thependulumswings

Friends

Does this maniacal market action make us nervous? Of course, it does. We’re human too. It’s always stressful when you are dealing with the unknown, and things you can’t control. So, to that end, it is much more productive to deal with things that you know and can control. What we know right now is that global economies are likely to suffer from the stress of the Covid-19 virus. We certainly understand that folks will take less trips, stay home more, eat out less, skip going to the movies, stop visiting the mall (well, that’s been happening for some time, hasn’t it?) etc. What we don’t know is how long all of this will last. Obviously, the longer it takes to get the virus under control, both medically and socially, the more damage to global economies. But, logic also tells us that at some point we will get the virus situation under control. Whatever damage is done, will have to be repaired, but is there any reason to believe that that won’t happen?

We position our portfolios with these type of events in mind. During extended moves to the upside, we’ll occasionally get inquiries asking why we have those treasury bills, or other short term fixed income instruments. Obviously, times like this is why we have a portion of our monies in the safety bucket. Sure, we give up some upside potential when using that bucket, but when things deteriorate like we have seen in the past couple of weeks, having money in that safety bucket sure helps us sleep at night. A well-constructed portfolio helps reduce the overall volatility by having a portion of the monies in a safe, dependable bucket.

In addition, as you know, for retirees we like to keep up to 2 years of living expense in an additional safe place just for times like these. With our additional safety bucket available to draw from in times of disruption, we are able to turn off the flow of monthly income from our retirement accounts, thus not drawing down against an asset that has declined temporarily in price. Since bear markets last on average about 9 months, we can then return to drawing our income from the retirement accounts when markets are recovering and moving higher. We then replenish the additional safety bucket when times are good, such as last year’s stock market advance.

As for today’s action, as we mentioned this morning, stocks opened up down 7% and we had a 15 minute halt as the circuit breakers were triggered. After we started trading again, stocks remained in a relatively defined range, but ended near the lows of the day. By the close, the Dow Jones Industrial Average was down 2,013 points to finish the day at 23,851. The S&P 500 was down 225 points to close at 2,746. Gold was up $2 to trade at $1,674 per ounce, while oil was down a whopping $10.37 to trade at $30.91 per barrel WTI.

It was an historic day for the markets, not only in stocks, but we reached interest rate levels on U.S. Treasury Bonds never seen before. The 10 Year Note did slide back up over .50% by the close, but with both the 10 and 30 year paper both yielding less than 1%, we are seeing yields never before seen.

We are going to catch our breath and get some rest. We’ll be back at it tomorrow, and as we mentioned this morning, we’ll continue to send out bulletins updating you on the markets.

Try to have a nice evening everyone.

Jim