Will the US Market Survive Post COVID-19?

With the unwelcome introduction of COVID-19 into the world, we have not only found ourselves in incredibly uncertain times with regards to healthcare and pandemic responses, we have also found ourselves facing economic uncertainty. This week alone, Los Angeles, New York, and San Francisco have temporarily closed all non-essential businesses. This includes film sets, bars, restaurants, gyms, salons, and so on, leaving many people temporarily out of work. It’s quite easy to feel concern for our economic future, so let’s break this down a bit shall we?

 

Over the last several decades there have been severe downturns in all sectors of the economy. The worst that I have experienced in my lifetime thus far, was back in 2008 which in essence was truly a depression. The banking debacle was caused by  the ease of the credit market and the false valuation of the US real estate market by way of mortgage lending to unqualified borrowers with interest rates being based on inflated real estate values. I knew we were headed for a total disaster when I was getting my shoes shined by a wonderful man and he was telling me he just bought a house with 100% financing and easily qualified for a mortgage. It was later blamed on the sub-market of sub-prime mortgages. The bond traders loved having these higher than average interest rates that were touted as AA bond type with little risk. Everyone was at fault and the domino effect on every aspect of the marketplace was astronomic. After the market crashed, short sales were happening left and right and large pools of defaulted properties and defaulted loans were sold for pennies on the dollar. Loan rates dropped and the credit checks with more stringent requirements for borrowers were put back into place. A sense of normality came back into the mortgage market, while the bond traders got greedy and were left holding the bag. 

 

Eventually, Henry Paulson, an American banker who served as the US Secretary of the Treasury was able to implement policies to save the banks in the US as a whole; while proactive investors during this time (who believed in America) were buying solid real estate or stocks in sound companies. 

 

This crisis caused by global pandemic COVID-19, is a whole different animal entirely. By and large, the economies of the United states (and many of the economic leaders worldwide) were rolling along at such a high levels that there were really no real signs of an upcoming downturn; certainly, not an abrupt one. Who would have thought a virus would put our country (and the entire world) on its knees? No one quite knows what to do, which makes it feel debilitating.  So, let’s talk about how to take advantage of this crazy downturn. Real estate for now will not, in my opinion, drop as quickly as the rest of the market. It would take more time to bring down the market to a level that would be worthwhile to pick up a bargain. Sellers largely paid too much for their properties and won’t be willing to let it slip away so quickly. There will be exceptions to this, but not in prime real estate areas. Therefore, let’s start by having a  look at the stock market; the market hates uncertainty. It is my opinion that the stock market will continue dropping until a solution is in the wind, however, I believe that will happen sooner rather than later. The most important thing as a person, a neighbor, and as a potential new investor in these troubling times is going to be to stay calm. Should you be prudent, and stock up essentials? Yes. Should you obnoxiously hoard items and leave nothing for others? Of course not, and the same mindset goes for stock. Would you be comfortable if your neighbor had nothing? The world will not dramatically change, if people remain socially responsible and prudent. It is in these times of disaster, and yes, this is a global disaster, that leadership and a calm disposition is most critical. 

 

Now, if you’re aiming to purchase stock in the downward slide (and it is my position that you should if you can), you don’t want to look back and say “wow, I could have purchased stock in Disney at $100 or less”, rather than looking at the price of stock as the sole decision making factor, look at companies that are well suited to come back quickly; the ones that have a solid balance sheet. There is great opportunity right now in the stock market. This downward slide in the market is likely to last a few weeks or months, but the market works on the future valuation of companies and once we get a handle on a direction and how to handle this virus, we are on our way back to stability.   

 

On the macro side, we will undoubtedly see a downturn in the economy, and major economic indicators and statistics will start to trend downward. However, we will bounce back. If a simple statistic like national GDP suffer, quite frankly it is not the end of the world. Perhaps, the sector of the market which will suffer the most will be credit. With rates next to zero, bad companies have continued to borrow. Some of these companies will not survive unless there is staggering government assistance. 

 

It is my hope that those with hourly wages, living paycheck to paycheck are given government support through programs or tax breaks. Equities on the other hand will certainly rebound. If you don’t need the money (and it’s understandable if you do), now is not the time to sell your stocks. When investing in equities you need a medium-term outlook; you are not there to pick the bottom of the market. Companies with strong balance sheets will undoubtedly survive., in fact they will thrive. Especially if we are stuck in our houses for a while, talk about pent up demand! Earnings outlooks for every company will be adjusted. Quite frankly, it’s already priced in. Now is the time to get back into the market, the rise up is often as vicious and fierce as the fall down. Stay calm, be kind, America is strong, and we will come through this. 

We will come back.  We always do. 

 

Best Business Articles of the Week!

Every week I make sure to read multiple articles from a plethora of news and tech websites to stay up to date with what is going on in the business world. This week I chose my top 5 to share with you!

  • Venus Williams inspirational story of how and why she became an entrepreneur on top of being an Olympic athlete. http://www.inc.com/magazine/201702/jeff-haden-bill-saporito/venus-williams-cover-story.html?utm_content=buffer4abf6&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
  • What are the best countries to start a business in? https://www.entrepreneur.com/article/287908
  • Housing starts jump more than expected in the start of 2017.http://www.businessinsider.com/housing-starts-building-permits-december-2016-2017-1
  • 15 things you never knew about Elon Musk. https://www.entrepreneur.com/article/288010
  • Don’t get sucked into the content trap! https://www.entrepreneur.com/article/287737

 

 

How your Startup Can Reach a Successful Exit

Exit plans are an integral part of the initial VC investment process so it’s always built into the roadmap for up and coming startups.

As a startup founder, you’re aware that investors want to know when you plan to “cash out”. Investors what to know when they can expect a return on investment and entrepreneurs seek an exit as well to gauge their future involvement in other startups.

Here are four successful exit strategies to consider when creating your business strategy:

Richard Maize Startup Exit

Merger and acquisition is common for emerging startups looking to exit but these acquisitions happen often but aren’t publicized as much as other options. Merging with a giant company within your market is relatively typical as it gives the larger companies the unique product and team that your business has already built and in return you gain a library of resources on the largest scale.

IPO is what everyone thinks of when speaking of a startup exit. Growing your startup to the stage of an initial public offering is what the industry means when they use the phrase ‘going public’. Although this exit knowingly puts your business in the shareholder’s hands because they hold equity through shares that can be traded on a daily basis.

Monetizing on your own is a road less traveled but it’s undeniable a profitable plateau that many startups have trouble reaching. If you have a secure business with a stable foundation in your industry, create monetization streams through your product that will allow you and all invested parties a consistent revenue flow. This exit allows you to keep ownership of your startup and ultimately creative control as well.

Sell. Usually happening more quietly, selling your company in your entirety is a great way to fulfill all debts and pay your salary as you gear up for your next entrepreneurial adventure. A straightforward sale of a startup tends to happen between two parties in the same personal network. But ideally, you want the candidate to have experience in the market and the intellect and ambition to grow the business to new levels.

Bitnami