The market continued being sick with the coronavirus this month. The market continued its sharp downturn. Essentially, people are afraid that the economy will collapse. In some respects, stock prices are a forecast of what people believe the economy will look like.
Obviously, we are now entering a recession. Unemployment is incredibly high because of all the mandatory business closings. Daniel does accounting for several large restaurants, dentists, etc., all of whom have closed and laid off all their employees. As well as manufacturing businesses who laid off part of their workforce because of lack of business. That’s about 250 employees. The real question, however, is how long?
Over the last three days, Daniel has received over 20 phone calls and emails about the federal stimulus programs for businesses just signed last week. Every one of the closed businesses we just mentioned asked Daniel for advice. They ALL were planning on reopening as soon as they were allowed and wanted some federal assistance. All but one or two had strong qualifications and will probably be approved for the various SBA programs. We sent them to their bankers to complete the applications. Some of the money will be available in a few days, the big money in four to six weeks. The government will be loaning the money to cover payroll, rent, utilities, and some other things. The loan would then be forgiven if the money was used for those things.
So, is this stimulus going to juice the economy? Is it enough? There really is no way to know. But our feeling is yes, it is enough to fix the economy. It, of course, depends on how long the mandatory close orders last. Many of the mandatory closed industries have been hearing 30 days from their professional associations. In some parts of the country (such as Oregon), new cases are dropping. Other parts of the country are still out of control. The news is saying the peak will be in the next two weeks. After these businesses reopen, it will take time before everything is normal business amounts, maybe months. As people return to work, the fears of a collapsing future economy will recede.
We have been criticized in good times for our heavy bond allocation on portfolios, that we are too conservative. But, as you can see, risk is real and painful. Our portfolios did not lose as much as the market during the downturn.
The market will recover.
Daniel and Eli
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Questions for the comments
Did my newsletter make sense? Do you agree or disagree with what I said?