By Herb W. Morgan, III, Efficient Market Advisors
Dear Investors & Financial Advisors:
Over the last few weeks, as the coronavirus has entered our lexicon, I’ve spent more and longer time on phone calls than ever before. Balancing the need to be in the weeds of managing the money with the needs of meeting client expectations for communication and reassurance have made for long days. This is the period where I both earn my keep and potentially add value to client portfolios. In years like 2019 when markets went straight up without a hint of volatility, I was like the Maytag repairman. And, my ability to add value to a portfolio was limited.
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By Herb W. Morgan, III, Efficient Market Advisors
Dear Investors & Financial Advisors:
At this point, the capital markets have moved beyond the potential impacts of the spread of the coronavirus and its ability to strain the capacity of the healthcare system. Many are actively questioning whether the intentional quasi shutdown of the US economy may do more harm than the coronavirus itself. Estimates vary widely about the impact to second quarter GDP but suffice it to say, the economy will contract at a double-digit rate. Even with all the recessions, wars, and natural disasters we’ve experienced there has yet to be a potential contraction this significant since the Great Depression. Continue Reading Here
By Herb W. Morgan, III, Efficient Market Advisors
“Be Fearful When Others Are Greedy and
Greedy When Others Are Fearful”
-Warren Buffett
With the Coronavirus unfortunately reversing the recent decline in active cases from late February and accelerating the number of net-new daily cases, it’s time to ask what investors might consider doing. Or importantly, avoid doing.
It almost goes without saying, that resisting the urge to change strategy, sell, go to cash etc., is a critically important consideration. While there may yet be more bottoms to achieve for this market, there will also no doubt be furious upside rallies based on policy anticipation, comments from leaders, news reports and the like. One of which, will ultimately be the bottom. Extremism as defense from volatility is no virtue! Continue Reading Here
By Herb W. Morgan, III, Efficient Market Advisors
Viruses & Economic Impact
What started as a Coronavirus Correction has now spilled over into credit. At this point we just don’t know how much impact the virus will have on the economy. To be sure, there will be an impact. What is particularly frustrating is that this all comes as economic data was accelerating into the new year.
We just had back-to-back months (January & February) of 273,000 gains in employed Americans. Weekly claims remain low and the overall unemployment rate was at 3.5%. We had strong auto and retail sales. All of this occured against the backdrop of a growth friendly policy agenda and an accomodative central bank. Continue Reading Here
By Herb W. Morgan, III, Efficient Market Advisors
Nervous Energy is a Great Destroyer of Wealth
-Fayez Sarofim
The financial markets don’t like uncertainty. The current Coronavirus outbreak is no exception, and many investors are tempted by an impulsive desire to “do something.” In our view, this urge is part of the instinctual “fight or flight” in our DNA.
But in times of volatile markets, the best move for long-term investors is often no move at all. While they’re not exact parallels, the stock market responses to the SARS Coronavirus in 2003 and the Zika virus in 2016 offer useful lessons. In both cases, investors who sold on bad news and falling prices missed significant rebounds that very shortly had stock markets back to prior levels. In fact, we believe that adding to portfolios on significant drawdowns or rebalancing portfolios to intended targets can lead to enhanced returns if markets ultimately rebound and achieve new heights. Continue Reading Here
By Herb W. Morgan, III, Efficient Market Advisors
This morning the Fed made a very much expected, unexpected cut to the Federal Funds Rate of .50%. We attribute yesterday’s massive rally to the concensus this would happen, and today’s selloff to the realization that monetary policy is not the solution to the now certain negative impact of the coronavirus on the global economy. To be sure, risk asset values had appreciated in an unsustainable way reaching an all-time-high on Februray 19th. The Fed cut this morning because it had to listen to the yield curve. Fed funds futures continue to indicate that another cut this month is more likely than not. Continue Reading Here
