For those of you of the Christian faith, a Good Friday morning to you. Though in this world we will have trouble, Jesushas overcome the world, which is what we celebrate this Easter weekend.
What have we overcome the last 120 years? Genocides in Armenia, Sudan, Rwanda. Spanish Flu, Great Depression,
London bombing in WWII, Hamburger Hill, long lines at gas stations, at least three presidential impeachment attempts,all manner of economic twists and turns, Challenger explosion, 9/11, and an assortment of viruses. We will recover.Yes, some will not live through this, and this will bring sadness to those near and dear to them. We can see them again,but not yet. But so many will live. And we will celebrate. We will go to the family reunions, graduate from high school and college, go to the weddings, the christenings, the Bar Mitzvahs and Bat Mitzvahs. We will once again be able to have an All-Star
Breakfast at WAHO, and wash it down with black coffee, or enjoy chips and a beer on the patio at…or see our friends and family again, trade hugs, look into their eyes, and know that they are well. These times of isolation, and perhaps some quietness, certainly less travel, can be times of reflection, renewal, creativity. And what a gift these times can be. When we can once again leave the house with confidence, reengage with others, I believe it will be with a new sense of appreciation for the fellowship of others. We can be with them. And what a glorious thought. So take heart.
We have written about this extensively, so we won’t repeat such here. There is conversation in Congress about adding another $250 Billion to the $349 Billion made available for smaller businesses under the Paycheck Protection Plan loan program. With Congress now comfortable spending in blocks of trillions, it wouldn’t surprise us to see as much as $10 trillion in support spending authorized in 2020, bringing the debt load by year-end to close to $30 trillion.
In case you missed it, official unemployment is now north of 3 million, and some expect the unemployment percentage to reach 15% to 20%. We don’t know, though that wouldn’t surprise us. What we are experiencing is similar to that first of year focus on being physically healthy. We will describe this as an economic detox, with a number of businesses exiting the stage. We do expect a renaissance in manufacturing though, whether from a desire to control the supply chain, or a distaste
on the part of businesses and consumers for doing business with China. And what of real estate? Opportunity. Over the next several years, as leases renew, we see a softening of the real estate market. Businesses are discovering new ways of organizing work, and this will lessen the demand for office space. There should be opportunity to bail out overleveraged landlords, by relieving them of debt, and the solid real estate
which goes with it. Oil will make a rebound, and pump prices will once again go up. Not pleasant at the moment, with the cost of a barrel for man producers currently more than the spot price. At this point in the 21st century, there is simply no replacement for oil, in all its iterations.
And corporate bonds? There should be some significant opportunity at some point during the next couple of years, as many companies who last year carried a BBB rating now find themselves in the junkyard. Stay tuned on this.
There is a thought that the economy overall, and the public debt and equity markets track closely. That isn’t necessarily the case. The only place to hide during Q1 was U.S. Treasuries. This has been the case for decades. Regardless of the financial, economic, or societal woes the USofA faces, the U.S. dollar remains the world’s reserve currency. My only suggestion would be that our leaders not abuse this status and privilege. Domestic equity markets were off more than 20% during Q1, with large growth off 14%, large value off 25%, and small value off 35%. International developed growth stocks were off 15%, while value stocks were off 28%. In emerging markets, large growth was off 16%, while small value was off 32%. This has happened before, it will happen again. You can read more on some of the attached charts. What’s interesting is that most years with a difficult quarter end up finishing the year in the black.
What To Do?
We have found the ideal approach is to think about your future, decide what you prefer, make plans to move toward that future, and then implement those plans. Coordinate your cash flow and assets toward the accomplishment of those plans, and revisit both future goals and progress toward them on at least an annual basis. These processes, and the disciplines they entail, guard against making poor decisions in challenging times.
That’s it from us. Until we see you again, we wish you health, prosperity, and our warmest regards.