Anybody who knows me well understands the importance of not bothering me on Sunday afternoons. This precious part of my week serves to recharge my batteries for the upcoming week through the help of a 2 to 3-hour nap. This 2 to 3-hour nap usually starts shortly after I eat way too much for lunch. This food-induced coma has become a weekly ritual that helps start my upcoming week off feeling great due to this extra sleep that I receive. Despite the benefits, I receive from this nap I realize it comes at a cost. The cost includes loss of productivity, missed Packer games and less time to enjoy the weekend. Fortunately, I believe the benefits of this nap outweigh the costs.
Similar to my Sunday food-induced coma recently our national and many state governments have induced an economic coma. This government-mandated pause for businesses, social gatherings, and various other activities has temporarily halted large segments of our economy. The hope is that the lives saved from these mandated lockdowns are worth the toll this has taken on businesses, jobs, mental health, and finances.
To help alleviate the toll of this economic induced coma we are seeing an extraordinary government response that goes well beyond what we saw in the 2008 financial crises. The Federal Reserve has not only dropped the fed funds rate to zero, but it has implemented several programs designed to support Treasury bonds, investment-grade corporate bonds, commercial paper (short-term IOUs issued by the largest corporations), money market funds, mortgage-backed securities, and municipal bonds.
In addition to the programs mentioned above, there are several programs designed to help small-and-medium-sized businesses. This combined with programs aimed at helping qualifying individuals with one-time stimulus checks, unemployment benefits, and various other benefits imply that there is a stark contrast between this stimulus bill and the 2008 stimulus. The 2008 stimulus bill provided a great deal of support to Wall Street connected corporations. The recent bill helps a mixture of large, middle, and small businesses along with ordinary citizens. The programs covered by the recent bill is an attempt to put into place the foundation that will support a robust economic recovery.
One question that many economists debate is “Will this be enough?” The answer to this question is not simple to answer as there is no modern precedent on which to model economic forecasts surrounding this most recent stimulus package. Recent projections regarding our country’s future economic forecast have an incredibly wide range. For this reason, I would expect more volatility in the near future as the markets get acclimated with this short term uncertainty. The ultimate severity of the recession will likely depend heavily on the path the coronavirus takes along with the global leaders’ continued reactions to the virus.
Although it is impossible to know the path our leaders will take in the future we do know that our leaders have been developing policies based on CDC data. Initially, the CDC was projecting deaths from the coronavirus in the US to total up to 1,700,000. Since then the CDC has consistently downplayed this previous projection. Recent forecasts put the likely deaths stemming from the Coronavirus in the United States at 100,000-200,000. This is a significant reduction from the initial high estimate.
Based on this information it might be reasonable to assume that policies will continue to be modified to adjust to the most current information available. Fortunately, this virus is not nearly as devastating as was initially projected. Unfortunately, the loss of any human life is a tragedy.
Where Do We Go From Here?
Historically speaking our firm was founded 35 years ago. During that time we have worked with hundreds of clients through multiple bear markets. With hindsight being 20/20 clients who stayed the course while avoiding reactionary changes weathered the previous bear markets well. In my experience, several individuals who allowed their emotions to justify making reactionary changes with their portfolios lived to regret those decisions. For these reasons we recommend you stay strong. If history repeats itself, this storm will pass as others have before us have.
What is Bernicke Wealth Management Doing Differently?
The pace in which new tax and financial laws are being implemented has been rapid. As a result of these changes, Bernicke Wealth Management staff has been meeting weekly to address the changes in tax and financial laws. When we spot a change that we believe is beneficial for clients we make lists of those clients that would benefit. We then contact each client that will benefit if the information is time-sensitive. If the information is not time-sensitive we set tasks to discuss the beneficial information at our next scheduled meeting.
With all of the negative information swirling around it is worth mentioning a few positive things…. I have spent more time doing activities with my teenage children in the past month than I have the previous year. My wife and I have played more rummy 500 in the last month than the previous year. Finally, I have been able to successfully continue my Sunday naps without interruption. I hope you and your loved ones enjoy good health and an excellent Spring!