Andrew Dapkins sounds like the kind of guy who would have made good use of his coronavirus stimulus check, maybe by sprinkling it among his family or helping the organizations he volunteered with.
Unfortunately, Dapkins passed away in early March, the victim of cancer, at age 79. The government still paid him a few weeks later, adding to the anguish for his widow, Mary Wyant.
It was very upsetting, she told me Friday after calling for advice on how to return the money. “I loved my husband very much.”
With his death being recent, Wyant can understand the government making a mistake and sending him a stimulus payment. But she finds it concerning that deceased people are being paid while the living who really could use a boost haven’t received theirs.
“I do know people that really need them,” said Wyant, who lives in Mechanicsburg, Cumberland County.
Approximately 130 million people have received payments over the past month, the IRS said Friday, and others will receive them soon.
Individuals will get up to $1,200, married couples will get up to $2,400, and families will be paid $500 for each child who is under 17. If you earn more than $99,000, or $198,000 as a couple, you don’t qualify
There were bound to be problems when the government rushed to send the money to help people get through the coronavirus pandemic. So it’s not a surprise that deceased people got paid. The government doesn’t have a good track record of differentiating between the dead and the living.
I’ve written previously about rental subsidies, veterans benefits and Social Security benefits being paid to deceased people.
And the dead were paid during the previous federal stimulus, too, after the Great Recession. Many Social Security recipients were eligible for a one-time payment of $250 under the American Recovery and Reinvestment Act of 2009.
An audit the following year found that $18 million had been paid to more than 71,000 dead people. The vast majority of those payments could not have been avoided, according to the audit, because their deaths hadn’t been reported to the Social Security Administration.
But the deaths of an estimated 14% of the recipients had been recorded, and the government failed to check records noting that.
It’s likely that some of the coronavirus stimulus payments to deceased people occurred because their deaths hadn’t been reported yet to Social Security, too. But there’s no excuse for all of them.
An Upper Macungie woman got checks for two family members who died in 2018. They already should have been off the government’s books by now. The government even noted they were dead on the checks, which had the notation “DECD” after the recipients’ names.
Now that’s embarrassing. Those in charge don’t seem to be all that concerned, though.
“Sometimes you send a check to somebody wrong. Sometimes people are listed, they die, and they get a check. That can happen,” President Donald told reporters on April 17, according to USA Today. “We’ll get that back. Everything we’re going to get back.”
It’s unclear how many payments were made to deceased people. I’ve heard from three people who got them. Media elsewhere in Pennsylvania and in other states have written about them, too.
Pennsylvania’s senators have heard from some. Bob Casey’s office told me it’s heard from “over two dozen.” Pat Toomey’s office told me it’s heard from “a number of people.”
Wyant received a $1,200 direct deposit payment for her late husband, a Pike County native who volunteered for Meals on Wheels and New Hope Ministries in Mechanicsburg. He would pick up food from local stores for a food bank.
“He was a wonderful man. He was so loved by so many people,” she told me. “He was always doing stuff.”
Wyant immediately moved the payment in his name to another account so it couldn’t be spent, while she sought information about how to return it.
That information didn’t come from the Treasury until this week.
It says that those who received checks should write “void” in the endorsement section on the back, and mail it back with a note explaining the reason for the return. Don’t staple, bend or paper clip the check.
Those who cashed a check or received payment by direct deposit should mail a personal check or money order, payable to “U.S. Treasury.” On the check or money order, write “2020EIP” and the taxpayer identification number or Social Security number of the recipient of the improper payment, and explain why it’s being returned.
Pennsylvania residents should send the payments to: Philadelphia Refund Inquiry Unit, 2970 Market St., DP 3-L08-151, Philadelphia, PA 19104. Further details about who is eligible for stimulus payments and how to return improper ones are on the IRS website, irs.gov/coronavirus/economic-impact-payment-information-center.
Wyant told me she will be returning Dapkins’ payment with delivery confirmation, to verify it was received. That’s good advice. You may need proof if the IRS questions you later.
Morning Call columnist Paul Muschick can be reached at 610-820-6582 or [email protected]
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As Airlines Suffer, American Most Likely To File Bankruptcy
A few weeks ago, Boeing CEO Dave Calhoun startled the airline sector when he said a major airline would go bankrupt by Halloween.
“I don’t want to get too predictive on that subject. But yes, most likely,” Calhoun said. “Something will happen when September comes around.”
Airline stocks plunged as investors and analysts scrambled to determine which airline became most vulnerable.
RapidRatings, a risk assessment firm, recently completed a comprehensive stress test on the major U.S. airlines. They used dozens of variables including debt loads, cash flow analysis, and a loss of at least 15% of revenue.
American Airlines To Suffer The Most?
We may never know which airline that Calhoun was alluding to. Although, RapidRatings’ analysis says that American Airlines is the most likely to go bankrupt in the coming months.
The company also looked at Delta, United and Southwest, but none of them are in such dire circumstances as American.
In an interview with Yahoo Finance, RapidRatings CEO James Gellert said, “American is the most at risk and that’s it in every way you look at it. American stands out as the weakest of this cohort.”
The stress tests run by RapidRatings produce both a short term financial health rating (FHR) and long term core health score (CHS). According to RapidRatings, the FHR measures a company’s short-term resiliency and default risk. Meanwhile the CHS analyzes risk and company efficiency over a three year period. A score lower than 40 means a company is at risk of failing.
Gellert says the analysis has more than a decade of proven results. Also, “over 90% of companies that failed have been rated 40 and below on our scales.”
The stress tests found that American was the weakest U.S. airline going into the recent pandemic. It has a financial health rating of 59 and core health score of 66.
As the pandemic unfolded and air travel plunged 90%, American’s FHR score plunged to 29. Meanwhile, its CHS score fell to 27.
Gellert added that “I would be quite certain that is the airline in the crosshairs of the Boeing comment.”
The Future Of American
American, in response to the sub-40 stress test scores, said in a statement that it was “focused on rightsizing the airline for the current environment, and plan to reduce our 2020 operating and capital expenditures by more than $12 billion.”
Analysts, however, are starting to smell blood in the water. Cowen equity research analyst Helane Becker recently told Yahoo Finance, “American’s liquidity position is dependent on government aid, bucking the trends we’ve seen from other airlines. The company is receiving a total of $10.6 billion … [and] we expect another capital raise” in the 3rd quarter.”
Savanthi Syth, an equity analyst at Raymond James, also agrees American will need more capital to weather the storm. “I mean, if you look at the cash on hand that’s definitely the case,” Syth said. American has six months of cash on hand, United has 10 months, Delta has 12, and Southwest has almost 19 months, according to Raymond James.
Syth added, “I don’t think bankruptcy is a foregone conclusion… it’s just going to take longer for American to kind of dig themselves out of this kind of debt burden, and therefore equity could be challenged in the near term.”
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Trump Changes Course, Shows Support For More Stimulus Checks
There’s some positive news for the tens of millions Americans who are still struggling to make ends meet as the coronavirus pandemic lingers for the third month.
It appears President Trump has changed his mind, and is now in favor of sending out an additional round of stimulus checks to help Americans get through the economic uncertainty created by the coronavirus pandemic.
When asked about the likelihood of additional checks, the President replied, “I think we will. I think we’re going to be helping people out. We’re gonna be getting some money for them during the artificial — cause it really is it’s an artificial closure — and now we’re gonna be able to open it up,” Trump told reporters while he was in Michigan touring a Ford factory.
“I would say there could be one more nice shot. One more nice dose,” Trump said about a potential stimulus bill as the country struggles to recover from historic job losses and businesses are faced with an uncertain future.
Trump’s comments were echoed by White House staff, including economic advisor Kevin Hassett, who said during a CNN interview that another round of checks is “pretty likely,” and says “it’s coming sooner rather than later” before adding that if there are indications the economy is recovering quickly as more states reopen, the White House may look at other relief options.
Also supporting Trump’s outlook is Treasury Secretary Steven Mnuchin, who said Thursday that there’s a “strong likelihood” the U.S. will send out another round of stimulus checks.
“I think there is a strong likelihood we will need another bill,” he said during an online event hosted by The Hill newspaper, but added that the stimulus may not be needed immediately.
“We’re going to step back for a few weeks and think very carefully if we need to spend more money and how we’re going to do that,” Mnuchin said.
The change in course comes after Republican lawmakers were originally hesitant to continue adding to the deficit while attempting to generate an economic recovery. But with job losses continuing to climb every week and estimates for the second quarter GDP to plunge as much as 40%, the Senate GOP leaders are warming to the idea of an additional stimulus package.
While Democrats have pushed a $3 trillion plan through the House, Senate Majority Leader Mitch McConnell reportedly told President Trump last week any stimulus bill should not cost more than $1 trillion.
McConnell has also openly opposed the Democratic plan to extend the $600 per week additional unemployment benefit by six months when it expires in July.
Republicans have also shown little interest in the Democrat’s proposal of nearly $1 trillion in aid for state and local governments to offset increased costs and lower revenues due to the pandemic, mainly citing that the budget issues the cities and states are facing pre-date the pandemic and relief funds shouldn’t be used to fix old problems.
The White House and Republican leaders would also like to pass liability protection for businesses that reopen, shielding owners from lawsuits should an employee claim they contracted the virus while on the job. Democrats, however, have opposed the idea.
Buffett Recommending S&P Index Fund A Mistake, Says Berkshire Shareholder
In an article earlier this week, we posed a simple question: has Warren Buffett lost his touch?
Mark Hulbert, of the Hulbert Financial Digest, says skeptics are being “unfair” on Buffet. Hulbert adds that anyone suggesting he’s lost his touch should cool their heels. He says Buffett hasn’t lost money in the last 10 years. He also mentions that nobody beats the market all the time.
Others, like Howard Gold, a columnist at Marketwatch, points out that Buffett has been “profoundly underperforming” against the S&P 500 and most of his recent deals have been duds.
Buffet Gives Advice
But what irks one investor, in particular, was Buffett’s advice that the average investor should just buy an S&P index fund.
Buffett’s comment came during the Berkshire Hathaway conference call, when he stated “In my view, for most people, the best thing to do is to own the S&P 500 index fund.”
That may be practical advice for the vast majority of Americans. However, Tony Scherrer, a CFA at Smead Capital Management, says that Buffett’s comment completely goes against his own advice.
Scherrer believes that by recommending an S&P index fund, Buffett is telling investors to buy the exact type of companies that he himself has spent his career avoiding.
Specifically, a quote from the 2007 Berkshire Hathaway shareholder letter, where Buffett says:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.”
Scherrer takes each part of the statement and points out where Buffett contradicts or simply ignores his own advice. He starts with:
“The worst sort of business is one that grows rapidly…”
The S&P 500 has 21% of its weighting in just five stocks: Microsoft, Apple, Amazon, Facebook and Alphabet. Scherrer points to research by David Kostin at Goldman Sachs that shows these top five names have an expectation of revenue growth of 14% over the next two years, and trade at 28x the forward two-year earnings average. The other 495 stocks in the index are expected to grow revenue much slower, at 4% over the next two years, but also trade at a much lower 14x the forward two-year earnings average. In other words, buying the S&P index fund means paying twice as much (28x vs. 14x) for a handful of stocks that are growing rapidly.
“…requires significant capital to engender the growth…”
Netflix, Amazon and Facebook are among the heavily weighted stocks in the index, and Scherrer says they are all burning through significant amounts of money to keep growing.
“Netflix’s cost for its content has mushroomed from $4.5bn five years ago to an expected $15bn in 2020 and will have to continue to expand to operate its business. Amazon… recently announced a $4bn increase in costs associated with safety of its workers and protection in its warehouses on the heels of its deficiencies… Facebook’s recent quarter included a 34% increase in expenses year-over-year to a whopping $46.7bn, as its cost to acquire new customers and increased regulatory expenses spiked.”
“…then earns little or no money”
Looking at the numbers, Scherrer says ”Netflix burned $3.1bn in free cash flow last year and must persistently ramp that up to attract and retain subscribers. Amazon’s flywheel generated an eye watering $280bn revenue number in 2019, but operating profits for everything outside its cloud business came in at a measly $5.3bn. You currently pay 68x forward price-to-earnings for Netflix, 126x for Amazon, and 28x for Facebook.”
Buffett of the Past v.s. Buffett of the Present
Scherrer believes that if 2007 Warren Buffett met today’s Warren Buffett, there’s no way he would allow him to buy an S&P index fund that is highly concentrated into a handful of stocks that are high growth, capital incinerators that earn very little money.
But 2007 Warren Buffett would probably be most appalled that 2020 Warren Buffett would be selling airlines stocks. That means at some point, Warren Buffett thought investing in airline stocks was a good idea.
In the same 2007 shareholder letter, Buffett outlined what “The Great, the Good and the Gruesome” businesses look like. Buffett described a “gruesome” business by using airlines as an example.
Incredibly, he described them as “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.”
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