This post is adapted from a recent webinar presented by David Edwards and Buff Parham. David made about 5 minutes of remarks, and then Buff asked David questions posed by clients and members of our audience.

David Edwards: 

2020 was an absolutely mind-boggling year.  As we enter in 2021, we are by no means safe and secure. I would like to tell a personal story about resilience, and what it means for people to thrive in challenging times like these. 

My wife Randy and I have a pod, which includes the two of us, and our friends Erin and Rashad. They’ve come up for Thanksgiving, for Christmas, and they’ll be coming up for Martin Luther King Day in a few weeks. The four of us have stayed COVID-free for the whole year. We feel pretty good about that. Erin and Rashad were heading up our way on Christmas Eve with a car full of delicious food and a case of wine, looking forward to another great weekend.

Randy (my wife) and I knew that the septic plant behind our house was dubious. We had it inspected a few weeks ago. Guy, from the local septic company, said, “Yeah, we’ve got to replace this thing.” We said, “Great, please schedule us as quickly as possible.” But unfortunately, Christmas Eve morning, we woke up to four inches of really icky water backed up into our shower. Which, especially with guests on the way, is not cool.

I made a quick phone call to the septic company, but their phones were down and I couldn’t reach them. That was Plan A. Plan B was: do the work myself.  I already knew where our septic plant was located. I dug out my pickaxe and shovel and trenched down to the septic plant, got it flowing downhill, and cleared out a lot of that standing water. The tank drained, but water was still backed into the house – something was blocking the drain pipe.  Ultimately I was able to reach the septic guys. When they came up, because of the work I’d already done, it was very easy for them to get a snake up the pipe, bang out an obstruction of some kind — maybe a tree root, maybe an ice block — get the water flowing, get the shower drained, and clean up the bathroom. They left just as our friends arrived.

So, crisis averted. We had a fabulous Christmas Eve dinner and went to bed around midnight as an incredible storm raged outside.

The next morning, there was no power in our house. Right now, we’re not living in New York City, we’re in a rural part of New York State where there’s only a house every half mile or so. We are literally the last house on the electrical spur.

We got out our iPads, which are battery-powered, connected to the internet, delved into the electrical grid, and entered an outage report. The word was that it was going to be at least 24 hours until they could get to us. It was Christmas Day.

I said to Randy, “Well, let’s just go back to the city and have Christmas there.” She said, “Hell no, we’re sailors. We’re going to figure this out.”

And we did. I hustled off to the local convenience store, which was fortunately open on Christmas and bought six gallons of fresh water. I broke the ice in our swimming pool and used its water to wash dishes and flush out toilets as needed. Then, we cooked our Christmas filet mignon dinner on the grill. We had another amazing meal, and went to bed, again, at midnight.

While there was still daylight, I’d walked up the road, knocking on neighbors’ doors to find out what their electrical situation were. Ours was the last house on the line. The second house next to us was out, and but the third house was not. So, I asked the owner if I could walk through his fields back to our house, to see if I could find a break in the line. I didn't see a break, but I did see a tree leaning up against the wires.

When the power company supervisor showed up 36 hours later, I told him what I saw.  He said, “That’s actually good news. The problem is likely that the tree has created a ground. All we need to do is replace some fuses, cut down that tree, and you’ll be back in business.”  And we were!

Resilience is the art and science of taking a bad situation, turning it around and making a good situation.

The reason I want to talk about resilience is because both our clients and our team were tremendously resilient this year. You can’t imagine how grateful and thankful I am for that.

Let’s consider our clients. 35 of our client families own businesses. As we discussed back in June, they all pivoted, adapted, innovated, did whatever it took to keep their business going.  Some even thrived in the current environment. It was really exciting to see.

I also want to talk about my team’s resilience. I don’t think my team has ever worked this hard in all the years I’ve known them. We went to work-from-home mode, boom, with one email back in March. We haven’t seen each other physically in ten months now. But Lucas, our portfolio manager, hammered out the portfolios, kept doing his job rebalancing. Yvette, our operations manager continued to work with clients, getting the reports out, handling cash flows. We waved in a lot of new clients this year. A lot of other advisors are hiding under their desks. We’re not. We brought in a lot of new business, which kept Yvette working very hard on new account onboarding.

Shelly, our director of financial planning works with me as an expert giving our clients good advice. She works with Chris, our advisor who works with rising professionals, giving him the benefit of her 25 years of experience as a financial planner.  Chris, on his own initiative recently opened a satellite office for our firm in Westchester County. Willa, our social media expert worked away in Vermont and continued to increase her skills as the year went on.

Finally, we have two new members: Randy Kaufman, my wife of the last 18 weeks joined my firm as a partner and wealth advisor in September. And Carla Bisong joined the firm as client concierge in December, I’ll be introducing Carla in more detail in the next week or two.

2020 was really a year to remember. It started off so badly, and we are by no means home free.  But when push came to shove, everybody that was a client of mine, everybody that was a team member of mine, worked their asses off and made it through.

I’m going to make a few more remarks about the pandemic and the vaccine situation, and then the rest of the presentation will be Q&A, with Buff asking the questions that came in.

Pandemic

The pandemic rages on. The numbers are terrible. It’s basically a 9/11 every day at this point, and it’s remarkable how inured we become to that daily body count. Back in 2001, when 3,000 people were killed in a day, the whole country went nuts. We reconfigured the FBI, we reconfigured the Pentagon, we reconfigured Special Forces, we invaded two countries, all because we were so angry at the death of 3,000 Americans. Right now, 3,000 Americans die every single day, and nobody seems to care.

What do we do about the pandemic? Well, we saw a big grouping of people over Thanksgiving, then a big surge in cases the week after, and a big surge in deaths this past week. We saw another big grouping of people over Christmas, which means another big wave of infections a week from now, and another big wave of deaths a month from now. People simply won’t face the facts, and it’s either God’s way or Nature’s way of thinning the herd. I can’t explain it any other way. Why would people be so stupid?

 A couple of our clients actually did get Covid this past year, and thankfully they were all in good health, able to get prompt medical care, and got through it okay. That’s luck, pure dumb luck!  Many people with no comorbidities, including elite athletes, have died and will die of Covid-19.

Vaccine

The vaccine is out. Already, about a million Americans have been vaccinated. Another two million will be vaccinated by the end of the week. That’s good, but it’s going to take months for the vaccines to get across the whole country. I’m a healthy 59-year-old male. I’m on schedule to get the vaccine in June. That’s the earliest I can hope to get it, and I’m not reopening our office until every team member has been vaccinated.

We also have a big problem with anti-vaxxers. A lot of people think this is a plan-demic, that Bill Gates is somehow using the vaccines to take over our bodies. That is unbelievable BS, but that’s what people believe. So, until at least 50% of the population has been vaccinated, which might be July 1st, we’re not out of the woods.

Even after you’ve had the vaccine, it’s still important to wear your face mask and practice social distancing. There are going to be a lot of people who haven’t been vaccinated. The vaccines are 95% effective, which means that even post-vaccine, you still have a 1 in 20 chance of getting sick. At this point in time, I estimate we’ll be able to open our New York office by September 30th.

Politics

When we spoke last time, I said it could be Election Day, Election Week, or Election Month. Well, now we’re rolling into month 2, and Donald Trump still won’t face facts, won’t embrace reality. He’s hoping that, somehow, he can get Congress, the House, and the Senate to overturn the popular vote, which Joe Biden won by seven million votes. It’s not going to happen, but until this idiot is out of the White House, it adds a constant injection of anxiety into our national consciousness.

This is where resilience comes into play. This guy will be gone on January 21st, and hopefully we never have to think about him again. Remember that, and until then, use it as your mantra.

Q&A

Buff Parham: David, none of us will forget 2020 anytime soon. It was a tremendously tumultuous year. In your opinion, what’s the single most important takeaway that we should contemplate going forward?

David Edwards: I think the single biggest takeaway to contemplate is the collapse of the moral authority of the Republican Party. I used to be a Republican. I voted reliably Republican until 2004. I voted for Reagan, for George H.W. Bush, and for George W. Bush the first time around, but by 2004, I started to have some bad feelings about the Republican Party. I began to feel like these people were crazy and a danger to all, and it’s only gotten worse over the past 20 years.

What infuriates me is how eager the Republicans were to blow up the deficit by trillions of dollars in 2018 by giving tax cuts to the wealthiest 1% and to corporations, but right now, they can barely stomach giving $600 checks to American families. Let’s think about what $600 buys for the average American family. It buys one week of groceries for a family of four. It doesn’t cover rent, it won’t cover car payments; it doesn’t cover health insurance. It covers food for seven days. That’s the most the Republican Party can come up with in the midst of this pandemic.

A lot of people think I’m a Democrat. Nope — I’m a pragmatist. I’m an independent, I’m somewhat of a libertarian. I don’t care how much pot you smoke, how many abortions you have, who you marry. None of that is my business.  What I do care about is running the country on a sound economic foundation. And I object to the four years of sloth, indifference, and theft that the current Republican Party has ignored and accommodated. That’s the biggest takeaway of 2020: The Republicans have got to have a come-to-Jesus moment and do a lot better, or they’ll be a minority party for good, starting in four years.

BP: What do you see happening with inflation, economic growth and bond yields next year?

DE: They’re all tied together.  Right now, we’re in a recession, which we’ve been in since April, and we’re starting to rebound. It will take a couple of years before the economic output of this country is higher than it was in January 2020.

I do think that the economy will rebound at least 5% next year. That’s good news. I do believe that bond yields will remain absolutely at the floor, 0.0% for fed funds, 2% for the ten-year treasury, which means that mortgages are about 2.5%. It means it's almost impossible to make money above inflation in bonds right now.

For inflation, when you have 10-15 million Americans unemployed or underemployed, when you have real estate markets like New York City in free-fall, when demand is way down, inflation is just not something I spend any time worrying about. Deflation is actually a bigger concern.

BP: What’s our outlook for the price of oil, and what do you think about renewable energy?

DE: As recently as a couple years ago, oil was a $100+ per barrel. In April, for one crazy afternoon, it fell to negative dollars; someone would pay you $20 a barrel to take it away. We were so deep in oil (kind of reminds me of my septic issue). 

Since then, all of the OPEC countries have rebalanced their production and output. Oil prices rebounded and stabilized around $37 per barrel — 30-35% of what it was two years ago. That has big implications for the Middle Eastern states, like Saudi Arabia, which are very dependent on oil. There also may be big implications for Russia, which is very dependent on the price of oil, and is suffering right now. Meanwhile for Americans, it’s a lucky break. Gas is about $2.15 per gallon — I remember $5 per gallon not too many years ago.

In the long run, I see carbon-based fuel sources becoming an ever-smaller part of overall energy output. I’m not saying that as some kind of Green New Deal activist. I’m saying that as someone who has watched renewable energy first surpass nuclear a couple years ago, and more recently surpass coal. Coal is about 11% of our energy consumption. Renewables are about 12%. I commented earlier this year about flying back from Utah, and as I crossed the Great Lakes, I looked down and saw windmills in every farmer’s field for hundreds of miles. That was eye-opening.

As batteries get better, as transmission lines get better, as turbines get better, the cost of solar panels and wind turbines continues to drop, but the cost of excavating coal is still rising. You might remember Trump talking about rebuilding the coal economy. Well, when he was elected, there were about 60,000 Americans employed in coal. Now, there are about 40,000. If I was a coal miner right now, I’d retrain installing solar panels or windmills. That’s the energy of the future.

It may be that we never get oil back above $40 or $50 a barrel. It may be someday that we have it in a museum. “Oh yeah, remember that energy source?” Just like wood was an important energy source 200 years ago.  Today, nobody uses wood to heat their homes (except for me, when my power goes out).

BP: We’ve seen a range of impact on industry sectors, some proving more vulnerable than others — air travel, hospitality, entertainment, and retail chief among them. Where do you see the horses coming in, in terms of recovery?

DE: What we’ve seen the past year is that the industries that depend on face-to-face contact got clobbered. Movie theaters, restaurants, airlines. Something like a third of American businesses failed this past year, many of them being small restaurants. Not in 2021, but I think in 2022 we’ll start to see a lot of rebounding, particularly in the restaurant sector. Restaurants tend to be risky investments, but people will be desperate for eating out, for concerts, and for sporting events in 2022. But it’s going to be a long slog until we get there.

Other industries thrived this year — think Zoom, Peloton, Amazon, Door-Dash. Amazon just hovered up all of the sales at all of the local stores that went out of business all across the country. Every crisis creates opportunity for somebody, and our position is to not get overly enthusiastic about chasing the fad stocks. We know that one day, restaurants will come back. We know airlines will come back someday. We want to participate broadly in the economy.

BP: Here’s a silver lining question. What long-term changes do you see in the economy that could be called positive in the wake of the pandemic?

DE: What I hope comes is a renewed interest in science. This is not the first pandemic that we’ve had since 1918. We’ve had scares with Ebola, MERS, SARS, and others. With a little bit of luck, and with a lot of skill, they were less infectious, and they were caught in place. Ebola was terribly infectious, but there were only two people in the U.S. who got it — one in Texas, and one in Massachusetts. I was going down to Texas when the Ebola scare was on. One of my clients said, “David, aren’t you worried about Ebola?” I said, “No, in Texas they have concealed carry and stand-your-ground laws. I’m worried about the bullet flu.”

The good news about the Biden administration is that they have all been there before. Many are veterans of the Obama-Biden years. They know what to do, and they’re not egotists pushing some crazy agenda.

Interest in science isn’t just dealing with COVID, or the next infectious disease, it’s also about taking a hard, pragmatic look at climate change. Only people with the darkest blinders on really believe that the climate is not significantly warmer now than it was 20, 30 years ago. And a warmer climate means bigger forest fires in California, bigger hurricanes in Florida, and serious, immediate economic consequences. Hopefully, in the coming years, scientists will be able to start addressing those things.

BP: You mentioned one of these earlier, but what about Tesla, Airbnb, Door-Dash, even Bitcoin — those stocks are up huge this year. Should we be buying into those?

DE: It’s so interesting to look at a handful of stocks that are up 200%, 400%, 690% this year. Most of them are companies that we won’t buy, because they violate rules that we have on what makes a good investment. Tesla — I love the cars, and I love the battery technology even more. It’s going to be a super strong investment somewhere down the road. But right now they’re just losing buckets of money, and that’s not a good investment as far as I’m concerned.

Airbnb, huge IPO, huge rally, and the rally’s based on returned revenue growth next year. Not even this year. Well, we don’t invest based on fantasies. We invest based on really boring numbers, and so I’m very happy to let a company like Tesla go by, or Airbnb go by, because 9 times out of 10 , or even99 times out of 100, investing in those kinds of companies is a losing proposition.

One of my favorite companies of all time is a company called Sealed Air. They make the most boring product you can imagine. When you get a box from Amazon and there’s a bubble system wrapped around it, that’s Sealed Air. All they do is sell machines that take plastic and blow it into bubbles, and they stuff it into boxes and shove it out the door. I’ve made more money off of that boring little company than almost anything else in the past ten years.

BP: Well, given what we’ve been through this year, what advice would you offer to a recent college graduate as he or she begins to chart their career in this new environment?

DE: If you graduated this year, it’s a pretty daunting environment. Trying to get a job interview over Zoom when HR departments are all remote, trying to get training when all the trainers are remote — that’s hard. But I’ll say this: I graduated college in 1983 in the midst of what was called the Volcker recession. When Paul Volcker became the Fed Chair, inflation was soaring, interest rates were very high, Fed Funds were about 12%, a mortgage was about 15%, and a car loan was about 21%. Volcker put the economy in a deep recession for two years to kill off inflation once and for all, which set us up for close to 40 years of pretty reasonable economic growth in a low inflationary environment.

The spring that I graduated, I had 20 interviews, got 20 rejections, and spent my first summer after college tutoring and bartending. But I took some classes in accounting and finance to stall for time, and parlayed that into an entry-level job at Morgan Stanley, which set me up essentially for the rest of my career.

If you’re a recent graduate, if you can’t get a job, just do anything. Anything that brings in some money, that gets you up in the morning, that requires a good attitude, and that lets you bide your time until opportunities have returned. Also, it’s great idea to take some practical classes — computer science, process logic controller programming (what automates factories). Take one class at a time and keep your ears open. If you can, drop by the career center or log into the portal looking for postings, and eventually you’ll get back on track.

It’s going to be harder. But opportunities are always there.

BP: Drum roll, please — what’s your surprise prediction for 2021?

My surprise prediction is the return of office culture. There’s been a lot of conversation about how we’ll never go back to the office again, we’ll live on Zoom forever. I believe that by the end of ’21, beginning of ’22, all these offices are going to fill up again. I say that because, #1, it’s exhausting to be on Zoom all day long. My whole team can attest to that. I get motion-sick after a while looking at the Zoom camera.

#2, it’s very hard to train people over Zoom. I’ve got a pretty good team in place, who are all self-managing. But I’m also bringing in new people, and I want to train them. It’s one thing to have them sitting next to me, or three feet away, listening to my conversations, asking me questions on the fly. It’s another thing to have to set up a time, log into Zoom, deal with the delays — it’s slow and tedious.

The last reason why I believe people want to get back to the office is this: If you’re working remotely, you’re out of sight, out of mind. Where do your promotions come from? I feel that, by 2022, all these offices are going to start filling up again, and with that, all of the subordinate services — mass transit, restaurants — will follow suit.

People want separation between their work life and professional life. When you’re working at home, it becomes a 24/7 situation – you’re living at work!. When I had a midtown office, I’d be done somewhere between 5:00 p.m. and 7:00 p.m. I’d leave the office, go out with my wife, have a nice dinner, go home, walk our dog, watch the Daily Show, go to bed, and then, the next morning, be refreshed and ready for battle. These days, I have to block out a whole day where I’m not taking phone calls, not doing work, just doing nothing, to get my brain clear to keep working at this intensity.

Here is an upcoming programming note: we’ve been doing these webinars monthly since March, and that was important for the circumstances. But now that things are calming down a bit, we’re going to switch to every other month - the next webinar will be in February. We’re going to try to move away from topical webinars and get back to informational webinars. I think the February one will be about behavioral finance — how our caveman brains help us make good decisions or bad decisions.

As always, I’m happy to take questions. My email address is davidedwards@heronwealth.com. My office line is (347) 580-5288, which rolls directly to my cell phone (917) 705-3893.

Have a very Happy New Year!