The CARES Act and sentiment

by Toothlesskinch

Tl;dr – The stimulus package is a failure, re-opening the economy is going to cause it to crash, bulls on parade until mid May but fair chance Lorek Byrnison is our next president.

It’s the weekend so I’m going to take the time to share some real life insight into what is happening with the stimulus package from the perspective of a small business owner. It was either this or spend time with my children being a loving and attentive parent … so here we are.

I own multiple businesses in the hospitality space in multiple states and have at this point applied for 9 loans/grants including multiple PPPs, EIDLs and a couple of the NYC 75k 0% interest jammers. I’ve received approval for 3 PPPs but no funding and one 10k deposit that we believe is an EIDL prepay that just showed up in an account one day without explanation. Guidance on these loans has changed multiple times and this is causing confusion and in some cases, panic.

Here is what you need to understand: the PPP is not enough. Not even close. Under the PPP you can not use the money for anything except payroll, rent, utilities and healthcare. That means no money for vendors (let that sink in). If you do not get a second loan of some kind, have a sufficient war chest or have personal money to jump start your business you are fucked (I’m fine, if anyone cares). Right now most people with small businesses have stopped paying EVERYTHING.

The only way the PPP gives a win to small businesses is if you are up and running before the June 30th forgiveness deadline. In this case you’ll be able to keep money otherwise going to payroll and pay that from the loan. This also assumes that when you are up and running you’re going to be doing decent numbers. This is unlikely.

The money has run out. PPP is waiting on a top up and it looks like NY State is waiting on Federal funding. Not good news. No one knows what’s happening with the EIDL’s, these have gone mythical.

Most small businesses will try to reopen but will be saddled with breathtaking debt, a lot of which will pre-date the shutdowns and many of which are only growing. Payments are going to go out in order of necessity to operate the business. Rent, yes. Product, yes. Business insurance required under lease, yes. Everything else is either a maybe or a no.

If the point of the stimulus plan was to allow for a V shaped recovery, it has failed.

“But OP, the market is irrational”

No. It’s. Not.

Right now you’re sitting at home eating a toaster strudel with four packets of frosting on it. You drank a case of beer last night. Unemployment checks are posting. You don’t have to go to work on Monday or for the next few weeks. Nothing about your life reflects the reality of the economic situation, why should the market. That’s about to change dramatically.

Buy the rumor, sell the news. Every mention of a cure or re-opening the economy is going to cause the market to moon and that’s going to continue until we actually re-open. When that happens and we’re forced to open our doors and face the reality of this disaster it’s going to fall apart pretty quickly. Expect bankruptcies to start within 3 months of reopen.

Bullish until NYC “re-opens” in May. After that, start buying MRE’s. Dance if there’s music.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.