Nothing to fear but fear itself –
As I’m sure you are aware, volatility continues with large market swings. Fears about the virus spread and diminished economic activity, as people are urged to stay home in the U.S. and abroad, has created a lot of uncertainty. People are stocking up on canned goods and trying to find toilet paper at Target can be a difficult task right now. On top of that there is uncertainty around who’s going to be the Democratic candidate and what their policies might be. This week we have also seen markets impacted by oil prices plunging. OPEC can’t agree on strategy so they’re trying to put each other out of business to gain market share. Russia’s President, Vladimir Putin, has suggested he’d like to drive prices lower to put US shale producers out of business.
So, should we be fearful? The short answer is no.
Going into this selloff, the US jobs and other economic numbers were strong as evidenced by reports last week. Those are rearview numbers but show the US economy was in a good place heading into this uncertain period.
The actual number of cases and mortality rate for the general population is very low. Other Corona/flu viruses typically are much less active when warmer weather prevails and Spring is not far away. Work on a vaccine continues and will hopefully be available and ready to distribute by the Fall. We hope additional measures to reduce the spread of the virus will also start to slow it down. Finally, the number of cases reported in China and South Korea have been diminishing significantly. In fact, many of China’s workers are returning to duty and economic activity is starting to normalize.
The Federal Reserve recently cut interest rates and are expected to do more if conditions warrant it. While this won’t directly impact the virus, it should help mitigate its economic impact and create a positive backdrop. In addition, governments here and globally are both discussing and implementing fiscal stimulus policies like providing money to workers that are temporarily idled and pumping money into healthcare systems to deal with testing and care of sick people. In fact, the healthcare system has agreed to waive costs associated with testing for the virus.
In the end, a slowing spread of the virus – which is yet to be seen in the US, but we hope will happen soon – coupled with low interest rates and oil prices that are down over 40%* in 2020 should be, in our opinion, very positive to consumers and businesses and provide a strong boost in economic activity.
So, what should we NOT do?
Panic. We significantly reduced equity positions and added gold as a hedge a couple weeks ago. Both have helped reduce price declines and volatility. Our bond portfolios have increased in value. We are holding elevated levels of cash to re-deploy once things settle down and opportunities present themselves.
Also, staying home and hoarding toilet paper isn’t necessary. We need to be careful and cognizant about mitigating the virus’ spread by following the advice of our skilled public health officials. We need to do what Americans have always done when facing adversity and threats to our national well-being – be united and remain strong.
In closing, the world has seen many pandemics before. We will develop a vaccine and a strategy to mitigate the virus. On our end, we will continue to monitor things closely and look for economic opportunities. You pay us to be rational and objective. There will be winners and losers once everything shakes out. But, we believe America will come out on top. As former President FDR said in his inauguration speech, “the only thing we have to fear is… fear itself”.
One noteworthy comment is that these comments and actions taken by our firm are a collaboration of the entire investment committee including Bobby, Jim, and myself and our trusted partners. Thank you for your trust and confidence. As always, reach out with any questions.
Donald J. Phillips, CFP®
Chairman of the Board
Greater Midwest Financial Group, LLC.
3222 Rice Street
St. Paul, MN 55126-3047
Phone: (651) 490-9790 Fax: (651) 490-9788
Greater Midwest Financial Group, LLC is not affiliated with Kestra IS or Kestra AS. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
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