COVID-19 UPDATE: OFFICES OPERATING REMOTELY
In response to the ongoing COVID-19 pandemic, and in an effort to protect the health and well-being of our staff and clients, we will operate on a virtual basis now through Tuesday, March 31, 2020.
Please be assured that we are not suspending or closing operations, and staff will continue to be available to you through remote access.
If you have an in-person meeting planned for our office, our staff will be reaching out with instructions on how to participate in a virtual meeting. We continue to closely monitor the COVID-19 situation and will continue to communicate with our clients regularly in order to keep everyone informed.
As mentioned in a previous email last week, our firm has a strong business continuity plan that we have practiced often. We do not anticipate any disruptions in services but feel that is was important to use an abundance of caution and to comply with CDC guidance.
STAY CALM… BREATHE DEEPLY
- COVID-19 finally taken seriously
- Market is way down, but our strategies are working
- Federal Reserve and the US government are doing their part
- Financial Planning is so important
- Play your guitar and learn something new
In this environment I will err on the side of over communicating so clients will better understand what we are currently thinking, our coordinated strategy, and any changes to either of these. I plan to write a post twice a week – once at the beginning of the week, and once toward the end – until this crisis passes, which it will.
First, let me say we are in the middle of a PUBLIC health crisis, not a PERSONAL health crisis. People are finally starting to understand this. Due to our business’ international nature – investing in and watching developed and emerging markets – I felt we had a better-than-average understanding of what was coming to the US. I am not writing about the market, but rather the health crisis. I have personally communicated with individuals in Ireland, UK, Spain, Italy, Sweden and many other places over the last week who have indicated that it was worse than anticipated. The good news is that individuals, corporations, states, and now the federal government are taking drastic measures to slow the spread. Unfortunately, it’s this exact information and actions that are spreading panic and fear, but we need this to happen in order to slow down the health crisis, and eventually, the economic impact. Cases will go up but we are doing what we need to do. Many people will get sick, most will recover, and we need to protect the elderly and vulnerable with all we have to give.
Second, I want to say right away that I am not overly concerned about the market, its drawdown, and the losses in our strategies. This is not meant to be an arrogant or egotistical comment, it’s meant to be straightforward and reassuring. Below are a few reasons why.
- Our investment strategies are working. All investment strategies go up and down. As I’ve said many times, we place a lot of weight on the risk side (not just performance) of our portfolios. We understand where the risk lies. The portfolios have reacted exactly as we model them.
- Late last week and yesterday we rotated approximately 10% of our strategies to an even more conservative holding. We sold approximately 10% in equities and rotated into approximately 6% in bonds and 4% in cash. This is the largest cash holding we have had in two years. We feel very comfortable here for at least the next couple of weeks.
- While stocks have seen historic losses in quick time, bonds have been a great holding with some large gains in specific areas. This has helped our portfolios find cover in a market that sees both stocks and gold going down—to me, the perfect example of panic.
- Last year was a great year, which gives us some room to soften the blow. For the last three quarters, we have been making marginal rebalancing trades moving more defensive with US Treasuries, the perfect place to hide.
- This is not like 2008. We do not have a systematic financial crisis. Our banks are in good order, well capitalized, and the Fed is opening the flood gates of liquidity. It is highly unlikely that you need to worry about a run on the banks like in 2008.
- The Federal Reserve has made some drastic moves, cutting the Fed funds rate to near 0%, partially to protect US interests and partially to help juice the economy. However, more importantly to the smart money, the Feds keep providing more than enough liquidity in record amounts. This helps the banks and businesses run smoothly with no interruptions.
- We will probably go into a recession. Honestly, we are overdue for this. Goldman Sachs sees a reduction in economic growth of 5% in the second quarter, quite ugly, but a rebound in the second half of the year. One never knows when or how we will enter a recession, but the US economy generally cycles from high to low every 8 to 10 years. We have been on a bull run since 2009, so 11 years is incredible.
- The US government will step in with a HUGE bail out. Everything from airlines, oil, hotels, cruise lines to small business. It’s coming.
- Unlike the Great Depression, the NYSE now has “triggers” that shut down the market if traders get too crazy. 7% down, close for 15 minutes; 13% down, close for another 15 minutes; 20% down, close for the day. The triggers have worked.
- Some people are making A LOT of money on the market going down. The short traders, the algorithmic traders, and the quants all make it harder for the market to stop tumbling in a given day. I know it’s hard, but if it’s down A LOT, just shut the TV off and say, “it must be the computers”.
- When stocks, interest rates, gold, and oil are all down that is the definition of a panic and, historically, has been a great time to buy.
- The only thing that will solve this is time. We need to give it time: 2 months, 4 months, 6 months, maybe, then a recovery over 6 to 12 months. This is the typical behavior of the market. Do not watch your portfolio go up and down day-to-day. This is what you’re paying us for, and we work really hard, 40-60 hours a week, to make sure we’re protecting you the best we can. Panic is not an investment strategy and RARELY do emotions make a sound investment decision.
It is times like these that remind all of us why financial planning is so important. When we develop plans for our clients, we consider situations just like this. The market going down is not unusual, the reason is always different, but the pattern and recovery certainly are not different. In 2008-2009 the market lost 50%; so far, the market has lost 30%, even after the worst day the market has seen in decades. It’s going to be okay. We plan for this!
One last point: the human toll of this virus will become real very soon. It is times like these that clarify for us what is important and what should be discarded. We will all be spending a lot of time home soon. Cling to those you love and reassure them that everything will be okay; this too shall pass. I have found it incredibly helpful to take a short walk each day, as well as spend time playing my guitar. Play music, solve a puzzle, learn a new language, volunteer to help, paint, sculpt, read, love… money is a tool to help us accomplish what we need, want, and desire in life. Live life and cherish these times that we all come together as humans being! Leave the financial modeling and worrying to us!
Much love from our families to yours, and stay healthy!