Greetings!
There is a tremendous amount of attention at the moment to the COVID-19 disease outbreak. This note is to let you know I’m paying attention to the news and to give some updates as to what I’m looking at. I wanted to share with you a couple podcasts I listened to in the last day that give a little context. I believe it’s helpful to understand the landscape before taking action, although after seeing markets move in such a severe manner in the last week it is concerning and some want to know what to do now. Some of you have much more knowledge in this area, but from a financial planning and investment perspective I wanted to share what I’ve digested in the last couple days. If you have some time, take a listen. I regularly listen to these and find the information useful to provide context to what’s going on in the world related to financial markets and elsewhere.
Some observations:
- We don’t know what we don’t know. The definition of infodemic is important. We’re still seeking out the facts to know what to do. Staying calm and having a careful eye to our sources of information is essential.
- From the a16z podcast, at least from Julie Yoo’s perspective, there’s a good case to be made long term behind the decentralization of health care delivery. There may not be traction in terms of attention to a profitable application for now, but with technology and cost reduction these events could spark a wave of growth in this type of healthcare delivery.
- No V-shaped recovery – economist Nouriel Roubini is very reputable. This is a supply chain shock – it isn’t going to be a simple flip of the switch back on to recover from the economic shock of this outbreak, in his opinion. When reactions to these in the past were met with monetary and fiscal stimulus there were more severe consequences after. In essence, the attention to what the Fed will do and what Congress will do may not mean as much in saving us with respect to helping us out of this.
- This is a public health issue – seeing a response that’s capitalistic, meaning ‘what makes money’ out of a response to this isn’t necessarily going to happen.
To answer a question many have had in this event, trying to buy or sell with a large amount of your portfolio in this environment is very risky. Market timing is a two part decision. When to buy and when to sell. We’re in a state of trying to catch a falling knife at the moment. I’m always wanting to be opportunistic, but trading accounts to such a large degree at the moment is more of a gamble than a tactic or strategy.
Your investments are already expressing a response to the latter stage of this economic cycle. This shift was made starting in the early part of 2019. The growth of the economy has slowed in the last year and is forecasted to slow further this year. At the moment, there is no forecast for a recession, or a contraction in the global economy, however this could change with this event. As it relates to your portfolio, your stocks are utilizing minimum volatility strategies in both US and foreign stocks as well as a shift to more defensive sectors in the economy. For bonds, you have more exposure to higher quality bonds here in the US and bonds that tend to do well when stocks don’t. For this year I am moving to do more of this while still attempting to capture gains in a good economy.
Is your financial plan affected? To put some perspective to this event, the stock market in essence is back to levels we saw at the start of the fourth quarter 2019. If your financial plan had challenges then, it will continue to be challenged. If your plan was financially sound in October, there’s no reason to believe it’s not now. This is a severe shock in the financial markets, however financial plans take this type of uncertainty into consideration. No need to consider going back to work, delaying retirement, or changing other long term plans with your finances if you’re already on track but it would be helpful to review again where things are and what the outlook is going forward.
I hope this helps and please don’t hesitate to reach out if you’d like to review or discuss further.
Bloomberg Surveillance Podcast 26 February 2020 with Noiriel Roubini
