An unlikely pairing: Oil & Virus

Dear Friends,

Well, market volatility took a step up yesterday. Looks like that volatility continues today (but in a positive way so far!). Just another example that underscores how difficult it is to predict market behavior in the short term. People forget that volatility has two sides – up and down- and if you get out on the down days chances are very high that you will miss one or more up days. Those moves will cost you, which is why we work as hard as we do to provide perspective to ensure you achieve the best possible investment results over time.

Now between the two headlines – oil and virus – the one to watch is oil. That one has the greatest potential economic impact. While the U.S. economy is certainly strong, with low unemployment and less leverage or borrowed money in the economic system than other times, it is not immune to contraction. As we mentioned in our email two weeks ago, the chance of the virus driving the economy into a recession was “Frankly, maybe!”  However, the combination of an oil price drop that disrupts energy production in our country (which has been a main driver in economic growth over the past few years) would push that assessment to – Frankly, probably!

The markets certainly seem to be pricing a full blown recession into the mix given this quick decline of 20%. The silver lining on that front is recessions are always followed by expansions and bull markets! Remember you accumulated your assets over time – usually a 20-30 year period that consisted of plenty of headlines and a few recessions – and you will spend your assets over a similar 20-30 year period that will consist of plenty of headlines and a few recessions.

On an additional note, I just don’t understand the current approach to coronavirus. Clearly, if you are older and have health issues, then this virus is not something to be taken lightly. But it almost seems like the world (or at least the media) is expecting a zero-risk tolerance approach to combating this virus. When did that become the standard? And if it is, why do I still see cars on the road (accountable for 1.25 million deaths each year), cigarettes in the stores (accountable for 480,000 deaths each year just in the U.S.), and pools in everybody’s backyard (accountable for 360,000 deaths each year from drowning). Could some of the reaction to the virus be the death of common sense?

As always, we are here to answer any of your questions and concerns. That’s why you hired us in the first place – to provide some perspective in difficult times and create investment allocations that stand the test of time against the constant whirlwind of headlines and events. So don’t hesitate to give us a call or send us an email!

As a reminder, our next client event is coming up on March 26 at 5:30 PM.

Look forward to seeing you on the 26^th. And remember wash your hands and cough into your elbow!