On behalf of everyone here at Cabana, I want to wish our clients, investor partners and friends good health and peace at this time. What we are collectively facing as a nation is in many ways unprecedented. Never has our economy and day-to-day life come to a sudden and complete halt. In the coming months, we will see many of our neighbors lose their jobs and businesses. In addition to a very real fear of disease, we will soon be forced to confront the fear of being unable to meet financial obligations and for some, feed our families. As always, the most susceptible are the poor and disenfranchised. Our thoughts are with everyone being impacted by COVID-19.
More perspective from those who came before us:
With that said, there is always hope and perspective when we look to the past. Our parents, grandparents and great grandparents have given us a roadmap to deal with real adversity. They faced challenges, which at first must have seemed impossible. World wars, drought, depression and even sickness. In 1929, my great grandfather died of pneumonia. He caught a cold while duck hunting. There weren’t antibiotics to fight the infection in his lungs that developed over the following week. He was 35 years old and left behind a wife and four children. One of his children, my precious Mimi was four years old. The country was already in recession that January and would be plunged into the Great Depression nine months later. I cannot imagine how scared my great grandmother must have been. She was poor to begin with and suddenly faced with being alone and finding a way to support her children at the worst possible time in history. Except she wasn’t alone. She had her family and his. His brothers and sisters stepped up and made sure food was on the table and the house had heat. My grandmother told me story after story about her time as a little girl with her aunts and uncles. Her Uncle Adrian had a cement porch and he gave her a ball to bounce. They made her feel special and taken care of. She was part of something bigger than herself and she was loved. I think that time in her life was one of her favorites. She didn’t know how close to the edge she really was. My family isn’t the only one that faced very difficult times. All families did. World War II came, and men left home and fought together for their country. They died for it. During the first half of the twentieth century, polio crippled children across our country. During warm summer months the country was regularly quarantined, and each new illness brought fear that it might be polio.
Since then, we have seen men sent to fight overseas time and again for popular and unpopular reasons. We have seen our major cities erupt in riots and fire. We have seen AIDS wipe out an entire generation of some of our most creative and talented. We have seen our nation attacked on its own soil by terrorists in an act so shocking it is forever etched on the minds of all those old enough to remember it. We saw our financial system collapse, resulting in a second debilitating recession within eight years. People who invested in 2000 did not make a dime for an entire decade.
We made it through all those things, and we will make it through this. The common thread among these events is that they affected all people. Just as the generations before us have shown, when we are all threatened, regardless of the source, we step up. We come together like no nation of people in the history of the world. When the times are the very darkest, Americans are at their best. This will be true again. Today, let us all commit to one another to be our very best and to help those of us less fortunate. As Mimi has always shown me, it’s not about the money either.
This past week, the stock market continued to fall in response to the inevitable loss in productivity and resulting corporate earnings. Equity indexes are down more than 20% for the month and more than 30% for the year. The speed and depth of this decline over the past six weeks is beyond remarkable. Never has something like this occurred from a market top, and it is further evidence of just how suddenly investors became aware of the extent to which this pandemic would damage our economy. If you were ever looking for the definition of a black swan event, this is it. Even more troubling than the fall in stock prices, is the decline we are seeing in all types of bonds, particularly those perceived as “safe” assets. Investment grade bonds, municipal bonds and even treasuries have been pummeled (while treasuries have since rebounded). In just three weeks, investment grade bonds are down 18% and municipal bonds are down 15%. High yield bonds have been hit even harder. Investors are concerned that many businesses and municipalities will not survive or will be forced into bankruptcy. This situation has become so severe that there is now very little or no market at all for these bonds. The Federal Reserve has announced a plan to backstop these assets to encourage banks and other financial institutions to buy them. Additional “unlimited” financial support was approved early this morning. We will have to see whether our central bank can push enough liquidity into that market to right the ship. Of all the things I have seen over the past month, the selloff in normally “safe” bonds is most concerning. If investors are unwilling to take positions in the bonds of the very best companies and communities, they are certainly going to be unwilling to buy stocks. Many retired people rely on these investments, and the continued unabated decline in their price needs to be resolved quickly.
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