The selling strategy called ‘panic’ employed a month ago, which sucker-punched the market’s 33% decline, is hopefully behind us. Small caps fared worse losing 40%. Optimism and cheap valuations have lifted stocks 28% off their lows (~12% from break-even) as investors began looking forward – rather than down.

Center stage is the ‘back to work’ vs. ‘virus mitigation’ debate, significant with 20M+ unemployed (and rising) and small business gasping. Both health and economics have extreme and life changing consequences, both being tightly intertwined.

A friend’s 40-person catering business in Oklahoma let go all but 5. These things snowball. With the price of oil falling to single digits, for every sidelined rig crew, another two dozen field workers get furloughed.

Brings to mind a learning event growing up. Dad owned a commercial laundry, big machines etc. Water pipe had broken, spraying half the building. Mac, the washer, had run around covering machines and clean linen with plastic…diligently. Pops walks in, sees the fountain and calmly drapes a bath towel over the wounded pipe…neutering its majesty straight down into the drainage ditch. Mac sighed.

A doctor client identified ‘vector control’ as the key for safe keeping elder populations, as their risk is more attributed to the number of ‘personal’ interactions, rather than age. My 94 year old mother needs the bath towel…and our healthy society needs to remove the plastic. For us long term investors we ask, how and when will ‘normal’ return? The clock is ticking….

“The right government policy response is to focus on supporting the small business sector, that have suffered from supply disruptions…  When businesses fail, jobs are lost, and consumer demand that was only postponed earlier gets destroyed permanently.”  Excerpts from Jim Walker: Chief Economist, Asianomics Group Hong Kong, via Forbes Magazine  3.23.20

Human ingenuity is on our side, with the ability to adapt that computer models can’t predict. We are inherently risk averse (well most) with ‘normal’ behavior currently being re-defined.

Although relatively expensive, blue chips (large) with more visible earnings and stronger balance sheets will hold up best while smaller economically exposed sectors will continue to be challenged. International turmoil with China supply chain disruption/withdrawal will become a nightly news event with increasing calls to relocate ‘essentials’ (and more) back to the US.  Globalism has become an expensive lesson, nonetheless one for which we too will adapt.

Financial markets give us the ongoing ability to reflect our risk and emotional sensitivity and apply that to our portfolio. If you have concerns or adjustments you believe necessary, please share your thoughts. Thanks! Looking forward to chatting.