Apr. 27–Amid one of the greatest American health crises in a century, most of Prime Care Transportation Inc.’s 15 medical transport vans sit idle, just like most of its 23 employees. Business at the Buffalo company dropped 80% as people put off nonessential health care amid the Covid-19 shutdown.
So far, the loan programs Congress created to help small businesses like Prime Care usually haven’t done so. According to a national survey released last week, only one in five of the businesses that applied under the larger of the two loan programs had gotten any money yet.
Without a government-backed loan, Prime Care is down to seven employees. And a company that had been thriving and growing faces an uncertain future.
“Everything has been put on hold,” said Christine Uwimbabazi, who founded the company with her husband two years ago.
Much of life in America has been put on hold amid the coronavirus pandemic — including the Paycheck Protection Program aimed at keeping small businesses afloat. Congress set aside $349 billion for the “PPP” in late March. The forgivable loan program, which aimed to cover payrolls through June 30, ran out of money on April 16. Lawmakers last week set aside another $310 billion to the program.
“Clearly there were not even remotely enough funds to fund that program,” said Buffalo business attorney Matthew K. Pelkey, who has been helping clients through the loan process.
But according to Buffalo small business people and nonprofit leaders, the PPP and a smaller Economic Injury Disaster Loan program face problems that go far beyond money.
Many businesses, like Prime Care, face long waits in getting their loans approved. Others haven’t navigated the system well enough to even apply. In most cases, according to small business experts, companies need a strong banking relationship to get money.
It all leaves entrepreneurs like Uwimbabazi frustrated. She received documents last week indicating her PPP loan might finally come through, but she hasn’t heard a word about her disaster loan application.
“I applied a long time ago, and there is no follow-up,” she said. “There is nothing. You just have to wait.”
The waiting game
Corina Stammworthy always saw the business she started in 2013, the Laundromutt pet grooming salon in Kenmore, as “the little engine that could.” Business was so good that Stammworthy was considering opening another location.
But then New York State closed nonessential businesses, including Laundromutt, on March 23. Stammworthy quickly got an Economic Injury Disaster Loan, which allowed her to pay her 16 employees for a few weeks. But with her longer-term PPP loan pending, she had to lay off her employees April 13.
“I was pretty confident that our bank would process our loan quickly, and they didn’t process it in time and the money ran out,” Stammworthy said. “It took 17 days to get it done. It was supposed to have a 72-hour turnaround time.”
Businesses across the country are having similar experiences, said the National Association of Independent Businesses, which published that survey showing that 80% of small businesses hadn’t gotten their money.
“Small businesses were prepared and ready to apply for these programs, the only financial support options for most, and it is very frustrating that the majority of these true small businesses haven’t received their loan yet,” said Holly Wade, the business group’s director of research and policy analysis.
To hear the Trump administration tell it, the Small Business Administration and the private lenders who participate in the PPP programs did all they could as fast as they could once the program opened.
“Following its launch, the SBA processed more than 14 years’ worth of loans in less than 14 days, which will protect a vast number of American jobs,” Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza said in a statement.
But several people who deal with the program said the money isn’t arriving in business bank accounts fast enough, often because some banks are overwhelmed by the number of applications.
“Certain banks seem to be more on their game than other banks,” said Anthony J. Ogorek, a Williamsville financial planner with clients that have applied for PPP loans.
That’s certainly what Stammworthy thinks. Once the crisis passes, she said she’s planning to leave Bank of America — which said online that it had received hundreds of thousands of loan applications — for a local lender.
“I’m completely disillusioned with the process,” she said. “When the (PPP) money ran out, no one had even processed my application yet.”
Save the Michaels of the World has been trying to save Buffalo-area addicts for years now, but the job grew harder when the local nonprofit had to close its offices, but not its operations, amid the pandemic. Transportation costs skyrocketed as social distancing dictated that only two people ride in vehicles that transport patients to treatment. Founder Avi Israel said the organization had to spend $10,000 for laptops so employees could work from home.
With those thoughts in mind, Israel sat down at his computer Thursday night to try for a second time to apply for a PPP loan through M&T Bank’s website. For a second time, he got nowhere.
“The website just kept getting slower and slower,” Israel said. “And by the time it got to like eight o’clock, it kicked us out. It wasn’t taking applications anymore.”
That points to a second problem that has plagued the PPP, but not the smaller emergency loan program. Some eligible small businesses and nonprofits haven’t even managed to apply — while some far larger companies have gotten loans they didn’t deserve.
Asked about Israel’s experience, M&T Bank spokeswoman Julia Berchou said the bank temporarily reopened its PPP application process Thursday night because Congress had agreed to extend the program’s funding. But the bank quickly shut the application process down again.
“We’ve stopped taking applications at this time based on the demand and our commitment to assist as many M&T customers as possible and ensure that those who apply have the greatest opportunity to receive the limited SBA funds,” the bank said on its website.
Berchou accented the positive, saying that in Buffalo, M&T has approved 3,945 loans with a total value of $811 million and an average loan size of $205,603. These loans supported 84,101 local jobs, she said.
Nationally, however, a loophole in the law that created the PPP left an image problem. It allowed restaurant chains including Shake Shack and Ruth’s Chris Steak House to apply for loans.
Those big operations are now saying they will give their loan money back, but the PPP program still allows companies with up to 500 employees to apply. That limit is too high, said Susan A. McCartney, director of the Small Business Development Center at SUNY Buffalo State.
“That is very different than the small businesses struggling in Western New York,” she said.
Israel agreed. He groused that some local operations far larger than his got PPP loans while he hasn’t even been able to apply.
“Here we are, a small organization that does everything for free,” he said. “We have not laid off people off — but we’re going to run out of payroll money by May.”
Of course, the federal loan programs haven’t left all small businesses starved for funds. BIDCO Marine Group, a Buffalo industrial diving company, applied for and quickly got a PPP loan.
“I think we were prudent and diligent in the application process,” said Mark C. Judd, the company’s president. “I think that was a requirement, and having an established financial relationship was undoubtedly the key to that.”
Rather than go to a bank website like Israel did, Judd worked through his company’s banker at Bank on Buffalo and couldn’t be happier with the PPP program.
“It did exactly what they said it would for my business. It gave me security to not lay anybody off,” said Judd, whose company employs between 20 and 40 people, depending on how much work it has.
Bank on Buffalo approved 190 loans, adding $39 million to the local economy.
Marty Griffith, Bank on Buffalo’s president, said employees across the bank worked long hours to process as many applications as possible during the short time the funds were available. “We will do it again,” he added.
The question, though, is: for how long?
Even with a $310 billion infusion, the PPP program probably won’t come close to addressing the need in an economy wrecked by the shutdown, said McCartney, of the Small Business Development Center.
“In three or four days, it’ll be gone,” she said of the money added to the PPP program.
Worse yet, several people said the rush for cash is leaving behind plenty of small businesses whose owners don’t even know about the PPP and disaster loan programs.
“It kind of blows my mind a little bit, but I’ve mentioned it to some rural folks down near Ellicottville and I was looked upon with raised eyebrows,” said Judd, the BIDCO Marine Group president. “And I said, really, this is there, you need to go to your bank or go to the SBA now.”
—-Coronavirus crisis business loan programs
Here’s a look at the two primary federal programs aimed at helping businesses deal with the fallout from Covid-19.
The Paycheck Protection Program: Congress set aside $349 billion for this effort in late March, but it quickly ran out of money, so lawmakers added $310 billion last week. The program allows qualifying companies with fewer than 500 employees to get loans of up to 2.5 times their monthly payroll costs for up to eight weeks. Three quarters of the money must be devoted to payroll, but the rest can go to rent, utilities and other costs. All or part of the loan can be forgiven for companies that keep their employment and wages steady.
The Economic Injury Disaster Loan Program: This program existed before the Covid-19 crisis, but in late March Congress created a $10 billion supplement to it. The program is intended to give qualifying small business quick cash advances of $1,000 per employee, for up to 10 employees. Like the Paycheck Protection Program, this $10 billion fund quickly ran dry, prompting Congress to add another $60 billion to it in legislation that passed last week.
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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed
The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.
Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”
“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.
Uncertainty and the Stock Market
However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.
“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”
“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”
Stimulus and Economic Recovery
Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.
“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”
Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.
Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce
Yesterday we had the first part of a recent interview by Kitco News with Pierre Lassonde, who retired as chairman of the board at Franco-Nevada earlier this year.
In today’s article, we highlight Lassonde’s comments on gold and why he thinks the Dow/gold ratio could hit 1:1 parity.
Lassonde says that retail interest in the gold market is evident by the record inflow into the GLD gold ETF this year, which has already set a record.
“If you look at gold itself, just look at the gold ETF. Look at GLD. GLD is up over 900 tons this year alone. They’ve had more inflow of money in the first 9 months of this year than any year in the past 16 years. It’s been public since 2004. It’s a record inflow of money into GLD and that’s also a precursor to what’s happening in the equity sector.”
He also says that gold prices will move higher should Democratic nominee Joe Biden win the November election. Lassonde says all the money that will be printed to finance all the new spending.
“If Biden gets in and they decide to do the kind of medicine we have in Canada, the costs are just going to blow out, they are going to have to print more money, all of that is going to fuel the gold price up.”
How high the price will rise is anyone’s guess, but Lassonde says he expects that at some time in the next 5-10 years, we will see the Dow/gold ratio to reach parity at 1:1.
When asked if that means gold will climb or the Dow will fall, Lassonde says he expects a combination of the two, but mostly a slight Dow correction with a massive increase in gold prices.
“It’s hard to see the Dow going down to 10,000 or 12,000. Could it happen? Yes, but I find it very difficult. Could it go down to 20,000? Very possibly. 17,000? Yes, 15,000? Could the gold price go up to $15,000? Absolutely. That’s what I’m talking about, but I don’t think it’s tomorrow morning. I think it’s sometime in the next 5 to possibly as long as 10 years.”
Lassonde says there have been two instances of the Dow/gold ratio reaching 1:1, and both times it occurred for different reasons. This time, he thinks we get to 1:1 due to all the money printing by the Federal Reserve.
“It’s instructive to look at the past. Because twice when it’s happened, it’s happened for very different reasons. Back in 1933, the Dow lost 90% of its value between 1929 and 1933. It went from 360 to 37. The gold price went from $20 to $36. So the gold price almost doubled but the Dow itself went down 90%. In 1980, the Dow had gone down from essentially 1000 to 600 from 1966 to 1980, it came back up to 800, but the gold price as we all know, went from $35 to $800, which is 24x from the beginning. So very, very different responses to different times.”
“The ratio has been 1:1 twice in the past. It takes a 40-50 year period if you look at 1930, 1980, well we are now at 2020, so 40 years, so sometime in the next 5, 10 years I think we are going to see 1:1. But I didn’t know how we were going to get there. With COVID, I think we’ve seen the answer in a sense that if you look at our neighbor to the south, the Federal Reserve, they are printing $3 trillion, they are talking about another package in the $1 trillion to $2 trillion.”
Lassonde does caution that if we see 1:1 parity, we shouldn’t expect $15,000 or $20,000 an ounce gold to stick around for very long. He said based on history it might only be a day or two, or a few weeks at most.
“The key question here is how long is it going to be there? Don’t forget in 1980 the gold price was $800 for less than a day. If you look at the entire quarter the gold price was $675 and if you average out for the year it was less than $600. So yes, it did go to $800, but it was there literally for a day. In 1933 though it went on a little longer than that but it was certainly less than a year, I think it was probably closer to three months or something like that. So the key question is how long will that ratio be 1:1. How long are we going to see the gold price at these crazy numbers. And then what will be the inflation? What’s the dollar going to be worth? I don’t know.”
Trumps Wants a Bigger Stimulus Check
The White House made renewed calls to Congress to come up with a second bigger stimulus check. This time, President Donald Trump wants Republicans to go beyond their skinny proposal and issue a bigger relief package. This includes a bigger stimulus check for Americans.
On Wednesday, Trump urged Republicans to support a bigger COVID-19 relief bill. He tweeted: “Democrats are “heartless”. They don’t want to give STIMULUS PAYMENTS to people who desperately need the money, and whose fault it was NOT that the plague came in from China. Go for the much higher numbers, Republicans, it all comes back to the USA anyway (one way or another!).”
Stimulus Check Update
Press Secretary Kayleigh McEnany clarified the tweet during Wednesday’s press briefing. She said the president referred to the $500 billion “skinny bill” GOP Senators passed last week. Last Thursday, the Senate voted on a Republican bill on a $500 billion stimulus package. Democrats opposed it en masse, saying it did not contain enough to help everyone. The measure didn’t pass, getting only 52 votes (it needs 60 to pass). McEnany said Trump thinks that the relief amount was too little, and it “didn’t include direct payments.” The President “wants more than the $500 billion and he’s very keen to see these direct stimulus payments.”
In particular, the President looks to favor bigger stimulus checks for American households. While both parties are discussing sending a new batch of $1,200 stimulus checks, he wants a bigger amount. Trump said on Wednesday: “I’d like to see it be very high because I love the people. I want the people to get it.” The president did not say how much higher the stimulus checks should be. He did say “I like the larger amount. Some of the Republicans disagree, but I think I can convince them to go along with that.”
House Problem Solvers Caucus
Two days ago, the bipartisan House Problem Solvers Caucus proposed a compromise $1.5 trillion stimulus package. Chief of Staff Mark Meadows says that the plan was “very thoughtful.” I’m probably more optimistic in the last 72 hours than in the last 72 days,” Meadows said. He also said that if Democrat House Speaker Nancy Pelosi is willing to stay in session, a bill might pass soon. Meadows thinks the biggest obstacle remains “the amount of money that is outlined for state and local help.”
In a press release, the caucus states: “Having seen no progress on a new COVID-19 relief package in four months, and in recognition of Americans’ increasing suffering, the Problem Solvers Caucus (PSC) has developed a comprehensive, bipartisan framework to meet the nation’s needs for the next 6-12 months, that can pass both chambers of Congress and be signed into law by the President.”
Several Democrats have already rejected the plan, saying the plan needs more money.
Top Democrats in Congress, however, are warming up to the President’s call for a bigger stimulus. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said in a statement that the White House’s pronouncements were encouraging. In a joint statement, they said: “We are encouraged that after months of the Senate Republicans insisting on shortchanging the massive needs of the American people, President Trump is now calling on Republicans to ‘go for the much higher numbers’ in the next coronavirus relief package.”
“We look forward to hearing from the President’s negotiators that they will finally meet us halfway with a bill that is equal to the massive health and economic crises gripping our nation. By the end of the week, 200,000 Americans will have died from the coronavirus. The lives and livelihoods of the American people depend on Republicans abandoning their obsession with doing as little as possible while the coronavirus rages through our nation,” they said. Pelosi also committed that the House will remain in session until Congress passes another coronavirus relief bill.
While there is no definite timetable nor a clear agreement on the budget yet, Trump has helped advance the talks where a deal must be made. If there is a time for compromise, it has to be now. Otherwise, it will take an election for much-needed help to arrive.
Watch this as White House Chief of Staff Mark Meadows is optimistic a Covid-19 relief package is still possible:
Do you think a stimulus package will pass soon? More importantly, do you agree with Trump that it should contain a bigger stimulus check? Share with us your thoughts on what the second stimulus package should contain. Comment below and let us know.
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