During this highly volatile and uncertain times, a reminder that I’m here if you have any questions or concerns about your portfolio. Please call, email, text and we can talk about your situation in particular.  

As we get through this together, I want you to remember a few main points;  
1. The focus on cash flow, generation of income from your portfolio and communication on living expenses means we have assets aside to cover your living expenses for at least a 12-18-month time period so we aren’t in a position of forced selling during this highly volatile time. 
2. While I have views on overweights / underweights in your portfolio, you are not concentrated in any one sector or asset class. We have built a truly diversified portfolio of stocks (and different types of stocks), bonds (and different types of bonds) and other real assets to diversify and spread the risk around.  
3. Our theme coming into this year (and last year) has been “Participate and Protect”.  Yes, you’ve been invested in the market and some securities will fare better than others but we have a quality overlay in your portfolio which should also help whether the storm. 

Further action we are taking - de=risking the portfolios.  This doesn’t mean sell everything and go to cash but it does mean taking another look and selling more risky parts of the portfolio and rebalancing given a recession is now more than likely.  We are outside of a normal volatility zone and macro conditions have changed. 
-    We have allocated assets from MLP securities in energy to a structured note that yields 8.5%
-    We have sold all energy, small cap, International, REIT’s, Emerging Markets, and underweight financials.  We will use this cash to hold for downside risk and reallocate into high quality securities.

Some thoughts on the current situation -  

Given this roller coaster ride we’ve been on, which feels like it’s going only one way, down right now, I wanted to send another email as data is changing constantly and I want to give you a sense of my market views. 
The volatility we’ve seen in the last few weeks has been unprecedented.  Not necessarily because of the depth of the drops (although that has been bad too) but because of the speed of the drops.  Yesterday’s 12% drop was the third steepest we have ever seen in one day trading. Surpassed only by Black Monday in 1987 and a day in the midst of the Great Depression. 

Source: FactSet. Data as of Market close on 3/16/2020.

The Speed of how this has happened is even more surprising.  It has been the fastest ever with a 16 day record between the high on February 19th and the low yesterday. During the Great Depression in the 1920’s it took 40 days to reach such a magnitude.   

We will see a contraction of GDP in the 1st quarter of 2020 and we will see an even bigger contraction of GDP in the 2nd quarter.  It’s inevitable. You’ve heard me say before that 70% of economy is driven by personal consumption, well, besides online shopping, travel, leisure, hotels will all be affected and approximately 18 million workers spanning those industries will be impacted.  Most likely in the 3rd quarter of 2020 we will see a record unemployment spike.  

The chance of a recession as measured by Bloomberg Economics is now at 53%. Indicating a higher than likely chance of us being in a recession.  This chart below doesn’t even incorporate all of the most recent economic data and earnings outlooks have changed dramatically to the downside. 

I believe the main trigger on turning this whole turn around will be the slowdown in the growth rate of new cases and containment of the coronavirus. Given we still down know how long it will be until the coronavirus peaks in the U.S. its hard to come to a fair valuation in the market and to estimate how long and deep a recession will be.  Once we have clarity on the slowdown, I think volatility will dissipate as we can start making estimates on how bad things will get for our economy. Right now, the spread of the virus is increasing by over 20% confirmed cases each day in the U.S. 


There is some good news to all of this, 

1. Before we knew what COVID19 is, our economy was in quite good shape 

2. Monetary Policy effort: The Federal Reserve has come out strong both on decreasing rates but also injecting our economy with what will be $1.5 Trillion in Quantitative Easing.  They seem aggressive in trying to prevent a liquidity meltdown like it happened in 2008.

3. Fiscal Policy effort:  An $8.3Billion fiscal stimulus package has been announced to help finance vaccine research 

4. More Fiscal Measures are being discussed and have been proposed 

5. China and South Korea have shown that with drastic measures in place they were able to slow down and contain this virus, it is possible. 

6. Finally, Under good things maybe we can also mention and potential progress: “Regeneron Pharmaceuticals Inc. (REGN) has reported progress in its efforts to develop what it describes as a "multi-antibody cocktail that can be administered as prophylaxis before exposure to the SARS-CoV-2 virus or as a treatment for those already infected." In addition, Regeneron said antibodies from humans who have recovered from Covid-19 "have been isolated to maximize the pool of potentially potent antibodies." "will select the top two antibodies for a 'cocktail' treatment" it plans to start manufacturing in mid-April.

Please keep in mind that the stocks /investments you are buying into are earnings earned for years and decades into the future. While short term earnings have changed drastically, the long term earnings outlooks have not.  Oil prices have come down which actually helps those not in the energy sector, rates on both the short end and long end are lower they’ve ever been, helping borrowers.  Banks are in good shape (much better than 2008) and the Fed discount window is open well before a crisis happens to help those with a liquidity crunch.  Things will continue to be rocky but I’m here to help weather that storm. 

Please be in touch with any questions/concerns and call our office at 316-613-7570.

Jeff Wetta

Written by our CIO, Sevasti Balafas
GoalVest Advisory