Newsletter 05/07/2020

This week many states are reopening slowly. 

It is an experiment that contradicts guidelines set by the Federal government and health experts like Drs. Fauci and Brix. Guidelines are just that; they can be ignored.

Statewide, California is one of the states slowly lifting the strict rules that were implemented on March 16. These shelter in place measures were implemented even earlier in the SF Bay Area which appears to have helped thus far. The goal with the phased reopening is to jump-start the economy which has been moribund for almost 8 weeks.

Unemployment claims are soaring, and we are looking at potentially 20% unemployment. The report will be issued this Friday, May 8. Markets seem to be looking towards green shoots again which has discouraged further sharp declines: states reopening their economies, testing Remdesivir as treatment for severe hospitalized cases of Covid-19, the potential that herd immunity could work to stop infections, the Fed’s will to do anything to save the economy, Congress dropping money from helicopters and the expectation for the economy’s recovery by 4th quarter. Earnings reports will rival the focus on the green shoots with speculation that they will reveal record lows. 

The result is the stock market has taken back much of the decline from March 23. This is hard for me to understand on a rational basis because the economic news will be pretty bad going forward through the end of 2020. 

One big question in regard to opening up certain state economies is: will patrons show up at these newly reopened establishments? Initially maybe people will, but if infections and death rates surge again, will people continue to expose themselves? Herd immunity will require somewhere between a 50-80% infection rate. At a current conservative estimate of mortality rate at .05, that would mean mortality numbers ranging from 1,750,000-2,800,000. Current counted deaths today (May 6, 2020) are just over 73,000. 

Expectations for people, their behaviors and emotions ushering us towards the end to shelter in place could lead to disappointment. This is a time to be cautious.

From a portfolio standpoint, we remain steadfast; we are not selling. As for buying stocks, we are in a waiting period here as well, waiting until we identify an opportunity to buy stocks. Bonds remain attractive and we continue to buy as these opportunities arise. Echoing previous weekly letters, timing the markets is problematic. As long term investors, we will add to our positions as we get closer to fair value. 

This is a time to focus on other financial decisions like mortgage refinancing, increasing savings and reducing spending. One impact of the pandemic is a severe slowdown in spending in both the overall economy and also in individual households. As financial planners, we are constantly stress testing our clients cash flow. Reality is stress testing cash flow. This severe event will test our ability to control spending and hopefully help us to better identify which expenses are more important than others. How will our lifestyle behavior and spending behavior adjust in a post pandemic US? We will be using this upheaval in our practice to learn more about how we can manage our behaviors to make better life decisions. 

These are uncharted territories. We’ve not been through something like this before. We can only take things one day at a time and reassess as we go. Remember that while we can’t control the markets, we can control our mood, our outlook, our ability to peel ourselves from the headlines and take a deep breath, take a walk, talk with a friend. We’ll get through this! Be sure to lean on us as needs arise. We’re here for you!