Dear Client and Friends:
Sunday Evening Thoughts, +1 Week…
Many of you probably remember, the great song “American Pie,” by, Don McLean. Some because you may have been impacted yourself by those same historical music events, others because of late night last songs on the University of Illinois campus. Regardless, Don reminisces how various events within the music genre had touched him and changed his life forever. I think this ties into what this virus has again done for us. Our lives forever changed the night the NBA cancelled games on March 11th. The day started out fairly normal and by the time the Utah Jazz and Oklahoma Thunder’s tip-off was delayed and game eventually cancelled, it certainly seemed like a heightened precaution for the virus. The next day many other events started cancelling and these events put into motion a stark reality for many as to how things would change in the coming weeks. Politicians, news and print media, sports teams, schools, cities, businesses, hospitals, restaurants, bar and grills, our households, etc… all changed their daily routines and focus. Some were aware and had been planning for months on how to handle different scenarios, although I’m not sure how anyone can tell us exactly how this will play out. If history is any indication, it’s never as bad as the worst-case scenario, or as good as the greatest outcome. I have no reason to doubt this time will be any different. And thus, many of us have survived through week one. Different, yes! Nonetheless we are still here. Next week when I write this, many of you will read this (I pray all of you will), meaning we again survived another week! Don’t misinterpret my comments, this is very serious, but Americans will unite and fight this virus with every last drop of energy, with every great mind, we will succeed in this fight and the world will succeed. Brilliant minds have fought off diseases such as Tetanus, Rabies, Polio, Yellow Fever, Rinderpest, Whooping Cough, Measles, and Smallpox, to name a few. These magnificent vaccinations were all produced prior to the world of super-computing like we have today. It is only a matter of time until coronavirus will be added to this list. As of Friday, WHO officials announced 20 coronavirus vaccines are in development in the global race for the cure. This is a very positive sign for all mankind and with major countries willing to make huge investments in this development area, one can imagine the problem will be solved. Is it different this time? Of course it is. Money is no issue as funding in this area will be ramped up globally. It’s simply a matter of time.
As anticipated, this week was challenging for many. We are seeing infection numbers increase dramatically here in the U.S. Centers for Disease Control (CDC) and World Health Organizations (WHO) have been preparing us for these types of increases, but it always feels different when you get in the thick of things. Keeping these numbers in perspective, world-wide infection numbers reflect far more recoveries vs. deaths and that is extremely positive. Focus is being concentrated on how to limit the spread of the virus, to ultimately control hospitalization rates and their limited resources. Government officials, hospital administrators, and health organizations have been and will continue to make decisions based on the information and facts presented. This week’s new vocabulary term that we will all want to forget is, flattening the curve… Yes, we need to prevent major stress on our local hospitals, doctors, nurses, medical supplies, and staff. Some may not understand the necessity for these drastic measures as locales announce curfews, sheltering, and limited movement for non-essential requirements. Remember above when I mentioned worse case scenarios? These major announcements and changes in daily routines will most likely impact the curve and folks that’s the short-term goal at this time. Good news, because of these types of steps that were taken in other countries impacted by the virus prior to us, China, Japan, and South Korea have seen their rate of infection and cases dropping. Italy is showing signs of slowing. U.S. manufacturing and garment factories are looking at converting to help make additional capacity for respirators, medical gowns, and face masks. Even local distilleries have pitched in to make hand sanitizer for local fire and police, along with municipalities and hospitals. That’s the American spirit I know.
We are still seeing major bouts of volatility in both equity and fixed income markets this week. This week led to the DOWs steepest weekly decline since 2008. We have seen the Volatility Index (VIX) start to decline off of unprecedented levels. Although still at high levels closing around 66 this Friday, the VIX has declined from its recent intraday high from last the previous Friday’s level of 83.56. The VIX represents the market’s expectation of 30 day forward-looking volatility and is known as the “Fear Gauge” or “Fear Index.” It should not be lost, but the stock market is forward-looking and eventually, at certain deeply discounted prices, long-term investors will ask themselves if they believe there is a better risk reward which may make them money over the next 2-5-year period. When this occurs, no one rings a bell like they did at the local pool after the adult swim. This normally happens when the flow of bad news seems like it can’t possibly get any worse, but before the start of good news hits mainstream. Analysts have started to make or reiterate buy ratings on deeply discounted stocks with strong balance sheets in well-suited markets. The Federal Reserve and Administration have announced major spending initiatives. Early in the week, U.S. Treasury Secretary, Steve Mnuchin was eluding to $1,000 checks for everyone. This package started around $500 billion, then $1 trillion, and what was voted down by Congress this afternoon was something around $2 trillion in government spending. Overnight markets have just opened and were selling off. If memory serves me correct, in the 2007-2009 financial crises, the first big spending bill also failed, but eventually Congress came together and passed a spending bill that accomplished what they intended it to do, backstop the banking system. Good news, members of Congress will get a second bite of the apple and their eyes will certainly be focused on Wall Street’s reaction to the weekend failure. My educated guess is the spending bill will pass with a number of no less than $2 trillion and they are likely to make additional assistance where needed of another $1-2 trillion. Neither Republicans nor Democrats want to see America fail.
Keeping a Watchful Eye
This week we will be watching for…
- Congress passing a spending resolution and obtain the President’s signature
- Will the S&P 500 2,300 point level hold support for the market?
- Will testing kits and medical supplies be delivered in quantities that matter?
- Will China, Japan, and South Korea’s numbers continue to improve?
- Do more municipalities and states implement only necessary travel bans?
Our Office Locations
We have implemented no face to face meetings in the coming weeks. This is not necessarily about our safety, but the safety of others. If any of you are like me, as soon as someone says not to touch my face, immediately my nose itches. We all have to do our part to contain this. The better we work together, the faster we can get through this mess and onto restarting the economy. Continue to help support the local mom and pop restaurants and establishments by ordering carry out. Be kind to others, check on an elderly neighbor, and keep your patience and sanity. We will continue to be in the office working late hours and can have conference calls and virtual meetings using our GoToMeeting desk sharing application via the internet. If you need anything or just need to talk, please give us a call. We are here for you during this challenging time.
Please share with any family and friends who may also benefit from the comments above. Many of you shared how much you appreciated last week’s comments, so this will be something that is carried forward as a good means of communication.