receiving close to $900 per week in unemployment insurance. I have had clients in the retail industry tell me recently that it is hard to persuade people to come back to work since they have to give up their unemployment benefits where they are currently making more money from unemployment than they do at their jobs. Never in American history has the federal government subsidized unemployment to this degree. It will go a long way toward minimizing the financial ruin of the unemployed. However, this subsidy to unemployment only runs through the end of July, so workers will have to return to work to maintain a normal financial lifestyle.

In addition to the subsidy on the unemployment, there has been roughly $700 billion provided in Payroll Protection Plan loans (PPP) and Small Business Administration stimulus loans (SBA). In many of these cases, this is not a loan at all. It is an absolute grant to businesses for employers to employ people. It is important to realize that never before in the history of American finance has the federal government awarded outright grants to private businesses. During the financial crisis, they loaned several trillion dollars to businesses and banks to help them through the recession. However, those were bonified loans and all, for the most part, were repaid to the federal government. These loans to private businesses are not loans, but rather grants. The vast majority of these will be forever forgiven and it will be income to the small businesses. The assistance this will give to businesses to employ people and provide for jobs is both unprecedented and pretty remarkable. Many businesses closed by governmental action will now be offered the opportunity to go back to work. It will be all our job to return these businesses to successful operations. 
Reid and Caroline at the grave site of Bobby Jones here in Atlanta 

I am reminded of the old movie Planes, Trains and Automobiles. It is something all of us should do to help America. We need to get on a plane, train or in our automobile and go somewhere and spend some money. I can assure you there is a wealth of pent-up demand from the people staying in their house. Spending has been dramatically curtailed for the working population during the shutdown. I am positive that this pent-up demand will be exercised as soon as the coast is clear. While it is certainly tragic that 30 million Americans are out of work, we should never forget that 140 million Americans were working or being paid during this entire time and they didn’t have normal expenses they have when fully working. They weren’t spending money on restaurants, vacations, cruises or flights. They were earning the same amount of money, just not spending as much. Now they have extra money to enjoy these common pleasures.

At the height of the shutdown, I flew down to Tampa for a few days. What was quite interesting was that even though planes do not seat the middle seat any longer, both flights down and back up were full. Maybe it is just due to fewer flights on the given day. My flight back was at 7 o’clock at night and the Tampa International Airport looked like a scene from a bad movie. There was barely a soul in the airport. None or few businesses were open and there were certainly no lines. As I approached the TSA agent, I joked with him that hopefully I would not have to wait in line. His comment was, “you are my first customer”. In order for America to get back to where it was in February 2020, all of us will have to do our part and spend some money in the economy. Yes, there is always a risk of future outbreaks, but financially it is a risk we must take.
Mia and her parents, 40-year clients, practicing social distancing

For the many years that I have been writing this blog, I have consistently argued that you should always stay invested. I have argued that trying to “time” the market was a fruitless effort that no one has ever been able to accomplish. There are many that claim they have successfully sold at the top of the market and bought at the bottom of the market, but generally, after further inspection, they are just false promotional ads. This time, again, was a good example of why to stay invested. The market was moving in wild fluctuations, there were many days that the market would move 5%-6% just on a whim, and by the 23rd of March, the markets were down a full 30% from their highs reached in late January 2020. Desperation was apparent in every conversation I had with investors. How could this country possibly recover from a complete shutdown as the market was losing money virtually every day? There were those at that time that felt complete desperation and sold as the market bottomed on March 23rd, 2020.

Just as I predicted in my last posting, you have to be very careful with the Wall Street traders. The traders will force the public out of the market, and they will move back in to benefit themselves. Since the low of March 23rd, 2020, the market is up a very satisfying 31%. As we sit here today at the beginning of May 2020, many of the people who sold to cash in March have never reinvested. This is what always happens when you have a wild volatile time. They believe if you want to preserve your capital, you need to go to cash temporarily and wait to get back in. But unfortunately, they never do get back in. The fallacy of this argument is that going to cash is very easy, getting back in is very difficult. Do you get back in now that the market has rallied, or do you preserve cash and remain uninvested? If you try to “time” the market, almost assuredly you will end up a loser. Your best course of action is always to stay invested during the good times and bad.

The same thing happened in 2008. There were many in 2008 who elected to sell out of the market due to the downturn in all the financial markets. If, however, you had fully stayed invested then your portfolio would have quickly recovered. In fact, if you look at the 15-year average of the major market indexes, which included 2008, the S&P 500 Index is up 8.6% per year, the NASDAQ Composite 11.9% per year, and the Dow Jones Industrial Average at 8.7%. Once again proving that timing the market is fruitless and clearly a disadvantage to your retirement goals. Since the beginning of reporting of earnings for the first quarter, I am frankly amazed at how well companies did given the sell-off. If you look at the tech companies, most of them actually showed no damage whatsoever due to the Covid-19 pandemic. We also restructured technology in a major way. As the CEO of Microsoft, Satya Nadella, recently said, “As Covid-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months.Truer words have never been spoken.

Huge American companies over a relatively short period of time converted their operations from in-office to home successfully. I told you in my last posting that if you unleash the American spirit, it would come home successfully. This is a good example of how an entire industry was transformed in a short period of time and even though a once in a lifetime event occurred, they continued to operate successfully.

There is no question that the restaurant industry, hospitality industry, airlines, cruises, etc. will be dramatically impacted for a long period of time. However, also remember that after September 11th in 2001, the so-called experts said no one would every fly commercially again. Boy were they wrong. 

I read yesterday where future bookings for cruises were at an all-time high, which is interesting given that there are no cruise lines currently operating. The American spirit is that we will jump back into these industries given a certain amount of time. How long that will be, no one can forecast, but right now I see the GDP jumping back quickly at the end of 2020. We have to release the hospitals and let them do the work that they do. We have to free the restaurants to deal with the pandemic as best they can, but we must offer them the opportunity to survive. With the PPP loans and the SBA’s assistance, many of these companies have been given a lifeline, but only we as Americans can help them survive using their services. 
Randy Wittman, Craig Sager, Doc Rivers, Mike Small,
 Scott Hastings and Joe Rollins at Jocks & Jills

The reason the stock market has rallied recently and is likely to move higher as the year goes along is the unprecedented effort by the Federal Reserve to support the market. You had to like the quote from the Federal Reserve Chairman Jerome Powell, when asked of the fiscal response to the pandemic. As Chairman Powell indicated, “We won’t run out of money.” I think that is absolutely clear from the evidence. It looks like now the Federal Reserve will inject something close to $8 trillion into the economy this year. That is an unprecedented amount. If you compare that with the response in 2008 and 2009, the Federal Reserve injected only $3 trillion over that same time. For you to understand exactly what this means, you have to put it in perspective to what was an excellent financial year in 2019 when the S&P 500 Index was higher than 31%. If you add up net investments, dividends/buybacks, household savings, and rest-of-world-savings, the total amount of increase in 2019 was $4.7 trillion. If you consider that this year the federal deficit is likely to exceed $3.7 trillion over the course of the fiscal year, in 2020 the government is going to generate 70% of all of that just by itself.

These are unprecedented numbers that cannot be ignored. While certainly as we sit here today the prospects for the economy are bleak. However, that is not the way the stock market works. The stock market is a discounting mechanism that forecasts the future, not the past. If you assume that the market will quickly recover and if you use 2021 projected earnings, as we sit here today even after this rally, the market is not overvalued. Yes, I realize that is a bold statement. If you looked at the state of corporate America today, it would be bleak. But the market does not evaluate appropriate levels based upon today; it is six months from now. The market would not have rallied if it did not believe that corporate America would recover quickly. I am in that camp also and believe that as this year progresses, business will return to normal and the economy will be great again just as it was in early February 2020. 
Scott Hastings, #35, side by side with Dennis Rodman, #10

I promised I would relay the time that “bad boy” Dennis Rodman came to our house for dinner. During the 1990-1991 season, my client Scott Hastings, was a reserve player on the Detroit Pistons team that ultimately won the NBA championship. His roommate at the time was a rather meek and mild Dennis Rodman way before he became controversial and outspoken. When Detroit was in town playing against the Hawks, I asked Scott if he would like to come over for dinner one night and he relayed that only if could bring his roommate, Dennis Rodman. I have to be frank and tell you that I didn’t know at the time exactly who Dennis Rodman was, but of course I agreed.

The Dennis Rodman that showed up for dinner was a very soft spoken and polite guest. He was anything but controversial. That night, we had steaks of course for the basketball players, but Dennis ended up giving most of his steak to our dogs. Of course, that was his right, he was our guest. Later in the evening I had a discussion with him regarding his daughter and he cried almost uncontrollably, given that he could not see her as often as he liked. So, the next several times that the Pistons came into town Scott, Dennis and I would go out and have dinner somewhere and enjoy some stories. Never once did I find Dennis controversial, outspoken or anything other than a true gentleman. Boy, did he finally change after he left Detroit through his years with San Antonio, and of course the three titles he won with the Chicago Bulls. He must have spent too much time with Madonna. If you have not seen “The Last Dance,” be sure to watch it since it contains many personal sides of NBA players we never knew before.

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

Wednesday, April 15, 2020

Rest and Relaxation


In celebration of what would have been the end of tax season, the offices of Rollins Financial and Rollins & Van Lear will be closed on Friday, April 17th. We will take this time to allow our hardworking staff some well-deserved rest and relaxation. We will resume working tirelessly during this extended tax deadline on Monday, April 20th.





If you have a matter that requires immediate attention while our offices are closed, please contact Eddie Wilcox at ewilcox@rollinsfinancial.com, Robby Schultz at rschultz@rollinsfinancial.com, Danielle Van Lear at dvanlear@rollinsfinancial.com or Joe at jrollins@rollinsfinancial.com.

Best Personal Regards,
Rollins Financial, Inc.

Tuesday, April 7, 2020

Unleash The American Spirit. Put Americans Back To Work – The Good And Bad News

From the Desk of Joe Rollins

I walked down to my mailbox this Sunday morning and things seemed perfectly normal. I could actually write my name on my car due to the heavy pollen. It is a passage of spring in Atlanta to have the yellow pollen all over everything outside. It doesn’t do much for your sinuses, but it does mean that spring is coming.

As I walk through the yard, I notice that the crabgrass and chickweed are growing fabulously well this spring. I have learned over the years if you cut the grass short enough, it all still looks green. As I walked back from the house with the morning newspaper, I noted that virtually no one was on the streets and the city was calm.



Josh (17) and Ava (2) taking a stroll to the beach

After driving to work, I can see that the world is not normal. Almost no one was moving around and clearly America has changed over the last 30 days. I could never have imagined, nor could anyone have expected, that the extraordinarily robust economy of America at the middle of February would have crashed to a halt by the end of March. The turnaround was exceptional by any definition, wherein the government insisted that private businesses close and suffer the economic consequences. Never in the history of America has this ever occurred. With all the major negative events such as World Wars, 9/11 and the financial meltdown has the government ever gone to private businesses and insisted they forfeit their financial futures?

I will be the first to admit I know very little about the science of the virus. I cannot give you any recommendations or predictions on the spread of the virus or how to prevent or avoid it. However, I read the numbers every night and actually keep on my desk a scorecard of new cases. What I do know, without any involvement from the medical world, that we must put Americans back to work in order to save our society. Which is more important?

I intend to discuss all of these very interesting items, but I must report on the very negative financial news from the first quarter and the month of March. The Standard & Poor’s Index of 500 Stocks fell 12.4% during the month of March and is down 19.6% for the first quarter of 2020. Even with those dismal numbers, that index is up 10.5% for the 10-year period. The NASDAQ Composite fell 10% for the month of March and is down 14% for the first quarter of 2020. For the 10-year period this averaged 13.7% per year. The Dow Jones Industrial Average fell 13.6% during the month of March and is down 22.7% for the first quarter of 2020 yet remains up 10% a year for the last 10 years. The Barclay’s Aggregate Bond Index fell 0.2% during the month of March and is up 3.7% for the three-month period and for the 10-year period has averaged 3.9%. As you would expect, bonds did better than stocks. 



The first rose of the season at the Rollins’ house

During the quarter it was clear that investors were jumping out of the market and getting whatever cash they could reserve. It was an interesting period of time where virtually everything lost money. Even bonds went down before the magnificent efforts of the Federal Reserve came in to prop up the bond market. While many people characterized this as a bear market because of the standard definition of a 20% reduction, this bear market is unlike any previously. Other bear markets have been created because business was bad for one reason or another. In this particular case, business was not bad, it was great, it only became bad because the government insisted that it be bad. Now we have to evaluate whether and when the economy will once again start up for real.

I have to admit that the actions of the Federal Reserve have been remarkable and thank goodness we have a chairman of the Federal Reserve that saw the need and met the need by an overwhelming response to Americans as a whole. Fortunately, we do not have a Federal Reserve that sits back on its hands, as we did in 2008 and waited for the crisis to get here before acting. This time the Federal Reserve brought out the so-called “Bazooka” of help for Americans. While the skeptics are everywhere and the dire news floods the media, they just really do not understand the economic power that the Federal Reserve has unleashed. As I opened, I mentioned that I do not know much about medicine or the spread of this virus. However, I am pretty good with numbers. As of this morning, the weather channel reports that less than a thousand people in Fulton County have contracted the virus. The population of Fulton County, Georgia is roughly 1.1 million and that means that less than 1/10th of 1% of the County population has contracted the infection. There is no way of knowing exactly how many have recovered, but let’s assume that reported number is correct. If that is in fact correct, then over 99% of the population has not contracted the virus and deserves a right to earn a living in this weird economy. I am not suggesting that Americans be allowed to go back to work immediately, but I am suggesting that come May 1st, businesses and businesspeople be allowed to resume their economic life.

I have never seen a situation where we keep a daily tally of sick people. If you look at the most recognized chart on the subject, as I write this posting, there is roughly 1 million net cases in the entire world. If that is the case that means that there are seven billion people that do not have the virus. My point is you cannot deprive seven billion people from making a living by governmental intervention. Free society will only survive if businesses are allowed to fend for themselves. We will never be able to solve the unemployment issue in America until these companies are allowed to work. This is a case of clearly some have never stopped working and yet specific industries are all but shut down by governmental intervention.



A funny, and too true, quote

There are enormous economic benefits that are occurring right now to help the economy. I read all of the financial press comparing the current situation to the recession in the 1930’s or the recession that followed the 2008 financial crisis. I read about the depressed world after 9/11 and after the dot-com explosion around the turn of the century. While each of those financial realities were severe, not a single one of them had the calvary coming to rescue the economy as we have today. How will all of this work in the future? No one knows. However, I have studied the economics and cannot be as negative as the financial press seems to be. 



Ava working hard on her homework

Already the Federal Reserve has come in to create liquidity in the bond market and the municipal bond marketplace. In addition, they have guaranteed the money market accounts and have moved liquidity throughout the economy. In 2008 if they had moved so quickly, a large portion of the financial decline would have been avoided. The true winner, and the move that might save millions of American jobs, has been the Treasury and the Federal Reserve working to create liquidity. The announcement of the $2.2 trillion in financial stimulus that the government is in the process of handing out, is beyond amazing. First you must understand that virtually all of this money is basically a gift. The $350 billion gifted to small businesses is an outright gift. It is not a loan; it can be forgiven if businesses continue to pay their employees. The stimulus checks that will go out in late April or early May are an outright gift. They do not reduce your taxes and it is money that you will not have to repay. Americans, being Americans, most likely will spend this money immediately, creating commerce. None of this has ever happened before.

I understand the economic effects of a $2.2 trillion stimulus package. When I was studying economics in college, we learned that the velocity of money has a seven multiple. What that means is that you spend a dollar at the grocery store and that dollar is used to pay an employee and that employee uses that money to buy food and the restaurant pays their employees, etc. Basically, the same dollar is spent seven times in an economy before it is completely extinguished. Under that assumption, you also assume that at some point a portion of that $1 is saved. I doubt very seriously that in the economic upheaval that very many will be saved, but I understand the effect of this $2.2 trillion. If you assume that the multiple is seven times, you are talking about an economic stimulus to the country of $15.4 trillion over the next several months. When we talk about trillions of dollars, most people have no concept of exactly how much money that is. Maybe I can give you an illustration to better understand. Remember months not years!

With a GDP potential of $15.4 trillion, we are talking about pumping into the economy a potential GDP that is greater than the entire GDP of the country of China in one year. Let me emphasize again, we are talking about creating, in this country, a potential GDP greater than the entire economy of China over a one-year period and we are talking about creating it in 90 days. A further illustration would be that this amount of money is over 3.5 times the entire GDP of the country of Russia for an entire year. Never ever in any economy anywhere in the world has there been such an enormous amount of money injected into the economy over such a short period of time. If anyone out there tells you that they understand what the economic effect of this will be, they are clearly delusional since it has never happened before.

Whether or not this will work, of course, is the major question. However, there are a few examples of a smaller situations occurring. During the 1930’s, Franklin Delano Roosevelt created the WPA (Works Progress Administration). F.D.R. was a big believer in putting people back to work, but not outright gifts. They created jobs for people to help them out of The Depression and paid for it with the government’s money. At that time, it was believed that there were 10 million jobless men in the United States. The WPA effectively put three million of those back to work creating national parks such as Yellowstone and huge infrastructural jobs such as building highways, schools, hospitals, airports and playgrounds. Of course, one of the most notable achievements of WPA was the building of Hoover Dam, which controlled the water through the Colorado River through Nevada and opened up an entire state with water that can be used to grow food, etc. Much positive work was done from the WPA, and by 1940, the country moved into a much stronger financial economy which accelerated during the years to build up for the war effort beginning in 1942. I understand that the Public Works Program took years to implement and put the money in the public. What we are talking about in this case is not years, but months, and there is no time for government planning. These amounts are going to small businesses which are outright gifts to the economy.

As this money starts to flow from the government out into the public, you are going to start to see businesses start back up. There is no question that many businesses will never reopen, but the vast majority will give it a try. This money will allow them to pay their employees, rent, and operating costs. The question will be whether the public will use their businesses as they have in the past. I am betting for the American spirit that the public will once again support private business and shop at malls, go to restaurants and buy things online, as they always have. I understand it will be a slow process for people to develop confidence, but too many people seem to miss the point that a great many Americans have been paid during this shutdown. Most employees have not lost their jobs and they have been hunkered down through April 30, for at least six weeks. There is a huge build up of demand since they have not spent their money on restaurants, travel or their normal pleasures. I am betting on what I believe to be a fact, that once Americans are free to spend money again that they will accommodate the economy by participating.


Ava and Dakota enjoying the beach

Yes, I can tell you a lot of negatives regarding this program. Just so that there are no misplaced illusions of how this is happening, this is a situation of the government printing presses working overtime. We are lucky that we have a country where all we have to do is throw a switch and print more money. Yes, I understand this is never a good thing, but in this particular case, it is required. The government does not have the time to issue bonds to pay for this huge amount of money. It must finance it internally, and that means getting the printing presses to work. Yes, eventually they will have to issue bonds to support it and that is a long-term negative when it comes to the national debt. Yes, we all worry about what will happen in the future for our children and grandchildren with the national debt, but as the Secretary of the Treasury said recently, “Now is not the time to worry about debt!”

Almost assuredly what will be created with this huge flood of money into the economy over the short term is inflation. Inflation is not always bad (in moderation). Inflation makes companies’ inventory more valuable and real estate values will go up. I am betting that as we get back to normal, residential real estate will increase in value due to the low interest rates and the potential inflation effect of house prices. If that is the case, that will be a welcome economic event. We can live with inflation.

I could point out many of the negatives of printing money. During World War II, the world was fascinated by the economics of Germany where essentially a relatively small country took on the rest of the world in war. How could such a small country afford armies large enough to basically conquer the world? It was pretty simple. They just printed more Deutsche Marks to pay for everything. As the war progressed, the Deutsche Marks continued to lose value and inflation was running at a 1,000% or higher per year. It got to the point where inflation was so bad that the German government was required to pay the soldiers on a daily basis since money would be worth much less the following day. Much of the same has happened in Argentina and Venezuela today where inflation runs at a 1,000% annualized rate due to the printing presses working overtime.

While that certainly is a potential negative, the ability that the United States government has to finance debt is extraordinary. The U.S. dollar is still the safe haven of the world and no country has the ability to print money and absorb it into the economy as the U.S. government has. I think there is no question that this entire flood of money will create inflation over the coming year, but I also know that the upcoming inflation will be welcome. If you are talking about investing in bonds that pay nominal interest rates, inflation will almost assuredly impact these bonds negatively. The 10-year Treasury bonds earn less than inflation.

So, what is the timetable to get back to normalcy? We now know that the country is in essential lockdown through April 30th. April will be a most difficult month as the number of cases go up and the deaths occur. But look at China’s example and you will get some clarity. China first recognized the virus outbreak at the beginning of 2020. Three months later the country is back almost operationally at 100%. McDonalds and Starbucks report that all of their retail stores are open in China and manufacturing has recovered over 80% of its prior production. People are back at work earning salaries and the economy is going to pick up. So, if that three-month recovery period in China is the same as we will witness in the United States, then recovery should be realized by May 15th. Not full 100% capacity, but certainly a good start.

The first real recognition of the virus in the United States was around February 15th and three months would get us back to May 15th. If we get back to work around the first of May, I see realistically May 15th as potentially being a recovery time period. While we all feel sympathy for the people that have died, there does not seem to be any perspective of the numbers in the media. As an example, in China less than 5,000 died by virtue of the virus. Now, you can question the numbers all you want since no one will ever know the exact number of deaths. But if you put into perspective in a normal year in the country of China, ten million people die per year. Ten million people die without the virus and 5,000 deaths due to the virus is hardly a rounding error.

We have to unleash American spirit to get going. We need baseball and basketball to begin again on May 1st. We can play without fans, but we need to get playing. Both of these leagues have enormous financial capabilities and they can test every single player and person in that stadium daily to see if they are well. To operate a baseball game without any fans, you are talking about less than 200 people to make it happen. You could easily test those people every single game to avoid any sick people. A professional basketball game would take even less people to operate. To assume we cannot function in empty stadiums borders on ridiculous. We can turn them loose so the American spirit can once again increase out of this incredible discomfort.

I have no idea what or why the media is fixed on this subject. My reading of the media at the current time would be that no American will actually ever go back to work. I really cannot get my hands around whether this incredible flood of negative information is designed to further hurt the economy or if it is to be a public service. Might their negative publicity be to hurt the economy, by hurting the economy it becomes a political realization. I would hope that were not the case, but given the exaggeration and almost hyperventilated reporting, you would have to believe it was. 



Joe, Ava and CiCi in matching shirts

So, the question that everyone wants to know is when the stock market will recover. I guess I will have to quote my favorite quotemaster Yogi Berra. “It’s tough to make predictions, especially about the future.” Yes, Yogi was very good in explaining things in his own sort of way. I have to admit, I do not know when the stock market will recover, however I know that it will. It will move to new highs.

There needs to be a better understanding that many businesses have operated through this downcycle and have prospered. Obviously, the grocery stores, online sellers and computer companies have continued to operate and prosper. There will be winners and losers at the end of the day. However, I am convinced that once this $2.2 trillion starts running through the economy, there will be a quick return to normalcy. Admittedly, we will never be what we were. Social distancing will continue for years until a proper vaccine is prepared, but much work has been done already and antibodies have been created that will help people get well. The American ingenuity regarding healthcare and cures will be funded by governmental money at unprecedented levels. I have high confidence that by late summer, we will see significant progress.

So, it appears that the first quarter will be a slightly negative GDP and the second quarter will probably be negative by at least 10%. But it looks like to me that by the third quarter, the GDP will basically break even and by fourth quarter, marginally positive. If those predictions are somewhat accurate, by the end of the year stocks will have gained back much of the losses that we have incurred. To not be invested now is a mistake. 



Actual tickets to the Beatles concert in Atlanta, 
August 18th, 1965 
$5.50 each ticket

I get a lot of clients and I hear a lot of commentators complain about the swift losses that we have incurred, which is unprecedented. Yes, the speed in which it occurred is unprecedented, but the losses are not. For the first three months of the year, the S&P 500 Index was down 19.6%. It has been an extraordinarily painful downfall, but certainly not unprecedented. As early as the fourth quarter 2018, the S&P was down more, percentagewise, in that quarter. And what happened after that date? In 2019, the S&P Index recovered a sterling 31.9%.

So you ask, as you should, when will the market recover? None of us actually know, we just know that it will. It always has. Unlike 2008 when the market went into Bear Market conditions, it was for a very good reason. A large and important section of our economy was broken. The banks were essentially broke and they are the cornerstone to American finance. In 2020, the banks are stronger than ever and will benefit from the stimulus.

In 2008 we did not have the intervention of the government to basically give away free money to create commerce. No one knows what the effect of this will be, but as pointed out above, it is likely to be extraordinary. So, while I think the market is going to continue to be volatile, the trend will eventually be up. It makes me sick to watch the machines operate on Wall Street every day going up or down 500 or 1,000 points on a regular basis. These machines are not investors, they are spectators.

I wish I could explain to investors that these moves are not investing. They are outright speculation and mean nothing long-term. Yes, your portfolio is down, but America is not down for the count. If you believe, like I do, that recovery is four or five months away, giving up on America is always a bad choice.

On that note, stay healthy and come visit with us soon and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email. We welcome you.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

Saturday, March 14, 2020

Just Let the Machines on Wall Street Continue to Spin, We Are Focused on Investing, Not Trading

From the Desk of Joe Rollins

A funny thing happened during the month of February that no one could have forecasted. In the middle of February, we hit all-time highs on the major market indexes. After enjoying a 31% gain in 2019, you would certainly expect some sort of pullback, but the fact that in the first 6 weeks of the year we hit all-time highs was very comforting. But then, the last two weeks in February, leading up to leap day on February 29, 2020, the bottom literally fell out of the market. In that two-week period the market was down roughly 13% and what had become a very satisfying stock market for the year, ended up being a small loss as of the end of February. What was troublesome about this selloff was that it was not based on economics or any type of proper evaluation of the economy and the earnings that support the stock market. It was based totally on the unknown with exaggerations that exceeded any type of level of reasonableness about a condition which none of us have any knowledge. It was not based on economics, it was totally based on fear.

What Ava does during tax season 

In this posting, I would like to try to uncover some of the actual truths as compared to the nonsense that the major news agencies report. It is unfortunate that the swift selloff of the market also covered up unbelievably favorable financial results for the economy. In addition, I want to cover the politically motivated hypocrisy oftentimes found when reporting the details of the economy. There is so much to report on and so much to discuss that I will only hit the highlights during this posting.

Before I launch into reporting all of this terribly interesting information, I must report on the negative results for the month of February. For the month of February 2020, the Standard & Poor’s Index of 500 stocks ended down 8.2% for the month and is down 8.3% for the year 2020. Just so there is no confusion, the market is still up 8.2% for the one-year period and is up 12.7% on average for the last 10 years. The NASDAQ Composite was also down 6.3% for the month of February and down 4.4% for the year-to-date. The one-year performance on the NASDAQ Composite is 14.9% and is up 15.7% on average over the last 10-year period. The Dow Jones Industrial Average was down 9.8% for the month of February and is down 10.6% for the year 2020. For the one-year period it is up 0.4% and for the 10 year it is up 12.2% on average in each of those years.

While certainly a disappointing month, as you can see the 10-year average in all three major market indexes averages well into double digits. As you would expect, while the equity markets were down the bond market was up in February. The Barclay’s Aggregate Bond Index was up 1.8% for the month of February and up 3.9% for the year 2020. However, over the last 10-year period, this index has averaged 3.9% per year. As you can tell, the bonds, while positive for the year so far, cannot even come close to comparing with returns for the equity indexes over the last 10-year period.

I will have a lot to say about the bond index later in this posting, but it is very important to understand that typically when stocks go up, bonds go down, and vice versa. During this month, such a tremendous amount of wealth was transferred from equities into bonds that it completely warped the bond market as we know it. All major bond durations hit historically low rates of interest during this month. Never before in the history of American finance have bond yields returned such a small investment, and almost all are below the cost of inflation. That extreme position must be discussed in greater detail which I will do below.

After 40 years of being in this business, I have always been fascinated by why people are so focused on the very narrow performance of a week or even a month. After a year when the S&P 500 Index generated a total return of roughly 31%, why one week of selloffs would bring any level of surprise to anyone beats me. It would be a natural reaction to conclude, after such a large run up, that there would have to be some giveback at some point. Unfortunately, this particular case is not a good example. This selloff was incurred not for reasonably good reasons, but rather for shared speculation on a subject which none of us really, truly understand.

When we talk about the Coronavirus, we are talking about a subject that almost none of us have the qualifications to discuss. I will be the absolute first to report that I know almost nothing about medicine, but I think I am pretty good at arithmetic. I was always a good student in mathematics, statistics and probability. I think I am as qualified as most to calculate how those ratios affect our everyday life. If you look at the results of the Coronavirus, you cannot help but think that the numbers, as quoted, are somewhat misleading.

I analyze the figures as reported by the Johns Hopkins’ CSSE website, updated every day for the Coronavirus outbreak. It is considered to be the most up-to-date and knowledgeable in this field. As I read it every day, I am amazed at how the information contained therein is either exaggerated or misreported by the media. Just a few examples for you to consider.



Two 35 year clients, Roy Benson and Roger Moffat, watching the sunset in St. Petersburg, Florida

The headline, which I read on March 14, 2020, presents the total confirmed infections of this virus to date to be 147,838. Rarely do you read that many of these cases have fully recovered and that number, reported as of this day, is 71,718. Therefore, a proper evaluation of this information would indicate that only 76,120 cases that were reported continued to be sick around the world. In the United States, as of this morning, there are 2,175 reported cases. I need to remind you that in the United Sates there are 327 million people. In mainland China, which is the epicenter of the outbreak, after recovery there are only 28,016 confirmed infections. Once again, I remind you that China has roughly 1.4 billion residents and the amount as reported is relatively insignificant to the population. Yes, there have been tragic deaths of 5,550 so far that have died of Coronavirus. Once again, I would remind you that worldwide 3,287 people die every single day, 365 days a year, from automobile accidents. Everyone has said it, but I will repeat it. During the last flu season in 2019, over 60,000 Americans died of the common flu.

So in roughly two weeks, U.S. stockholders lost the equivalent of $4.6 trillion in wealth from the high that was reached on February 9, 2020. Such a swift and concerted downturn has not been seen in this country since the financial fears of the 2008 selloff and horrific tragedy of September 11, 2001. It hardly stands a comparison, given that September 11, 2001 was a devastating tragedy in this country and one that would change the course and protection of its citizens forever. To compare the loss in the equity markets due to a fear of a virus none of us understand seems to diminish the importance of September 11. What was even more baffling to me was the economic news during this month was extraordinarily positive and yet from every major news outlet the projection of recession or even the “black plague” in America was everywhere. Every person who could get on TV to expand upon the negativity of the effect of the virus on the American economy was present. Nowhere did you hear the good economic news that was recently reported.

Just this last Friday the unemployment for the month of February was announced. During the month of February, employers added 273,000 new jobs to their payrolls. This was 100,000 more than the average that economists had estimated. Even more importantly, they revised the previous two months up by 87,000 new jobs. Incidentally the unemployment rate dropped again to 3.5%, the lowest number of unemployed over the last 50 years. It is hard to have a recession with 3.5% unemployment.



Josh and Carter enjoying an Auburn  game

There have been a lot of conversations and discussions regarding certain parts of the economy that have suffered due to the virus. There is no question that the airlines and cruise industries are suffering, but, in most cases, the economic effect of these are a zero sum game. It was announced that one major restaurant chain was losing $1 million a day in sales due to the Coronavirus outbreak. It is understandable that fewer people would want to eat out while the infection rate is growing rather than at a time of relatively calm. However, the effect on the economy of that $1 million may not even be a real loss. I can assure you those people that would have eaten at a restaurant are eating somewhere else. Therefore, rather than spending the money in the restaurants, they are spending it at the grocery store or fast food or delivery services. This money was not evaporating, it was just being utilized in a different place in the economy.

So many point out the effect of the airline industry, but consider it another way. If my company has a convention in Barcelona that we were going to send 5 attendants to, but canceled due to the threat of the virus, what were the economic effects? Unquestionably the airlines were affected since the people did not fly, the hotels since they did not stay there and the employees of the hotels since they were not needed that weekend. However, consider that the company actually saved themselves the money that would have been utilized to send them to Spain and allocated those resources elsewhere. The President mentioned the other day that he was glad more Americans were staying in the United States and spending their money here. I also am glad of that since money spent here, as compared to overseas, improves our GDP and weakens theirs. However, we are aware that this means tourists will not be visiting the United States to spend their money either. Will this be a real loss – it remains to be seen.

I have set up various notifications on my iPhone that I find of interest - mainly related to financial and business news. I got up on Saturday morning and received a notification from Bloomberg with a statement, “The U.S. may already be in recession due to the Coronavirus.” That particular statement struck me as rather strange since there is clearly no evidence of any material business slowdown due to any events going on today. You have to wonder whether that statement might even be political in nature. After Michael Bloomberg decided to drop his run for president, he devoted his fulltime, attention, money and staff to the election of former Vice President Joe Biden. I guess I will now always wonder whether statements out of Bloomberg’s news are statements of economic reality or political necessity. Is it true or fake news? Anyway, I read the article, which was, of course, subjective based upon perceived concepts and not proven economic facts.

Within a couple of hours of receiving that notification, I received a notification that the Atlanta Federal Reserve had increased its GDP estimate for the first quarter of 2020 on March 9, 2020. It is viewed by many that the GDPNOW, as published by the Atlanta Federal Reserve, is the most reliable of all forecasters of GDP as the month progresses. I guess it was just ironic that on this Saturday after Bloomberg had provided the supposition that we might already be in recession in the United States, that this Federal Reserve had increased its estimate of GDP for the first quarter from 2.7% to 3.1%. There you have two learned sources providing 100% contradictory economic news. Which could possibly be correct? Surely GDP might come down, but how much?



Longtime client, Georgette Samaritan, visiting our office

I have explained before how the large hedge funds manipulate the market with their trading activity. If you really want to try to move the market you would short the major market indexes and buy bonds. Therefore, you would sell a short on the Dow Industrial Average, S&P 500 and the NASDAQ. Whatever proceeds were involved, you would invest in Treasury bonds, which would lower stock prices, and increase the value of the bonds. The reason you know this was going on so heavily in the last two weeks was the enormous effect it had on major stocks. When you drive down a stock like Apple, Facebook and Google by 15% in a week, you know it is not the fundamentals of the companies, but rather, wild bets by hedge funds and momentum traders to move the market. If you are going to move the market, it is a necessity that you move the big stocks or otherwise you cannot force the market down.

Have you noticed when these large swings in the market occur, the indexes all go down approximately the same percentage? There is no picking of individual stocks to sell, they just sell all of them in order to get the negative effect. When you sell the indexes, you sell the good stocks and the bad stocks at the same percentage. If you are watching a major downswing or, conversely, a major upswing you will note that these indexes all trade about the same percentage. This is not the average investor buying and selling stock. These are the hedge funds and momentum sellers transacting billions of dollars to short the indexes and buy the bonds. You may rest assured that the transactions are short-term in nature and must be reversed over a short order. This has absolutely nothing to do with investing but has everything to do with speculation. You should never trust your retirement assets to speculation. Focus on investing, and let the speculators do their own thing.

The other way you know that it is the work of speculators is that they plow so much money into bonds that it totally distorts their value. As an example, bonds have become totally distorted in this latest trading momentum. For the first time ever in American financial history, the 10-year Treasury Bond is now trading below 1%. As of the close, this bond was trading at 0.773%, which is roughly 25% below 1%. Never in the history of American finance has 10-year Treasury bonds traded this low. Even more unbelievably, the 30-year Treasury bonds now trade at 1.297% for a full 30-year period. The reported inflation rate currently is at 2.1%, therefore, if you bought this 30 year bond and it was trading at a full point below the rate of inflation, you would be guaranteed to lock in a negative performance for every day in this 30 year period.

It is my opinion that no sane investor would ever enter into a 30-year agreement with guaranteed huge losses. When the 10-year Treasury rate was at 1.6% (this was roughly two weeks ago) there was a very interesting quote by Warren Buffett. Warren Buffett set out this particular proposal, “If somebody came to you with a stock and said, you know, "This is a terrific stock. It sells at 70 times earnings. The earnings can't go up for ten years," you'd say, "Well, explain that to me again.” The example he was quoting was the return on a 10-year Treasury bond over the next 10 years. As you would imagine, no sane investor would ever make such an investment in an instrument so overvalued with no upward potential over the next decade.

While it is true that bonds are currently distorted, it does not give me major concern. I feel relatively confident that when the traders decide to reverse the transaction and buy stocks and sell bonds, the bonds will revert to a normal valuation. The key is when will that be? No one knows, but it will.

It could be said that maybe we should restrict the trading capacity of these traders, so as not to misinform the public. I am not a supporter of more regulation in virtually anything. Restriction tends to distort numbers even worse than the traders did these last two weeks. What we need to do, rather than regulate, is to educate. If investors understood exactly what was taking place with these traders, they would not express concern, and it would not create adverse economic effects. Let the traders do their thing, and let investors wait out the volatility for better times. What is even more amazing about the Treasury bonds is that even though a 30-year Treasury bond pays 1.297%, the dividend rate on the S&P 500 now exceeds 2%. Further, I can give you a list of 15 to 20 stocks that have a dividend rate in excess of 5%. You do not need to be a trained economist to understand that if a Treasury bond pays only a fraction of the dividend of stocks then the stocks are a better opportunity.

Among all the negative news regarding the Coronavirus, little has been said about the positive attributes of reduced oil prices. The oil cartel (which would clearly be illegal in the United States since it is a monopoly of companies working in collusion for pricing of oil) could not reach a happy medium last week. Due to the significant drop of the price in oil by the perceived concept that the world demand for oil would be lower, the Saudi Arabi had requested that OPEC reduce production and therefore increase the price of oil. All members of OPEC agreed, except Russia. Since Russia would not agree to reduce its production, Saudi Arabi announced, essentially, what would be war against the other producing OPEC countries. Saudi Arabi immediately announced a 10% increase in their production and threatened to increase production even more. If Russia wanted to play hard ball, they were willing to play and they have vast reserves.



MiaRose Musciano-Howard’s son,
 fully decorated Staff Sergeant Mitch (15),
attending The Military Ball

You have to love when two oil national powers get in a fight that benefits us. The result of this squabble between oil producing countries will clearly be that the price of oil will come down. As the price of oil comes down, nearly everyone benefits since virtually all manufactures and consumers in the United States use significant amounts of oil. So as the price of oil goes down, more money is available to consumers to spend which helps the economy. Price of oil is down, cost of living is down, huge benefits for Americans.

Every time I talk to a client regarding the volatility of the market, I ask the same series of questions. The first question I want to know is, how quickly do you need your money? Do you need it in 90 days, or do you need it in 20 years? If you don’t need it for 20 years, why do you even care what the market does daily? It has been proven in multiple studies that the market goes up roughly 80% of the time. Over the last 75 years the market has averaged annual gains of approximately 10%. No one should evaluate the market based on what it does on a daily, weekly, or monthly basis. I have never quite understood why someone who does not need their money for 20 years panics when you get these large moves. What most everyone should do is just sit back, interpret the data, and ignore the traders. That’s what we try to do. We look at the economics, as it exists today, and try to determine whether these economics reflect positively or whether they have turned negative. As of today, I see nothing that reflects a negative trend outside of the financial media, which, by necessity, must reflect only the negative to obtain ratings. Invest, do not speculate.



A signed picture from Joe Namath’s Jets' days and a note saying,

 “Hi Joe, 

We have a mutual wonderful friend 
in Billy Battle! Stay well pal,

Joe”

I do not know if you see the trend that I am attempting to develop in this posting. While the rest of the world is projecting gloom and doom onto the economy due to the few people who have contracted this virus, everywhere you look you see great economic news. Interest rates are down substantially, allowing homeowners to refinance their homes and reduce their monthly payments, freeing up more money to consume. The price of oil is coming down dramatically and, therefore, freeing up more money for consumers to spend to improve the economy. These are huge positives no one reports.

The workforce is at full capacity making a job available for anyone that wants to work, which could not be better for the economy. Therefore, we are seeing multiple factors that are complete and total positive signs for the economy, but all are overshadowed by the incredible mirage of news about a virus that has not become that serious as of this writing. I guess it just must be a slow news time. There are no Republicans running against President Trump and the Democrats have dwindled down their proposed candidates to two. In a lot of regards, the political theater has not provided much interest as of late, so I guess the news commentators have nothing to do but report on the people who have contracted this virus; 2,500 out of 327 million.

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins