Mid March 2020 Newsletter : Investment Update – URGENT
Investment Update – URGENT
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock).
The US Economy has now entered a Recession! We are, as a matter choice for Public Benefit, effectively “shutting down” the US Economy for a period of two to six weeks! Allow that to sink in!
This isn’t just a “widespread drop in spending” per the definition - this will virtually shut down spending! But for how long? The correct answer is: We Don’t Know! In addition, one must understand that it is quicker to stop an economy as diverse and widespread as ours than it will be to complete the future restart of all sectors and industries of the US Economy to full steam.
One factor only is called “Supply Chain Management.” Certain business and operations will not be able to function at all in some cases or in full in others, until key members of the other companies that supply them anything (information, hardware, software, parts) are fully functional earlier than the end using company. We aren’t even going to cover the human capital side of the equation amongst other factors.
The point is the restart to full function for the US Economy will take months! The tremendous amount of economic stimulus just initiated by the Federal Government could help the restart the economy but that cannot be counted on 100%. The Economy definitely needs this bailout, but will there be enough firepower to restart the financial system to full gear – quickly? If much of the stimulus is used to keep failing industries and unfortunate citizens intact, then the answer to that is: We don’t yet know!
So, with that I am issuing a clear signal that I believe we have entered a recession. The markets dislikes uncertainty and I am very certain that the uncertainty will persist for at least a few more weeks!
The official criteria that must be met to call an economy a recession – is two consecutive quarters of negative Gross Domestic Product (GDP). So, recession monikers are always placed well after the fact – so you won’t find confirmation on the evening news.
I am offering advice. Over the weekend, the markets were at levels we saw in early 2019. So far, you’ve probably only given up perhaps one year of gains. We had an 11-year Bull Market that just ended a few weeks ago. I suggest you do a serious assessment of your risk! If you need help – call me for a free review. If you’re already my client, you know I have you covered.
Final notes. The Bond Market was spooked by Boeing (BA) late last week when it drew their full $13.8 Billion Line of Credit. Most felt that Boeing was not experiencing “Cash Flow Problems.” It was therefore taken to be a question by a big US Company of the viability of our US Banking system.
What we saw this weekend by the Federal Reserve Bank was appropriate action to cut interest rates to zero! To also invoke an immediate $700 Billion stimulus package to answer those concerns, shore up Banks and Lines of Credits.
Last week, almost all Bond Mutual Funds acted very squirrelly. It is now imperative that if you own a Bond Mutual Fund of any kind– that you begin to measure risk on those investments as well! Individual Bonds will mostly be just fine. The Fed will once again keep the banks alive – however Bond Mutual Funds aren’t banks!! The key is now is the time to just take a hard look at your overall investments- especially relating to forward risks.
In summary if you look around your daily life – it is obvious we are in a new paradigm. Anything can happen! We all hope for the best outcomes for us all but when it comes to your money and investments you actually do have control! You can control with absolute certainty, going forward the amount of risk YOU CHOOSE to take with your money and investments.
Please let me know if I can be of help. (800) 449-9501