The Northern Star Newsletter 3/18/20 - Volatility Continues
Message from Jon
Market Update: (Monday 16th at 6am)
*Until the chaos settles down, I will be sending these out weekly or as needed to increase communications to clients and prospective clients and help calm the fears and give guidance. Once the waters recede, we will resume normal frequency and outlines.
*We will be moving ALL meetings to webinars and phone calls to preserve you and our staff's health in two week intervals until further notice. If you attempt to call in, you will go into voicemail, so leave a message and we will call you right back as staff will all be working just remotely and will be checking emails and emails regularly.
Business as Usual...Kind Of
Have the facts changed from last week to this one?
- The government cut rates to 0.00 Sunday.1
- President issued a state of emergency over the weekend.2
When the facts change, so do we?
- Cutting rates will likely cause bond values to rise in our opinion.
- We have been tilting our portfolios for weeks now, substituting equity funds for bonds and may do some more here this week as a precaution against severity and duration of the situation.
- Increase cash positions or let new money accumulate to prepare for the buying on the back side and reduce risk over the next several weeks to months.
Last week was anything but usual on Wall Street. We got a ringside seat to what panic looks like in the financial markets-where emotions overcame logic and liquidity was more important than staying put for the long term.
We saw where margin calls required the liquidation of funds and ETFs contributing to further declines and even more fear.3,4
In our opinion, the government is acting earlier than expected and in a way that is completely expected according to our models thus far. The correct approach is to close down the stores, restaurants, bars, parks, entertainment functions and venues, gatherings and yes...even Disney World in order to stop the spreading and contain those who are already exposed but have yet to exhibit symptoms.
What we think is going to happen isn't pretty in the near term, but it will pass, and we will be okay. We will see a continuation of last week in our opinion for another 4-8 weeks and then it will recede. On the back side of this current market condition is a stimulus-backed rebound that is likely to be rapid, robust, and possibly resemble a shark feeding frenzy at high tide on a whale carcass (pretty graphic but that's what came to mind for me).
Disclaimer: If you are a server at a restaurant or work in a service industry that has direct contact with people, my heart goes out to you, because your job in the short-term may likely be impacted.
Our models (in our opinion) show that we should be prepared for restaurants to close, bars to close and hospitals to be on lock-down. Parks to close, entertainment venues to close and even whole cities and towns to close down. Clinics will become very restrictive if not ultimately close or at least change how they deliver medical advice and attention. Drive-throughs will become very popular as a means to continue to provide assistance and service while limiting contact, which now they are referring to as "Social Distancing."
All of this is GOOD, not a bad thing! We as a country have had a 4-week head start on behavior modification and implementation of changes that are necessary to contain the spread and then work to provide solutions accordingly. The president enacted a state of emergency over the weekend head start and the FED cut rates to 0.00, which each entity was required to do in order to enable the next phase of economic relief to come, in our opinion.
We will likely see them then pump liquidity into our systems to ensure that banks can lend to companies to keep employers from laying off. The technology has advanced in the last 10 years to accommodate working from home with little disruption. Obviously, there are exceptions to this like in the case of CAT or ALCOA or SIA where manufacturing, Industrials and Chemicals, and many other areas where remoting in is not feasible. These areas are the ones most likely to seek assistance from the Fed and Banks for short-term loans and the like.
Do not be alarmed by the velocity of these changes. The quicker the behavior changes, the better our chances of recovery. Remember, just because it gets worse doesn't indicate a change in material data or indications.
THIS TIME IS DIFFERENT
2008 was the last major retraction and recession of the economy where over 11 million people were out of a job.5 When you lose your income, you lose your ability to function normally. In 2020, people are not losing their jobs. They are being forced to work under an alternative capacity. Being forced to be inconvenienced for sure but not without means to continue their respective normal living standards they have become accustomed to. Could we see the government begin to cut citizens' checks should this escalate and be prolonged—yes. Do our models look at that as a high probability...not at this time.
On the other side of this (it may be in May, June, July, August, September...) the rebound should be backed by stimulus and results should be extraordinary and strong. People with pent-up capacity and desire to go out will likely do so with expediency and vigor, in our opinion. This is why you do not want to unwind your accounts totally and go to cash. Being able to time the upside will be extremely difficult as we have seen on 3 occasions already where the market has rebounded in single day increases of over 5% and you simply could not put in your orders fast enough to be a part of it.
At the risk of this sounding completely deaf to what's happening around us-relax and remain calm. Do not allow yourself to get sucked into the irrational fear of this being the zombie apocalypse or some other death dealing situation where your lives and personal economies are at stake if you make one false move over these next several weeks! That could not be further from the truth!
I am speaking with colleagues and institutional money managers daily in addition to reading copious amounts of information to get perspective, insights, and guidance that I can pass along to you. Resist the urge to check accounts daily (especially on severe days of declines and rallies) to preserve your sanity.
It will help you with future decision-making ability, in my opinion.
Till we speak again, which may be later this week...stay safe and wash your hands!
WEEKLY UPDATE - MARCH 16, 2020
The Week on Wall Street
Markets remained exceptionally volatile, buffeted by the spreading impact of coronavirus, uncertain responses from federal policymakers, and the sudden drop in oil prices.The Dow Jones Industrial Average fell 10.36%, while the S&P 500 declined 8.79%. The Nasdaq Composite index slid 8.18% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 17.75%.
Securities offered through Regulus Advisors, LLC. Member FINRA/SIPC. Investment advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Registration with the SEC does not imply any level of skill or training. Regulus Advisors and Regal Investment Advisors are affiliated entities. Summit Retirement Advisors, LLC and Summit Financial Group of Indiana are affiliated entities. Summit Retirement Advisors, LLC and Summit Financial Group of Indiana are independent of Regulus Advisors and Regal Investment Advisors.