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Second COVID-19 Stimulus Niceties and Notes

We have an agreement, which means we can begin to criticize it and plan for the investment and economic effects. The bill is a litany of half measures, no long term solutions, and likely sets up a couple of battles in the next congress. 

Congress punted on evictions, postponing medical payments until early next year, and there is still an ongoing debate regarding the amount it is issuing in direct payments. The looming liability concern for businesses is still being discussed.

Here is what got done: 

Individual payments for many

Easily the most asked about part of the legislation is the direct payment to individuals that begin going out today. The passed version included $600 going to individual adults with an adjusted gross income of up to $75,000 a year based on 2019 earnings.

An increased amount will be going to those that file as heads of households who earn up to $112,500 and couples (or someone whose spouse died in 2020) who make up to $150,000 a year would get twice that amount.

This continuing political battle to raise this number from $600 to $2000 is still going on today, passing with all democrat and some republican support in the house. The senate is questionable as a few Republicans have endorsed the idea, including the two high profile candidates in Georgia – Loeffler, and Purdue.

McConnell has blocked the bill as of 10:20 am as I am writing this article. 

Unemployment benefits

With almost 7% of Americans still unemployed and millions more under-employed, Congress acted to extend multiple programs to help those out of work, albeit at less generous levels than in the spring. Too much of the surprise of those tracking the issue, the final bill doesn’t include the expanded coffers many anticipated and is considered a skinny agreement. 

The agreement would include:

  • 11 weeks, providing a lifeline for hard-hit workers until March 14. 
  • Up to $300 per week (half the amount provided by the original stimulus bill in the spring)
  • Pandemic Unemployment Assistance — a program aimed at a broad set of freelancers and independent contractors — for the same period, providing an additional $100 per week

Better late than never, the expanded agreement is a second band-aid for those Americans that continue to seek employment as employers have halted hiring. The near term negative effect of unemployment cannot be understated. But as we look out to the intermediate (6 months) range seems to hold a fantastic capacity for consumers to unwind pent up spending in short order. The unemployment insurance isn’t expected to be much but will support many Americans who put more and more spending on credit cards in the second half of the year. 

Funds for Child Care, Schools, and Colleges

School budgets have been uniquely impacted by the pandemic and have left their outlook for the year to some impaired:

  • $82 billion for education and education service providers, 
  • That figure includes $54 billion for stabilizing K-12 schools
  • It also includes $23 billion for colleges and universities
  • $10 billion for the child care industry

K-12 schools saw more support than the initial package in dollar terms, and even more than the proposed package in November; however, the funds still fall short of what both sectors say they need to blunt the effect of the pandemic and to support operations in 2021. 

The majority of school districts transitioned to remote learning and as a result, we were asked to make expensive adjustments to accommodate while seeing enrollment drops upend budgets. Colleges and universities are also facing financial constraints amid rising expenses and falling revenue.

Child care centers that are struggling with reduced enrollment or closures will get help to stay open and continue paying their staff. The funds are also supposed to help families struggling with tuition payments for early childhood education. 

Funding for broadband infrastructure

The stress on national broadband has been higher than ever, remote work and education on top of the expanded requirements of technologies like Zoom, have put a major strain on national networks. The legislation includes $7 billion for expanding access to high-speed internet connections. Much of this spending was anticipated in an infrastructure bill, that has been brought forward as a result of the pandemic. Two major points in this part:

  • Half this stimulus is earmarked to cover the cost of monthly internet bills by providing up to $50 per month to low-income families.
  • $300 million for building out infrastructure in underserved rural areas and $1 billion in grants for tribal broadband programs. (Part of another infrastructure bills spending prior to the pandemic) 

Extension of aid for small businesses (PPP)

The bill puts forward $285 billion for additional loans to small businesses under the Paycheck Protection Program. This renews the program created under the initial stimulus legislation and is largely an extension of dollars that were repurposed.

Funding for vaccines and eldercare facilities

The source of concern early in the pandemic and the ongoing requirements to overhaul the elderly care facilities are addressed by this legislation as it sets aside nearly $70 billion for a range of public health measures targeted at elderly care facilities and the distribution of the vaccine. This breakdown includes: 

  • $20 billion for the purchase of vaccines 
  • $8 billion for vaccine distribution 
  • $20 billion to help states continue their test-and-trace program
  • Earmarked funds to cover emergency loans aimed at helping hard-hit eldercare centers.

A ban on surprise medical bills

The Bill supports efforts to help Americans avoid unexpected medical bills that can result from visits to hospitals. The legislation also makes it illegal for hospitals to charge patients for services like emergency treatment by out-of-network doctors or transport in air ambulances, which patients often have no say about. This measure has had some long time support from Democrats and was criticized for not including some provision in the Affordable Care Act. 

Rental protections

One more month of halting evictions is pushed out to the end of January. The Department of Housing and Urban Development separately issued a similar moratorium on Monday that protects homeowners against foreclosures on mortgages backed by the Federal Home Administration. It runs until Feb. 28. This has had several enforcement issues and while the legislation is a fantastic lipservice, the issues of evictions for individuals with a history of rental disqualification from before the pandemic are a continued source of evictions.

The bill DOES NOT include liability protection for business

A criticism by many that Democrats largely held out a provision for liability protection for companies trying to reopen. This element, opposed by labor unions and supported by the national Chamber of Commerce was a sticking point that went without inclusion. The discussion was important because it would allow businesses to follow their local recommendations to reopen to have legal insolation from lawsuits later on. This will continue to be a discussion in congress as a “reopen” is structured and the liabilities for business owners regarding COVID exposures are defined. 

Conclusion:

This gets us through the winter and hopefully the hump of COVID as the vaccine gets rolled out. It still leaves too much for the 2021 congress to cover and cover quickly. What the continued political, monetary, and fiscal landscape reactions look like is still up for debate. The curvature of risk in equities peaks in February (as I write this) so markets are pricing in a 2 month include equities and a political battle come early spring.

More related articles:

Income and Risk Management from Covered Calls

A covered call strategy is a popular options trading strategy that combines both risk management and income generation using stocks. It involves selling call options on a stock you already own, thereby generating additional income while potentially limiting downside risk. Here’s a basic description of a covered call strategy: You need to own the Stock: To implement a covered call strategy, you first need to own the underlying stock. This means you have purchased shares of a particular stock in your investment portfolio. A call can be written against each “round lot” or 100 shares. Selling Call Options: Once you own the stock, you sell call options against it. A call option is a financial contract that gives the buyer the right, but not the obligation, to buy the underlying stock at a specified price (known as the strike price) within a specified time period (known as the expiration date). By selling call options, you are essentially giving someone else the opportunity to buy your stock at the strike price if they choose to exercise the option. Generating Income: When you sell a call option, you receive a premium (payment) from the buyer of the option. This premium becomes your additional income. It’s important to note that by selling the call option, you are obligated to sell the stock at the strike price if the buyer decides to exercise the option. Risk Management: The covered call strategy helps manage risk in two ways. First, the premium received from selling the call options provides a buffer against potential stock price declines. It reduces the effective cost basis of the stock, thereby providing some downside protection. Second, if the stock price rises above the strike price, you are obligated to sell the stock at the strike price, but you still get to keep the premium received. While you miss out on potential gains above the strike price, you benefit from the additional income generated. Potential Outcomes: There are a few potential outcomes with a covered call strategy. If the stock price remains below the strike price, the call options will typically expire worthless, and you get to keep the premium as income. If the stock price rises above the strike price and the call options are exercised, you sell your stock at the strike price and still retain the premium received. If the stock price experiences a significant increase, you may miss out on potential gains above the strike price. In summary, a covered call strategy is a risk management tool and a way to generate additional income from stock. It involves selling call options on a stock you own, providing downside protection and potential income. While it limits potential gains if the stock price rises significantly, it can be a useful strategy for investors looking to manage risk and generate income from their stock holdings.

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October 17, 2021 No Comments

Cash Is a Trap: Why Waiting Could Cost You in 2025

The Short Version – What you need to know: Cash is offering yields that are unusually high and unsustainable. Stick with it too long, and you risk missing better opportunities.    Here’s why:   There is no denying it — cash has been king lately. After years of getting pennies on your savings, it finally feels like the tables have turned. Money market funds are paying 4-5%, Treasury bills are delivering solid, predictable returns, and even your once-neglected savings account is earning something that resembles real money. For the first time in over a decade, savers are winning — or at least it feels that way. If you’ve been parking your money in “safe” places, collecting interest without risk, it’s been a breath of fresh air. No volatility. No headlines to stress over. Just quiet, steady yield. And for many, that’s been a welcome change. But here’s the problem: that feeling of safety is blinding. Because the moment rates start to fall — and they will — the music stops. And by the time most investors realize the opportunity has moved on… it already has. There are a pair of market forces looking to see the interest rates on cash to get cut, the first is President Trump’s constant pressure on the Fed to cut rates, a message that dates back to the first term, and likely his long-held belief from a background in real estate that unnaturally low rates drive asset values up. And he’s right, on that side of the ledger, equity assets will go up in an environment where cash has low intrinsic value. The second element is the slowing economy, for fear of a deterioration in consumer confidence under the new weight of tariffs on imports, the consumer will see a pair of financial pressures: 1) that the costs of goods continue to rise, and 2) taxes and wages are likely flat for the year to come.  But here’s the warning no one likes to hear: Cash is a trap. And by the time rates fall, it will be too late to move. The Fed’s current interest rate — just over 4.25% — has created the illusion that holding cash is a viable long-term strategy. But history tells a different story. This window won’t stay open much longer. When the Fed Cuts, Yields Vanish Let’s take a step back and look at the broader pattern behind rising cash yields. When the Fed raises interest rates, it’s typically doing so because the economy is running hot; inflation is climbing, jobs are strong, and markets are roaring. This sounds a lot like 2024 to us. In that kind of environment, it makes sense that cash starts paying again. It’s a signal that the Fed is leaning into strength, cooling off excess demand, and trying to engineer a “soft landing.” A condition we saw engineered masterfully in 2023/2024 by Jerome Powell and the FOMC. Inflation is already making its way through the economy — and the first wave is hitting the Producer Price Index (PPI), which tracks what upstream industrial producers pay for inputs. This month, it jumped 21% month-over-month, largely due to the impact of new tariffs. This marks the first tangible sign of tariffs driving real economic consequences.   But here’s what most investors miss: those rising yields are the last breath of the boom. And when the tide turns, the shift is fast and often violent. Look at the Fed’s past behavior, every time it hikes even moderately and over several quarters, it eventually pivots twice as fast: After peaking at 6.5% in November 2000, the Fed cut rates to under 2% by February 2022, as the dot-com crash began unraveling. In 2006, rates hovered at 5.25%, but by the end of 2008, we were at zero, as the financial crisis hit with full force. In 2018, the Fed started easing again within months of its last hike as trade tensions and growth fears crept in, before COVID even surfaced, and then COVID short-circuited the recovery that began in 2015. With COVID in the rear-view mirror, the Fed continued that work, successfully raising rates in the most ambitious clip ever from 2022 to Sept 2023, where we are hovering now…and it is now VERY unlikely the next move is higher.  This isn’t a coincidence. The Fed hikes gradually, cautiously, data-dependent, often telegraphed months in advance. But when does it cut? It cuts decisively. Because by that point, the damage has already begun. So what does this mean for cash investors? It means that the window to benefit from +4-5% yields is narrow and shrinking. And more importantly, if you wait until the Fed actually begins cutting, you’ve already missed the market’s reaction. Bond prices have risen. Equities have started their climb. And your “safe” money is now chasing yesterday’s opportunities. Why Waiting to “See What Happens” Doesn’t Work Here’s the trap: You hold cash at 5% because it feels safe. The Fed cuts once, then twice, and suddenly your yield is 3.5% or lower. You decide it’s time to buy bonds… but they’ve already gone up in price. You look at equities… and they’re already rallying because the market saw this coming. In short: you’re chasing returns with worse timing, less yield, and more risk. You Only Get One Shot at Today’s Yields Cash works “right now”, but it doesn’t scale and cannot last. Your bank teller getting you to “buy a CD for +5%” is the calm before the collapse. Those 6 months of “teaser” rates get your capital off the sidelines and lets the bank buy longer term duration debt, they pay you the +5% they collect from other longer term assets for the first 6 months (the duration of the CD), then if and when rates drop they are left with a long term asset still paying the +5% yield and offer you the new CD at prevailing rates at 3% or less…the bank profits on the spread by letting you lend

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April 28, 2025 No Comments
Articles
Kevin Taylor

How to Survive a Bear Attack? (Pt. 2)

Don’t Discard your Strategy During a Recession We own stocks for a very deliberate reason. These equities are inflation resistant, generate cash, and the good companies grow at a rate faster than the economy they are a part of. They change prices wildly in a recession as people try to determine the long-term value of those features, but at the end of a recession, it is the only asset class that will be worth more after the economic slowdown. Stock prices might be down, but that doesn’t mean you need to change the way you invest. Remember you own these assets for a reason. This thought process applies to both long-term and short-term investors, and retirees. Long-Term Investors Long Term investors have the most to gain from a recession. It is very likely younger investors have been buying stocks at historically high prices. Any investor that began building their portfolio after 2001 has only had three windows where the broad market was trading below its historical average. That’s right, with the exception of three small windows in the last 20 years investors have been “overpaying” for their exposure to the market. Long-term investors might see the next window opening before their eyes right now.  If you’re regularly adding funds to a long-term account, such as a 401(k) or IRA, don’t stop during a recession. That’s huge! If you place most of your money in stocks, don’t “chase performance” and sell out of them. They may be falling in price while bonds are rising in price. Don’t chase bonds, don’t chase life insurance schemes, and don’t try to buy and sell rapidly. Don’t change what you are buying for the long term, in favor of what you see in the short term. Take advantage of the discount in prices – and keep saving.  Short-Term Investors and Retirees Although you may be uncomfortable during a bear market, don’t be tempted to sell your stocks or stock mutual funds at a loss across the board. Make two things a priority, lower your risk, and focus on cash flow. This is a time to focus on quality investments, and pair down the speculative portions of the portfolio – this isn’t the market for moonshots. Begin by accepting that speculative bets might be lost forever and start looking for investments that will survive economic contraction.  If you need income right away, it would be best to have money set aside in cash and bonds before the downturn. That way, you can withdraw from your cash while you wait for stock prices to recover. Then look for investments that can safely replace the cash you need on an annual basis – bonds, real estate, and dividend stalwarts are the keys here. If you can create a cash balance, then you can keep your more speculative investments grinding through the economic slowdown. Ideally, if you are retired, you and your CFP® know what your annual need for cash is, and what investments and institutions are working to replace that cash as fast as it is used. Investing Before and During a Recession It’s easy to go wrong during a recession if you forget or don’t understand how certain investments perform during a downturn. Or how they are related to each other. The stock market is a forward-looking vehicle. Stocks represent your right to a company’s future cash flows. So when warning signs of a recession “hit” these are the most skittish assets and will react the most violently. This doesn’t necessarily mean these companies won’t survive the recession or even become better as a result. What it means is that the amount that other people are willing to pay for a company’s future earnings is lower. When the recession becomes a thing of the past, people will begin to overpay for earnings again, and this is where you want to be in a position to sell shares to those people.  Stock prices often fall months before a recession begins, which also means that they often bounce back up before the recession is declared over. You can miss an entire downturn if you only follow the news. That is why it is vital to know the signs of a recession and recovery, and how assets perform during those periods.  These are our general expectations of asset behavior during a recession: Stocks: Prices for stocks tend to fall before the downturn begins, often selling off even at the scent of a recession. Stocks are the most volatile and skittish, during a recession. But they also have the most to gain. Good companies buy back their own stock during a recession, smart investors buy more shares at lower prices, and recessions make good companies leaner, and more financially fit for the next business cycle.  Real Estate: After stocks, Real Estate is the second most appetizing asset in a recession. And for some, it might be the most appropriate risk. Real Estate investors get the luxury of not having the mark-to-market value of their portfolio put in front of their face. During a recession, they make known their real estate is “down” but they are rarely bombarded with the daily and hourly reminders of the real estate market. This does two things, it reinforces patience for the investor and shifts their focus to the income the property produces. Both of these are things we noted above that stock investors need to learn in a recession.  Bonds: Prices for bonds tend to rise during a recession which means their yield declines. Good bonds (that is to say Bond from good companies) will often be over pursued their security – leading to an opportunity to sell overpriced bonds to scared or unprepared investors. Historically, The Federal Reserve (the Fed) stimulates the economy by lowering interest rates and purchasing Treasury bonds. But for the coming recession, this may not be the expectation as the Fed is in the first innings of raising its rates. This might be the macroeconomic element that causes this

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May 17, 2022 No Comments

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