Well, there is no sugar coating the past two weeks in world stock markets or the coronavirus (COVID-19) pandemic. The big indexes are down 20% from recent February highs. The coronavirus and the economic implications of reduced normal daily activity are very real.
Driving to work this morning, the roads were quiet. Families are altering Spring Break plans. Warren Buffett moved his big investor love-fest to an online format. The Masters, the NCAA Basketball Tournament, and every other major commercial sporting event has been canceled or postponed. Even Disneyworld has been shut down.
All of these actions in the United States do not match the lock down in China or Italy. It seems surreal that we are in the middle of this unknown situation with everyone looking at everyone else and wondering if they have this disease. Or wondering if they have it themselves and do not know it. Based on our observation of this sharp and precipitous decline in economic activity, we believe that the U.S. will be entering into a recession this year.
Recessions are painful, but they vary in degree of pain. The Great Recession of 2008-2009 was painful with respect to a 10% unemployment rate and a terrible stock market. Unlike that time period, we headed into this downturn with a 3.5% unemployment rate and an overall stronger economy. Corporate America in much better shape, and banks are much stronger too.
We don’t see a deep economic recession as we did in ’08 and ’09. We do see a national mood recession in the American people for awhile. Americans like to go out, travel, be social, and do things. Hunkering down is not who we are. However, until we understand how bad this disease is and when we can see light at the end of the tunnel, our mood is impacted.
We are not there yet. Having said that, as a new normal sets in, and we start to see some green shoots, we will get back to being ourselves. We can’t help it; we will say enough is enough and go to Vegas.
Now, what we have done for our clients is prepare them for this downturn. We created the Recession Prep Scorecard™ for our clients last year and with that exercise prepared them for a downturn. Of course, we did not predict the virus, we just thought after 11 years of a bull market and no recession, we were due for something.
We were a little early as the market continued to rally into this past February, but as it turns out, with the swift move down, we are positioned to be on the offensive in client accounts.
Our clients have “dry powder” that will enable them to buy into what will probably be the investment opportunity of the decade. We have dipped our toe into equities but expect we have more down to go. We won’t time our buys perfectly, but we suspect they will look good a year or two down the road.
No one knows how long this thing will last, but I do know it will get “less weird” as time passes. It will be part of our history and contribute to our national subconscious just as 9/11 and the Great Recession have done.
I truly believe good things come out of bad, and I look forward to seeing what those are. If you find yourself at home, create a plan to use the time productively. Time with family, time to cook, time to workout, time to sleep, time to talk to friends and family on the phone, time to read, time to catch up on shows, time for house projects, time to plan your future, time to slow down for a minute.
Please know we are available 24/7 for anything that comes up. If you or anyone you know would like us to look at their situation and provide a second opinion, just let us know. Please be safe…
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.