CoronaVirus Economics Update Vaccine Found

13.03.20 05:43 PM By Kenneth Himmler, Sr

A New Vaccine For CoronaVirus Has Been Found

Virus Vaccine Developed 


The news wires have just released news that a Pentagon-funded Canadian company has claimed that they have the vaccine for CoronaVirus. They stated that they had developed the cure only 20 days after receiving the virus’ genetic code. 

                                                                                                                                                                                                        

How did they do this so fast? Apparently, they have created a new procedure using plants instead of eggs as a quicker bioreactor for growing the vaccine proteins.   They estimate that the vaccine will be ready by November 2021 and they will be able to produce ten million doses per month. How does this play into the timeline of what to do with your money? 

We originally estimated that the vaccine would be available in 18 months so the November date is close to that estimate. 

We originally estimated that it would take between a year to two years for the economy to recover fully. 

What do we see in the short term? 

1) As soon as the information of the vaccine gets released, the market will see a small bump up, but it will not keep going up. 

2) Dividend rates will be incorrect for at least a year. When a company declares a dividend, it is based on past earnings and profits. If a stock price immediately falls, it gives a false calculation of a sustainable dividend rate. (A higher dividend is divided into a lower share price). In six to nine months, when companies report much lower earnings and profits, they will drop the dividends. This will allow a more accurate dividend rate. 

3) We will see the markets get worse before they get better as companies start to report layoffs and lower earnings. 

4) Real Estate will start to drop in 3 to 6 months. As people get laid off, companies close and the economy output shows it slow down, mortgages will start to foreclose. In addition, home purchases will slow. These two factors will push Real Estate as well as REITs downward. Just as Real Estate takes 6-9 months to show the loss, it takes longer to gain back. The reasoning is that when the economy has taken a hit people spend their savings and they accumulate more debt. This makes it harder to buy a new home with a down payment or to qualify for a new mortgage. 

5) Fear will continue to direct peoples' travel, spending and outlook on the future. This will take awhile to recover.  The critical point is when the vaccine starts to get distributed. As soon as that happens is when I believe we will see a fast turnaround and the pathway to recover. While it is hard to state that there is any positive in all of this human tragedy, there are actions you can take to help protect and preserve your financial future. 

                                                               

The positives in the economy 

                                                               

1) Tax extension. As of March 12th, Trump has extended the tax deadline. While we do not know the new date, we are estimating it to be June or October.                                                                

2) Interest rates have dropped to historical lows. This gives the opportunity to restructure debt or even to leverage up. 

3) Real Estate prices will see a sharp drop allowing people to buy their own home or investment property at huge discounts. 

4) The Feds have pumped a trillion dollars into repo bonds.

5) Disruption of the locked China distribution system. This has been an issue for me for years. During the last 20 years, the Chinese have dictated, abused and controlled pricing, tariffs and even our necessary drugs. In an article on March 8th, the Communist run newspaper Xinhua, the Chinese said they would “Throw America into the Mighty Sea of CoronaVirus”. All of this because we are going to not only develop more pharmaceutical manufacturing in the US, but will create new relationships with other countries to diversify our risk. https://nationalinterest.org/feature/china-threatens-throw-america-mighty-sea-coronavirus-130877

6) Lower manufacturing costs. With China being disrupted, it will wreak short-term havoc on the US getting products to sell. In the long term (2 years) , it will be the best outcome for the US. We can now negotiate with other countries for manufacturing and distribution as well as building right here is the US. 

With all of these recent changes we cannot forget that one of the biggest double dip risks may be just a few months away. With the election coming, depending on who gets elected, we might see another big dip. 

What to do? 

With all of these changes, what is a person to do? 

At this point, no one has any idea where the bottom is and when the economy and markets will recover. Without being able to market time, what can you do to protect and preserve your assets and income? 

1) Calculate Roth conversions. If you had calculated a Roth conversion before the market crashed, you might have determined it was not profitable. While a market crash might not have been profitable on paper, it might have created an opportunity to save a substantial amount of tax. If you have shares that have dropped in value, you can convert those actual shares from your IRA to a Roth and get a discount (the percentage of drop in the stock share), on your tax. The best upside is that when the market returns, you just converted a highly-taxed vehicle like an IRA to a 100% tax-free vehicle as the Roth.

2) Tax Harvest. Now is a great time to start tax swaps. To avoid the 31-day wash rule, ensure you swap into something that tracks the same movement as what you are selling but is  different enough so the IRS does not consider it the same investment. Your goal is to book as much in paper losses as you can to use against future gains. 

3) Location Optimization. Now is a perfect time to swap investments from qualified plans to non-qualified plans. If you have a stock in a qualified plan (IRA - 401k), your tax can be double what it would be if you held that same stock in a non-qualified account (individual, joint or trust account). The procedure is to sell the stock in the IRA and immediately buy it in your non-qualified account. Be careful that you swap the bonds into the IRA at the same amount to keep the same asset allocation and risk profile. 

4) Refinance. Put your application in now in order to get the process started but leave the rate lock flexible. Rates should come down in the next 30-60 days to allow you the lowest possible cost. Also, stretch out the term for as long as you can. It’s better to lock down a bank for the longest period at the lowest rate. It is not about having no debt. It's about having debt at a lower cost than what you will make on your investments. 

5) Buy Real Estate in 6 to 9 months from now. If you are contemplating buying or investing in real estate, wait until the full financial effects take place. Real Estate lags the stock markets by six to nine months. That also means that if you are selling real estate, do it as soon as possible, otherwise you may have to hold it for at least four to five years to get back to the same level as we have today. 

6) Get a financial plan done. Whether you do it online yourself www.wiserretire.com or you hire someone to do it www.hhrdm.com, have a plan done. The importance is to know your plan of navigation before you leave for a journey. If you know what you have, how to handle it and how to protect it, it allows you not only to sleep at night but to make logical mathematical decisions vs emotional decisions. 

7) Turn your dividends into DRIPs. (Dividend Reinvestment Plans) If you are now living on dividends, many financial planners can adjust your cash flow to allow the re-investment of dividends. When you turn on the DRIPS, you are Dollar Cost Averaging into the stock. Since we have no idea when the market will return, it's best to buy new shares over a period of time vs trying to time the market at its lows. 

8) Cash investments should be Dollar Cost Averaged over no shorter than 4 quarters. If you have cash, and want to buy into the market, do it over a period of time to reduce the risk. If as an example you have $100,000, divide it over either one year or two years and each quarter buy into the markets. Example of one year DCA would invest $25,000 per quarter for the next year. This allows you to buy into a low market and average in the price since we never want to try to time the market. 

9) If you have not already filed your taxes, file an extension. With the emergency tax extension available, we should all take as long as we can to file and pay tax, especially with the removal of any penalties or interest. 

10) If your property value drops, look to file a reassessment and potentially lower your property taxes. 

Mental Approach. 

While much of the media is telling us what to do by lecturing to “Don’t Panic - Stay Calm," I would not agree with this strategy. Why? When people see risk, they have fear and act to protect. 

This is usually because of the lack of a good plan, understanding cash flows, alternatives and having a game plan. 

Work with a fiduciary financial planner (someone who does not work on commissions, but rather hourly or fee only), and develop a fully integrated cash flow, income tax and risk plan. 

Kenneth Himmler, Sr