– by Murray Sawyer, JD, Founder and CEO
This is no fun for anyone. It’s so bad, I just might take up golf again. Making double and triple bogeys and three-putting every other hole would be less painful for me than watching the stock ticker’s crawl.
It’s no fun for thousands of our fellow Americans who have been temporarily or permanently laid off. It’s no fun for the airline industry, the cruise line industry, the travel industry, the restaurant industry, the multitude of small businesses across the country. . . The list goes on and on.
This is no fun for anyone.
And this is certainly no fun for a President who looks like he would rather be pouring road asphalt in August than holding another daily press conference about the “Chinese” virus. In case you hadn’t heard, Mr. President, the entire stock market gains during your Trump years have been officially wiped out as of March 18, 2020.
And we know it’s no fun for any of you, our dear friends, colleagues, and clients.
The Interplay Between Mr. Market and Miss Economy
Just remember, Mr. Market and Miss Economy are siblings, but they’re not identical twins. I didn’t actually type that out: Just remember Mr. Market and Miss Economy are siblings but they’re not identical twins is a permanent smart key on my computer.
Mr. Market is the older child. He leads his younger sister, Miss Economy, both up and down. His trend has historically been two steps forward to one step back. At some point, the market will bottom — perhaps today, perhaps in a week, perhaps in a month, perhaps in three months — and then Mr. Market will turn up.
That turn will be swift and with little to no forewarning. And it will be many months thereafter before our economy has healed itself. It will take the economy much longer to rebuild from the seismic shocks not only from COVID-19 but also from the ongoing hammer and tong oil fight between Saudi Arabia and Russia. (Oil is selling at prices today that we haven’t seen since 2002).
Do you remember the all-time highs reached in all three markets in mid-February? Why does that seem like a century ago? Since February 24th the average daily movement in the market has been 4.9%. Up or down.
Mr. Market and Miss Economy are siblings, but they’re not identical twins.
We are being proactive, and continue to be, as we navigate our ship through this historic meltdown.
In the hopes that this report will give you some comfort, I will briefly, but only briefly, tell you of three steps we have been taking to protect our clients and their best interests.
Navigating the Ship Through a Historic Market Meltdown
Step #1: Equity exposure in all our models has been systematically reduced. This is not only a function of what’s been going on in the markets, but also is a function of our decision to sell specific equities at strategic times when we get these up-day bounces. We are leveraging our firm’s extensive experience and skill in technical and trading analysis to make these decisions.
Step #2: We’ve purchased an ETF that seeks daily investment results corresponding to two times the inverse of the daily performance of the S&P 500 index. Briefly stated, it goes up when the market goes down and vice versa. It’s a small position. We believe this will serve as an effective hedge against future fluctuations.
Step #3: We are concerned about the potential for money market funds to “break the buck” because, with investor nervousness at an all-time high, there could be a run on them and thus a liquidity crunch. Accordingly, we are in the process of moving cash out of money market accounts and into FDIC-insured cash accounts. The tradeoff, of course, is they pay no interest, but they do assist in the preservation of capital.
Our view is that these steps take us to the best port in this storm. Storm? Hell, with apologies to Billy Joel, we’ve got a force twelve blowing on the Beaufort Scale.
The Narrow Tightrope Between Conflicting Views
I leave you with this conundrum. Bill Ackman, a well-regarded hedge fund manager, announced today that we are facing Market Meltdown Armageddon. At the same time, Bill Miller, a legendary stock picker for more than 40 years, opined that this is the “best time in his lifetime” to be an equity buyer. We’re walking that narrow tightrope between these two views, but in times like these, it’s always with an eye toward trying to protect our clients’ capital first.
Keep the faith.