A combination of more travel restrictions, the escalating COVID-19 pandemic and subsequent recession fears, the ongoing price war among overseas producers and doubts about the coordinated global response to the virus has weighed heavily on markets.  You’ve seen the fall in the equity markets but the sell-off of corporate bonds was the primary driver of the markets yesterday.  Fears (legitimate or not) of mass defaults and bankruptcies has investors selling bonds along with equities. 
While there is positive progress from Washington, from the Federal Reserve and Treasury, the growth in coronavirus cases coupled with corporate shutdowns, announced layoffs and production freezes has accelerated to the point that the market demands Washington move faster.  The market is telling Washington to hurry up. 

To stop the current panic that is happening the Fed needs to step in, in an even bigger way. They need to pass the $1Trillion bailout package that was discussed and they need to provide relief to businesses themselves. Yesterday, the ECB announced a Pandemic Emergency Purchase Program to buy 750 billion euro of public and private sectors assets at least through the end of the year.  The US needs to do a similar program. That, along with provide us the coronavirus testing kits we so desperately need.  Without knowing who has the virus and who doesn’t our whole economy is at its knees.  With 1 announced case of infection in Amazon’s Queens distribution facility yesterday, the whole facility had to shut down.  If all people were tested and we know those that were infected, after a deep cleaning, the unaffected (which will be in the significant majority as of now) could go back to work. 

The longer we go without additional relief to business liquidity, the greater the likelihood that this panic causes long-lasting damage. If companies can stay in business, they can re-hire once demand returns. If bankruptcy occurs, those jobs will be lost for a much longer time period.  

What does this mean for us and your portfolio ? 
-    I am constantly reminding myself that this is a temporary phenomenon. The virus won’t last forever.  Whether it be a vaccine, social distancing, the test kits, warm weather, a vaccine or a cure, this virus will end. 
-    The Fed and Treasury have the playbook as to how to handle a potential economic crisis from 2008. In 2008, TARP (Temporary Asset Relief Program) is what helped turn things around. Something similar can come at any moment as Washington has shown commitment to do whatever it takes. If it does, I want to be in a position to participate in the inevitable recovery that will come to good assets and your portfolios. 

Having said that, this past week has been a surprise to all of us and has brought back emotions last felt in 2008.  We need to keep communication open on cash needs and comfort levels.  Times like this truly test our “risk tolerance”.  Most of us are pretty aggressive when the markets keep going up.  Now is the time when we truly understand our own risk tolerance. 

I have trimmed and will continue to trim from parts of the portfolio that may be more at risk and I will look for opportunities to buy back in as they arise.  In the meanwhile, please stay in contact with concerns, cash needs, questions, and I will do the best I possibly can to ride us out of this storm. 


Sevasti Balafas, CFA, CPWA®
GoalVest Adivsory LLC