During this season of separation, I want to make sure that we're staying in contact with you and giving you an update on what we're thinking about, what we're looking at with regard to the markets and the portfolios. Let's talk first - I want to talk about three things today.
- Where are we with regard to Covid 19?
- How have the markets responded up to now?
- What are we looking at as far as what comes next?
Where are we in regard to Covid 19?
So right now with regard to Covid 19, there's actually hopeful information here. Fatality rates as a percentage of the cases are not skyrocketing. The number of cases are going up. We should expect that's going to continue especially as we get antibody testing going globally.
Up to this point, we not have not had a way to test how many people have had this, how many people have already perhaps developed some antibodies and are resistant or immune to it. And so we have had no way to test that. That test is just come out within the last 10 days to two weeks.
The very first report that I've been able to find came out of Germany that actually indicated that 15% of the population had already had this virus. If those numbers hold globally, and I'm not saying they will, but if those numbers were to hold globally, we're in a really, really good position to be able to restart the economy, restart business and move back into a more normalized life. So with antibody testing, keep your eyes on that. That's really important.
This thing is following a normal curve. We have been flattening that curve as we've heard all too many politicians talk about, we have been flattening the curve because of our behavior. That's allowed our health infrastructure to be able to maintain a high quality of care. In fact, we were even seeing that perhaps because we flattened the curves so much, some of the infrastructure we're putting in places not even going to be needed. And that's great news.
The great news - the silver lining here is those early models that called for 2 to 3 million deaths in the US are not playing out, and it's not playing out because of the work that we're doing - distancing ourselves personally and physically. So that's great news. That's where we are on Covid 19.
How is the Market Responding to Covid 19?
There's seemed to be some hopeful data coming out. The Dow Jones is up 5,000 points in about two weeks! It's been the biggest run in history on a point basis. The Dow has bottomed, the S&P 500 has bottomed.
Now here's the reality. We are not out of the woods. We're going to talk about more of that in a moment, but the fact of the matter is the Dow bottomed a couple of weeks ago and has bounced back hard. The really good news for us, for you and your portfolio that we're managing, is that the rebalancing and restructuring is working.
We've looked at how our portfolios have bounced off the bottom, how individual accounts are bouncing off the bottom, and thus far those have worked really well.
One Risk to Keep an Eye On During Covid 19 - The Banks
Lastly, I want to talk about where are we going next. We are not out of the woods on this thing yet. What comes next is continued flattening of the curve, hopefully the beginning to restart some areas of the economy.
What we are really looking at is commercial mortgages and bank loans. This is really crucial. This is the canary in the coal mine because these assets in the marketplace are still selling at 50% or more below their fair market value.
That's really crucial because right now we don't have a banking crisis. The Federal Reserve and the Treasury and Congress can work together to keep enough money moving into the economy, into American's pockets, to get us limping through this couple of month gap. If the banks go into their semi-annual stress tests, and they have to revalue their assets at 50% or more below what they were valued at at the last stress test, then we have the risk of having a banking crisis.
That is the number one thing I am watching right now. We are watching these assets and seeing if they are able to stabilize because over the course of the next one to three months. If the federal government can't get these assets to stabilize from a price perspective, we run the risk of having a banking crisis. That's what we're looking at that, being very attentive and keeping an eye on dozens of different positions in this area of the market.
I want you to be aware of that. This is what we're looking at for as far as what comes next. We think that we're going to be able to get through this. However, if we see these kinds of assets continue to deteriorate, we will move money to the sidelines, and we will move money to a more conservative position within the portfolios in anticipation that there may be another leg down coming.
Here to Help
If you think this would be valuable to someone else, I invite you to send it to someone else, a family member, someone who's distressing. Certainly if you have someone who you care about who is distressing about their financial decisions or how they're making decisions right now, we're all working remotely. We've all got a little extra time and that includes me.
So please feel free to point them in my direction, give them my contact information and I'd be happy to have a conversation to see if there's ways that we can help them sleep better at night. Have a great day. We're always here for perspective for the decisions ahead. Take care.