"THE WILDCARD IS NOT DEPTH, BUT DURATION" MARCH 2020


“THE WILDCARD IS NOT DEPTH, BUT DURATION”

As anyone alive already knows, the market news over the past month has been unprecedented. As the world has shut down vast portions of our economy in an effort to stop the spread of the dreaded Covid-19, financial markets have seen astonishing reactions by traders and institutions in an effort to adjust to the new expectations being forecast seemingly every minute of every day.

Keeping your head in these turbulent times is a monumental job. In an effort to provide the proper guidance to our clients, I have continued to gather information from all of the analysts that I have found to be most helpful over my almost 30-year tenure in this business. I could write a book, if I had time, about all the predictions I have heard, but that would probably not be helpful…you can read and hear all of that from the media, which is reveling in their ability to stir things up both politically and economically.

I have focused on the two factors I believe are most important in making investment decisions in this situation: first, accepting that the immediate impact on our economy from the effects of the Coronavirus will eclipse any economic slowdown ever seen, and second, attempting to determine the most probable duration of the epidemic itself and corresponding social disruptions to our lives and businesses.

BRIDGE FINANCING

Governments around the world have responded quickly to the anticipated slowdown by throwing the kitchen sink at the financial markets, attempting to backstop those individuals who are losing their jobs amid the chaos and the businesses suffering catastrophic consequences from closures.

Federated’s Equity Strategist Steven Chiavarone and Market Strategist Phil Orlando in a podcast compared the effects of the virus on our economy to that of a hurricane, only on a much bigger scale. We usually have advanced warnings of catastrophic weather, but we never know quite how severe it will turn out to be or how much damage it will cause. What we do know is that, like the Coronavirus, it will not last forever.

Normally after a hurricane you would have banks making loans to businesses and government providing assistance to those most severely affected, ensuring that the local economies recover as quickly as possible. Unfortunately, because of the unparrelled extent of the damage to the economy that we are experiencing, the lender of last resort, the Federal Government, will have to step in and provide the (hopefully) short-term financing to get businesses over the hump so that those who are losing their jobs will again have jobs when the economic storm passes.

Actions by Jerome Powell at the Fed and by Treasury Secretary Mnuchin, finally ratified by Congress, are historic in size and speed. Assuming that our efforts to stop the spread of the virus are as successful as it appears that China’s and South Korea’s have been, then our hope is that the usually resilient U.S. consumer will return quickly to their daily lives and resume reasonably normal spending patterns. Consumers have been the strength of our economy for many years and restoring their confidence is vital to our financial system.

Let me tip my hat to the TD Ameritrade Economists for the title of this letter as this was the title of their latest forecast. As the title suggests, we already know that the consequences of this epidemic will be catastrophic. The important question now is how long it will last. As they commented:

“We must allow enough time to pass to evaluate measures that have been put in place to mitigate broad scale insolvency and income losses. This will take nerves of steel, but there’s some comfort in the current experiences in China and South Korea that are already rebooting their economies.”

“PATIENCE AND A LONG-TERM VIEW ARE REQUIRED”

Again borrowing a title from those more creative than me, this is the message from the Federated podcast. Orlando offered the best guidance I have seen:

“Point number one, importantly, breathe, take a deep breath, relax. We’re going to get through this. As horrific as this seem, we’re going to get through this.

The resilience of the American people, the spirit of the American people, is unparalleled. We’re going to do fine, but we’ve just got to stick to our knitting. We’ve got to maintain the social distancing. Let the Fed do their job. I think Washington has gotten their wake-up call. We’re going to get through this. So just be calm, breathe, average in and take a longer-term time perspective. And I think we’re going to be fine.”

Another of my favorites, Helene Meisler with Real Money, another 30-year veteran, also had some good insight:

“Here’s what I discovered: I did better when I had a plan, I stuck to it, and I didn’t let the blinking lights and the news distract me from my plan.”

As hard as it is, try to not to watch too much of the news. Watching two or three hours of Coronavirus coverage is enough to get anyone depressed. Let’s stick to our plan and rely on the American Spirit to rebound when this storm passes.

We have tried to anticipate any needs that our clients might have for cash over the next several weeks and prepare accordingly. If you anticipate a need for money from your account in the near future, please let us know so we can plan ahead. As always, we value the trust you have placed in us and we always enjoy your calls. Call anytime we can be helpful.

Sincerely,

Dave Crouch

Kim Blackburn Kay O’Connell

Registered Principal

Branch Operations Manager Financial Advisor

Financial Advisor

Buffett Quote:

“In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Warren Buffett

This material is being provided for informational purposes only. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

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