Author Archives: SMS

Barely Enough Time to Miss One Payment

Reading Time: < 1 minute

As the impact of the COVID pandemic unfolded, the speed at which the fiscal and monetary responses were rolled out seemed almost too fast.  My thought was that people barely had time to miss one mortgage payment.

Well, the data is in for April and it seems like lots of people did just that.  

“At 6.45%, the national delinquency rate nearly doubled (+3.06%) from March, the largest single-month increase ever recorded, and nearly three times the previous single-month record set back in late 2008.1” 

Data is only available through April.  May will be interesting.

  1. Black Knight’s First Look at April 2020 Mortgage Data  (https://www.blackknightinc.com/black-knights-first-look-at-april-2020-mortgage-data/)
  2. Calculated Risk Blog (https://www.calculatedriskblog.com/2020/05/black-knight-national-mortgage.html)

A Word: Hertz Bankruptcy

Reading Time: 2 minutes

A word on the Hertz Bankruptcy.

One of the most leveraged companies in one of the most impacted industries, managed to limp along and delay the inevitable for almost a full quarter. The Hertz filing is likely just the tip of iceberg…

I wrote previously that the velocity of change is much more difficult for companies to handle than the magnitude.  Hertz had to deal with both.  The travel industry has been one of the most impacted (velocity & magnitude) sectors during the COVID pandemic and response.

Hertz’s fleet of 700,000 vehicles, which are mostly rented from airports, has largely been idled due to the slow down in travel caused by the pandemic.  Complicating the matter is the value of these assets are falling as vehicle sales slow and used car prices fall.

Hertz also has $21 billion in long term debt. 

All of these factors combined into this bankruptcy filing came with lightning speed – relative to filings – adding Hertz to the short list of companies in the “no coupon club.”

Bankruptcy filings are going to be a lagging indicator. And there’s going to be more to come.

The Recession No One Believes In

Reading Time: 6 minutes

The recession no one believes in is here to stay.

My vantage point for the COVID pandemic and response has been somewhat unique – sitting here in Lower Deer Valley Utah since mid-March.  I am fortunate to fall into a line of work that transitioned to work from home seamlessly.  However, that’s not the case for many, especially around here.  No tourists, no work.

The same concept applies to many parts of the economy.  No shoppers, no store sales.  No diners, no restaurant sales.  No vacations, no travelers.  No sporting events, no ticket sales, etc. 

The likely outcome appears to be a fairly broad, deep, and lengthy economic recession (80% probability).  But that expectation looks to be in the minority using the S&P 500 as a proxy of the consensus view.

Source: MarketWatch

There seems to be a disconnect between the reality on the ground and expectations.  I think there are few things going on:

  • Velocity of the pandemic & response
  • Lag in economic data & company reporting
  • Demographics of those impacted by initial shutdowns
  • No single source of issues
  • Hope for a rapid return to normalcy

Velocity: I wrote earlier about the absolute stunning velocity of the global shutdown due to the COVID pandemic.  It’s almost incomprehensible.  It’s like nothing anyone alive today has ever experienced.

Lag: Given the speed of the fallout and the fact that impacts to U.S. companies did not truly start until mid-March, barely any of the financial impact is being reported in Q1 financial reporting.  Q2 results will be telling.  Those won’t be available until July; still two months away.  Same issue with most economic data; it’s a lagging indicator and barely incorporating the impacts yet.

These next two charts are not helpful – folks have barely had time to miss one mortgage payment and it’s not in the data yet.

Demographics: The initial stay at home orders have had a disproportionate impact on certain cohorts.  Many white collar workers (like me) simply picked up our laptops and started working from home.  No fear of lost income.  No major life setbacks – other than Mrs. SFTE zoom-bombing my meetings.  Not the case for many lower wage, retail and service jobs.  

Guess which of these cohorts is more invested in the market?  Hint: The groups not being impacted (yet). So be careful about using their views to assess the current state.

Source:  During the Great Financial Crisis, the source of the issues was concentrated in the financial system.  I’m not sure if the breadth makes the current situation better or worse over the longterm, but it does make it harder to understand.  

Headlines like this are more tangible than hand-made cardboard signs in windows of thousands of small businesses.

“A single death is a tragedy; a million deaths is a statistic.”  ― Joseph Stalin 

Return to Normalcy: There’s also quite a bit of hope for a rapid return to normalcy.  I’m all for hope, but let me quash that notion.  I would love to get back to normal, but that doesn’t exist anymore.  This is like 9/11 in terms of resetting normal.  I will never touch an ATM or gas pump handle with the same innocence again.  There is no f-ing way I am getting on an airplane any time soon. “Any environment that is enclosed, with poor air circulation and high density of people, spells trouble.”  

Mrs. SFTE would fight you tooth and nail if you tried to take her into a restaurant.  Those dentist appointments for mid-Summer, cancelled.  Check with me in six months (and no, I will not have two cleanings back to back so no pent up demand here).  Summer sports camps, ha.  Summer vacation plans, cancelled.  This is all lost income to someone, somewhere.

Yes, we’re a bit weird, but I bet not that weird.  If you haven’t noticed, this virus can kill you.  I’m 101% against being killed.  My guess is so are most people. That is why the data shows trends like this:

Source: FiveThirtyEight.com

So if people did not wait for stay at home orders to alter their behavior, how much will changing those orders affect their behavior? Not enough to make the recession go away.

Here is some economic data we do have:

The Initial Claims graph just broke the y-axis:

Lots of jobs have been lost (stunning velocity):

Unemployment rate is currently worse than at the peak of the Great Financial Crisis:

Approximately 70% of the economy is based on consumer spending, so no good news in this chart:

The handicap to the magnitude and duration of the recession is the amount of fiscal and monetary intervention being deployed.  This also falls into the incomprehensible and unprecedented category. 

However, by and large, these measures do not seem to be creating jobs, simply offsetting the financial impact of the shut downs.  At the end of the day though, it is jobs that matter.  Jobs will drive spending, and spending drives over two thirds of the U.S. economy.

“A better measure for how real people experience the business cycle: the ebb and flow of jobs creation. Losing your job is a recession; finding employment represents recovery. Looking at the business cycle through this lens paints a more complicated picture.

Perception on Main Street is always important for recoveries, and that will be true in the extreme this time. Given the sharp, dramatic jobs losses, which will probably get worse, sentiment in the broad population will be highly relevant for charting the path of the post-recession trend. On that front, jobs will arguably be the most relevant stat.

With that in mind, consider how private employment has fared on a rolling one-year basis in the past. As the next chart below reminds, the labor market often contracts through a recession and for a number of months after the downturn officially ends, based on NBER dates. In some cases, a positive one-year gain in private employment doesn’t arrive until several years after the recession’s official end.” Source: CapitalSpectator.com

Based on history, jobs do not recovery quickly from recessions:

And the jobs picture is likely to continue to deteriorate.  My sense is that there are also a lot of tough decisions going on in corporate boardrooms all across the nation.  You don’t know what Q2 is going to look like for most companies, but by now the current reality is fairly clear for most managers.

This chart is through March:

My investors are encouraging all their portfolio companies to renegotiate leases, defer 401k payments, stretch payments to vendor, and renegotiate contracts.  There is someone on the other side of each of those decisions who is going to be missing some income.

Somewhat obscured by the COVID pandemic is an oil crisis and simmering trade war, each with their own economic fallout. The oil crisis is threatening a major source of high paying jobs in many parts of the U.S.  The opposite was true during the Great Financial Crisis, when the budding shale boom was counteracting that recession

So, as you assess the likelihood of a deep and prolonged recession, keep in mind that the velocity and disproportionate initial impact is creating distortions in the data and news cycle. 

Broader impacts are coming.

Influential Reads – April 2020

Reading Time: 2 minutes

Four books this month.  No reason to read the news; nobody knows anything.  

Updated stats through April:

ArticlesBooks
January794
February781
March962
April964
May1273
June493
July780
August933
September593
October
November
December
Total75523

Here are my most influential reads – in no particular order:

  1. On Bridge Loans and Bankruptcy – “Using the bankruptcy code in this way would allow the United States to help firms (albeit, likely slightly larger ones than mom-and-pops) in a predictable, known, guaranteed way while also protecting tax payers from taking significant downside risk positions in an ad-hoc and convoluted matter via bridge loans (if they are feasible at all, which I doubt)”
  2. Why We Focus on Trivial Things: The Bikeshed Effect – “The Law of Triviality states that the amount of time spent discussing an issue in an organization is inversely correlated to its actual importance in the scheme of things.”
  3. Capitalists or Cronyists? – “CNBC/Trump want to protect current equity holders at the expense of future generations with rescue packages that explode the deficit.”
  4. The First Modern Pandemic – “It is important to realize that this is not just the result of government policies restricting activities. When people hear that an infectious disease is spreading widely, they change their behavior. There was never a choice to have the strong economy of 2019 in 2020.”
  5. You Should Do More $10,000 per Hour Work – “There’s one thing you’ll never see in a casino. A clock.”
  6. How to Be a Better Listener – “Pretend you’re doing improv, and that you can only react in the moment to what the other person is saying, rather than planning out the next three steps in the conversation.”
  7. What Would You Have Done in 2009? – “Have enough liquid reserves available but avoid an addiction to cash.”  SMS here: Would you say the same thing if you have gone through the Great Depression?  
  8. Victory is Inevitable (Part 2) – “Now is also a good time to be working, engaged in an activity that helps the economy and helps other people. Being busy at a time like this can be a blessing for your mental health. And its good to have money coming in to drip-feed into assets whilst they’re on sale…this won’t last forever.”
  9. Becoming An Investing Buddha – “Rather, it’s the ability to handle good and bad times with equanimity, combined with courage and decisiveness, that really matters in the long run.”
  10. Thoreau on Hard Work – “The really efficient laborer will be found not to crowd his day with work, but will saunter to his task surrounded by a wide halo of ease and leisure. There will be a wide margin for relaxation to his day”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Travel Shave Kit

Reading Time: < 1 minute

Thought I would share my travel shave kit, which I have been using for a number of years. 

I use a safety razor at home, which I found out the hard way, is not travel friendly.  Also, I prefer to have a separate bath kit packed.

My kit:

  • Razor – Yes, sir! No twelve bladed shaving monstrosity here.
  • Brush – Economy brush; nothing fancy.
  • Shave Cream – Palmolive Classic Shave Stick.

A few key features:

  • Small and compact
  • Versatile – equally functional at a hotel or campground
  • Carry on Friendly – no liquids
  • Inexpensive – the shave stick is $4 and has lasted for years
  • No Surprises – not going to run out of shaving cream unexpectedly

Family Adventure: Yellowstone N.P.

Reading Time: 9 minutes

We had always talked about doing “Christmas at Yellowstone.”  It was sort of a bucket list trip. So we decided that now was as good of time as any – packed up my mom, the kids, and the two of us and went for it.

Here’s a rough outline of our agenda with a sampling of the 3,000+ photos we took!

Note: This post was a long time in the making.  Our trip took place Dec. 16 – 24, 2017.

Day 1 – December 16

This was mostly a travel day and fairly uneventful.  

Welcome to Jackson

We flew into Jackson, WY and rented a car.  Grabbed a quick bite to eat at Snake River Brewery. And hit the road to drive up to West Yellowstone, MT.

There is a pretty decent mountain pass between Jackson and West Yellowstone (Teton Pass Highway).  And Google routed us backroads to save us I am guessing 38 seconds at the risk of being lost in the wilderness if we encountered car troubles. Although, we did see the largest mule deer that we’ve ever seen.

Route from Jackson to West Yellowstone

We used the Kelly Inn as our base camp in West Yellowstone, and it got the job done.  

Day 2 – December 17

The second day was about getting into the park as we were staying the next couple of nights in the park at the Old Faithful Snow Lodge.

We decided to spend a little extra and use the trip in as a private geyser tour (totally worth every dollar).  We used Backcountry Adventures as our tour guide for all our tours.

The snowmobile tours are pretty popular.  That really wasn’t an option for us with my mom and daughter.  But there are some advantages to the snowcoach – mainly you’re not driving.  Also, you have more sets of eyes to see things that I think you’d just motor past on a snowmobile.

Madison River

We saw some awesome sights on the way into the park.

Bison herd
Trumpeter Swans – Parents and Juvenile
Coyote

When your guide is impressed by the sights, you know you’ve just seen something cool.

Fox with Carryout
When the guide is impressed, you should be too!
Yeah, kid. This is amazing.
Paint Pots

The cold temperatures really highlight the thermal features.  

Bison in the Mist – could be my favorite photo of the trip…
Grand Prismatic Spring

Flocking occurs when the steam refreezes where it lands

Flocked Trees & Shrubs

We stayed at the Old Faithful Snow Lodge.  Our trip coincided with the first week the park was open for its winter season and that seemed to work to our advantage as visitor traffic was pretty light for our whole trip.

Day 3 – December 18

We decided to do a day excursion from the Old Faithful area over to the West Thumb Geyser Basin on the shores of Yellowstone Lake.  The trip took us across the Continental Divide via a snowcoach.

Snowcoach

One of the interesting parts of visiting in winter is that the snow and cold temperatures really highlights the multitude of thermal features – that you probably wouldn’t notice in warmer months.  All those unfrozen spots in the lake are the result of hidden thermal features.

Yellowstone Lake
Kepler Cascades

After returning to the Snow Lodge back at the Old Faithful area, Mrs. SFTE and I rented some cross country skis from the Bear Den Ski Shop and she proceeded to pound me into the ground.

Mrs. SFTE says “Eat my dust!”
Nordic Trails

We attempted to make it out to the Lone Star Geyser, but ran out of daylight.

PistonBully grooming the roads.

Day 4 – December 19

This was our last day at the Old Faithful Snow Lodge.  We scheduled a group shuttle back out to the West Entrance around mid-day, but that gave us some time to explore the Upper Geyser Basin in the morning.

When I tell folks about the trip, this was one of the most amazing parts (to me at least).  I think we were about the only people out in the Geyser Basin this morning. Compare that to pictures during other seasons.

Old Faithful all to ourselves!
Old Faithful
Old Faithful and Old Faithful Inn
Transportation back to West Yellowstone
Wild West Pizzeria & Saloon – Eat Here!

Day 5 – December 20

The fifth day was a trip to the Grand Canyon of the Yellowstone.

The canyon (Canyon Village area) is in the north central part of the park.  It was actually easier to get there from West Yellowstone, than from the Old Faithful area.  That’s why we chose to leave the park the day before. And the Kelly Inn was a little more economical than the Old Faithful Snow Lodge.

However, even from West Yellowstone, this was a full day trip.  We chose to do a private tour again and we had Mr. Pierre as our tour guide again.

Upper Falls
Enjoying the snowcoach decision vs. snowmobile.
Bald Eagle
Beryl Spring – This might have been my favorite feature.

Our tour guide was awesome!

Mr. Pierre (our tour guide)

This was a good day (every day on this trip was a good day).  It was a lot of windshield time. If you made me choose one thing to take out of our trip, it probably would be this day.

Day 6 – December 21

The sixth day was a travel day back to Jackson from West Yellowstone. But we stopped by the Grizzly & Wolf Discovery Center before we left town.  

The drive back to Jackson was beautiful.

Stopped by the Teton Science School for a private tour.  Check out their amazing programs!

And had a nice evening in Jackson.

Day 7 – December 22

We started off the seventh day with a half day wildlife tour guided by Bear Witness Safari.  Highly recommended.

Moose
Through the spotting scope.
Bighorn Sheep
Through the spotting scope.
And visiting up close.

And did a tour of the National Elk Refuge.  The weather had been pretty warm without much snow, so despite a heroic effort of our sled driver, we only saw a few elk.  In fact there was so little snow, the sled was actually a wagon.

 Can you find the elk in this picture?  There’s at least three.

Day 8 – December 23

The eighth day of our trip was open.  We stopped by Jackson Hole and drove over to Grand Teton National Park.

A good snow fort is hard to beat.

Day 9 – December 24

The ninth day was our return trip back to Ohio.

Summary

We’ve all said that we would do this exact trip again.  

The only thing I think I would change is spend a few more days at the Snow Lodge in Yellowstone.  Originally, I was thinking that you might run out of things to do here. Far from it. I could easily spend several more days here and would plan on some snowshoeing or nordic skiing trips out to some of the geysers a bit further out.

https://www.alltrails.com/explore/trail/us/utah/solamere-loop--3

Family Mission: Solamere Loop Trail

Reading Time: < 1 minute

Another family mission in the Park City area.

We did most of the Solamere Loop Trail – although we traversed across the ridge line to the other “peak” versus taking the trail around the south side.

Took about 2 hours with a couple of snack stops.  Nice views of Park City, Deer Valley, the Jordanelle Reservoir and surrounding area.  Not a long trail, but the elevation gain made it rewarding.

Influential Reads – March 2020

Reading Time: 2 minutes

Two books this month.  And lots of articles. Apparently there was some stuff to read about going on.

Updated stats through March:

ArticlesBooks
January794
February781
March962
April964
May1273
June493
July780
August933
September593
October
November
December
Total75523

Here are my most influential reads – in no particular order:

  1. To be free, stop caring what others think – “Tranquility comes when you stop caring what they say think, or do. Only what you do.”
  2. Bird in the Hand – “If you are able, increase your 401(k) savings to front load contributions for the year.”
  3. Why Leaders Need Meditation Now More Than Ever – “On the contrary, starting the day with a few minutes of meditation can help you center and calm fear-based thoughts.”
  4. Muni Bonds Have Started to Rally. Why You Should Get on Board — and Where to Find Bargains – “Muni yields are currently almost double those on Treasuries, a rare occurrence.”
  5. What’s in Congress’s $2 Trillion Coronavirus Stimulus Package – “Democrats: Won language that would bar any business owned by President Donald Trump or his family from getting loans from Treasury. Businesses owned by members of Congress, heads of executive departments and Vice President Mike Pence also would be blocked.” Stephen here, good for them, but wondering if golf courses are considered essential businesses?
  6. The Doctor Who Helped Defeat Smallpox Explains What’s Coming – “A billion people would get sick,” he said. “As many as 165 million people would die. There would be a global recession and depression, and the cost to our economy of $1 to $3 trillion would be far worse for everyone than merely 100 million people dying, because so many more people would lose their jobs and their health care benefits, that the consequences are almost unthinkable.”
  7. The Virus Infecting MLPs – “But the delevering of MLP CEFs has exacerbated the drop for everyone.”
  8. Calm also has a coefficient – “Being up-to-date on the news is a trap and a scam. Five minutes a day is all you need.”
  9. Flowing Uphill: Tips for Efficient Skinning – “The irony of efficient skinning is that you are practicing something as basic as walking uphill, but touring is a sport of subtleties and you get better with every step you take … just in very small increments.”
  10. Coming Back to Powerful Habits – “In fact, coming back to a habit might be the most powerful habit of all.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.