March 9th, 2020 marked the 11th anniversary of the bull market that has ended. Just like I have written about in the past, everything regarding the economy and the markets seemed to be full steam ahead. But just like October 1987 the decline sort of blindsided everyone. The fear in the markets feels a lot like 2008 2009, which was the time that the 11-year bull market began. It appears all asset classes were getting hit. Obviously, equities or stocks took a big hit and investment-grade corporate bonds, high-quality municipal debt, gold and especially oil which got smashed all took a big decline from what had been an ideal situation for the stock and bond markets. Good growth in equities compounded by low interest rates which is great for bonds or bondholders is the perfect combination. See, in 2008 the markets started to weaken and we had some bad days but we had some good days as well, but we knew that we had systemic problems with the underlying mortgage market which created a liquidity crunch in all capital markets. But what started as a virus from China, compounded with the Saudi’s and the Russians dumping oil onto the world market driving the price down has created a very substantial correction. Many times, corrections in the equity market don’t bleed over into other asset classes. But this one just like 2008 2009 has, in fact crossed over to most all asset classes. The other fallout from all the retail, restaurant and business closings will surely put us into recession and obviously increase the rate of unemployment.
So, recession is just part of the business cycle, and this recession could be mild and brief or if the fallout from all the closures could create a systemic issue, rather than a black swan event that while shocking, can be typically recovered from quickly. Our society is now living a very different life, with less human interaction and fear of contracting the virus. We hoard toilet tissue, hand sanitizer and sell assets below their values which perpetuates even more fear and panic selling which is not good for anybody except those who are willing to step in and buy those assets at fire sale prices. When people’s retirement accounts are doing well, we tend to spend money. This is known as the wealth effect, conversely when those same people’s investment accounts are not doing well, we slow down our rate of spending which in a chain reaction slows the economy, creates higher rates of unemployment which self-perpetuates more reliance on the government. It is times like this that the government must work with business to innovate vaccines and produce the necessary equipment for our hospitals and healthcare workers, so they are able to do their jobs. That is what is so great about our country, we have the best and brightest and let me add, most generous people on the planet.
On a personal note, if anyone would like to explore doing business with our company, we have the capability of videoconferencing, DocuSign, and other media that allows us to meet and do business without exposing each other to unneeded risks.
