Dear friends, family and clients,  

Wow! In my 45 years I have never seen this.  Prior bear markets (a decline of 20% or more from the last trailing high of the S&P 500 index—which was 2/19/2020) were caused by the collapse in fundamental economics, such as the banking and bad real-estate loan crisis of 2007-2009. Or the irrational tech bubble of 2000-2002. To the best of my knowledge, this is the first bear market caused by a disease, since the impact of both the Spanish flu of 1918-1919 combined with WWI. 

I am going to share my thoughts with you, and I have attached many of my reference points, not in chronological order, both above and below.  I apologize for that, for it is above my pay grade.  I am desperate to get this email out to you, and I apologize for any linguistic glitches. I normally have a brilliant staff to clean up these emails. I encourage you all to write me back with your candid comments and questions:

There are 7 major parts to the mess we are in:

1. The humanitarian cost to the economy of illness and deaths is enormous.  Our thoughts and prayers to all who have lost a family member or friend. Not to make light of that, but the economic destruction is epic.

2. Why is this impacting the economy and the stock markets? Here is where I go random on you.  The attached article on the “manufacturing supply chain” shows major global ramifications.  By example, the parts of an Apple iPhone come from 26 different countries.  You only need one part missing, and no iPhone shipped.  Extend this concept to everything that is manufactured globally:  TV’s, phones, computer gear, appliances, automobiles, tractors, medical supplies and big pharm, to name just a few.  A statistic I trust more than the Fed is a recent survey by Dunn & Bradstreet of their Fortune 1000 customers, which shows that 94% of transportation management executives in those companies reported supply change interruptions.  Even if you were motivated to buy something, the news is already reporting enormous lack of supply.  Think of Samsung TV’s and phones from South Korea, computer gear from Japan, cars and trucks, appliances from South Korea, Japan, Mexico, China, Germany, Italy, etc.  The math will make your head explode.

3. The Fed at about 3 PM on Sunday, today, as I write this, dropped overnight rates to banks to the 0.00 to 0.25% range.  Who will this help? More  random questions and thoughts:  Are you going to go out tomorrow and buy a new auto/truck because the interest  rate is 1% less? Book a cruise? (They are shut down for 60 days!) Buy airline tickets to Disneyland??  It’s closed.  Go to Home Depot or Lowes and buy a new $50,000 kitchen or bathroom renovation? The one bright spot is refinancing and new house purchases.  The Fed rate cut should trickle down to lower mortgage interest rates.  If you haven’t checked your home mortgage interest rate lately, do so right now.  Caution, I have dozens of mortgage and bank lending officers who are clients.  Their pipeline is 2 to 3 months out.  In many cases, they have closed their pipelines to new applications.

4. The Fed at about 3 PM on Sunday, today, as I write this, dropped overnight rates to banks to the 0.00 to 0.25% range.  Who will this help? More  random questions and thoughts:  Are you going to go out tomorrow and buy a new auto/truck because the interest  rate is 1% less? Book a cruise? (They are shut down for 60 days!) Buy airline tickets to Disneyland??  It’s closed.  Go to Home Depot or Lowes and buy a new $50,000 kitchen or bathroom renovation? The one bright spot is refinancing and new house purchases.  The Fed rate cut should trickle down to lower mortgage interest rates.  If you haven’t checked your home mortgage interest rate lately, do so right now.  Caution, I have dozens of mortgage and bank lending officers who are clients.  Their pipeline is 2 to 3 months out.  In many cases, they have closed their pipelines to new applications.

5. The combination of decreased consumer and small business spending, combined with simple human fear, has taken a toll on all stock markets.  A long time ago I learned the expression, “The trend is your friend.” Since 2/19/2020, the all-time high mentioned above, we have had 17 stock market days: 13 down, 4 up.  End of game.  Restaurants, retail, cruise lines and leisure travel have taken a huge hit.  I’m sure you have seen the pictures on the Internet of the empty shelves in all grocery stores, Costco, Wal-Mart, etc.  This is not going to be miraculously repaired over night because interest is cheaper.  And by the way, don’t expect those interest rate cuts to banks to trickle down overnight to your credit card balances.  The most credit worthy of the US citizens, about 25%, will get a better rate on an auto/truck loan or a mortgage.  Per above, 70% of Americans were frozen in poverty before 2/19/2020 and will continue to be so.

6. There are a couple of bright spots.  Student loan interest forgiveness, 2 weeks of unpaid wages to small business employees. And here is the big one (article attached). There are approximately 100 banks and lenders that have loaned billions to the small/medium oil patch producers, i.e., not Exxon Mobil.  These small producers, who mostly do shale fracking, have an average cost to produce and extract at $31/barrel.  Oil currently fetches about $30/barrel.  You can’t make money spending $31 to sell something for $30.  You don’t need to have a Ph.D. in Economics to figure that out.  Will the Fed’s interest rate cuts make oil go back to $60/barrel?  More than likely,  not!  Due to the supply chain disruptions above, in China, and most other countries that have manufacturing-based economies, are buying less oil. (Think G20, Group of 20, 19 nations and the European Union.)   Add to that consumers, airlines, cruise lines, etc.

7. Now for the scary,  gross part (references attached). 95% of the US consumption of 200+ varieties of fruits, nuts and vegetables come from California.  The major West coast cities from Seattle to San Diego are suffering from a pre-2/19/2020 epidemic of homeless street people living in tents.  Again, it doesn’t take much to realize that these people are not the healthiest, cleanest and best cared-for individuals to begin with.  COVID-19 will hit them hard.  In the attached reference, you’ll see that there are approximately 12 to 15 million migrant workers in CA responsible for the harvesting of those 200+ fruits, nuts and vegetables.  What happens to the food supply chain when COVID-19 hits the migrant workers in CA?  That might just explain all the empty shelves in grocery stores this past week. Consumers get it.

 I’m sorry if you think I am an alarmist.  My number one job is to protect you and your family’s investments.  We are doing that.  Many accounts went to 100% “cash” on 2/28/2020,  and other accounts have been substantially defensive, known as “short”,  since then.  We have the greatest scientists, MD’s, and Ph.D.’s working on this pandemic.  If you haven’t seen Dr. Anthony Fauci on TV, Google him.  His team is the best, and not a bunch of TV talking heads.

Please write me back with your questions and comments ASAP.  I am doing my best to protect you and your family.

Jack

Sources:
https://www.nytimes.com/2020/03/15/world/coronavirus-live.html?emc=edit_na_20200315&ref=cta&nl=breaking-news&campaign_id=60&instance_id=0&segment_id=22258&user_id=8ceee818e1df4b6e6a8576714a4f7c82&regi_id=67446251
https://markets.businessinsider.com/news/stocks/coronavirus-ray-dalio-not-solved-rate-cuts-stock-market-hedging-2020-3-1028964518?utm_campaign=browser_notification&utm_source=desktop
https://finance.yahoo.com/news/ackman-hedges-protect-against-coronavirus-225332704.html
https://markets.businessinsider.com/news/stocks/oecd-slashes-2020-global-growth-outlook-on-coronavirus-fears-2020-3-1028954418?utm_source=markets&utm_medium=ingest
https://slate.com/technology/2013/07/california-grows-all-of-our-fruits-and-vegetables-what-would-we-eat-without-the-state.html
https://www.farmprogress.com/tree-nuts/what-happens-if-us-loses-california-food-production
https://www.brookings.edu/wp-content/uploads/2020/03/20200302_COVID19.pdf
https://www.politico.com/news/2020/03/04/house-coronavirus-funding-121065
https://moneywise.com/a/these-restaurant-chains-are-closing-2020
https://www.dnb.com/content/dam/english/economic-and-industry-insight/DNB_Business_Impact_of_the_Coronavirus_US.pdf
https://www.axios.com/coronavirus-climate-change-risks-bc81ec96-ca03-4af7-867f-2aac2648b2d5.html
https://thehill.com/policy/healthcare/486645-cdc-americans-over-60-should-stock-up-on-supplies-avoid-crowds
https://www.marketwatch.com/story/pimco-its-just-going-to-get-worse-for-economy-2020-03-08?mod=hp_minor_pos20
https://www.niaid.nih.gov/about/director
https://morningconsult.com/form/consumer-confidence-tracking-us/

Social media posts can have hidden agendas, regulators said.

The Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. are warning investors about using social media data to make investment decisions.

In recent years, companies like TickerTags, Social Market Analytics and LikeFolio have launched to turn the massive amounts of data on social media into investment research. The idea is that by aggregating and analyzing posts on Twitter, Facebook and others, one can detect a “social sentiment” that predicts future market or economic performance.

For example, if millions of people are tweeting how much they hate the latest iPhone, it could predict Apple falling short on its next earnings report.

Social sentiment data is increasingly popular among both retail and institutional investors. Several companies are providing earnings predictions to individual investors directly, and is selling data to quantitative fund managers.

But the SEC and FINRA said the information on these tools can be inaccurate, incomplete or misleading. Data can be stale or out-of-date, and social media posts may have hidden agendas. The SEC has actually charged someone for sending false tweets in order to influence stock prices.

FINRA’s  The investor alert added that buy or sell indicators driven by social sentiment can lead investors to make emotionally-driven or impulsive investment decisions. The SEC and FINRA advised investors to not rely solely on these tools when making decisions and to stick to a long-term financial plan.

The general consensus is that FINRA is warning investors that if they trade based on social sentiment and lose money, don’t expect FINRA to investigate, even if there is proof there were flaws in the social sentiment provider’s data.  Institutions likely will want to develop clear disclosures and disclaimers for any social sentiment data they make available to investors on their platform.

Financial industry insiders applauded the alert and said the SEC and FINRA correctly identified the issues that may arise for investors.

As always, We are here to help you find the best solution for your situation and your needs. Contact us to set up a free, no obligation consultation.

If I told you that people who perform their own auto repairs experience almost double the car problems compared to those who use an experienced mechanic, would you be surprised?

What if I said that people who try to invest for retirement on their own have almost 50% less in their accounts than those who use an experienced financial advisor? Would you be surprised? The proof is in the numbers. According to a recent study by Charles Schwab, 81% of people with a self-directed brokerage account in their retirement plan do not use a financial advisor – and on average, they have $214,909 less than in their account compared to the 19% who do use an advisor.¹

That’s a lot of numbers right off the bat, so take a second to read that again. As the study reports:

“Only 19% of those holding self-directed brokerage accounts use an advisor. However, they have an average balance of $449,552, nearly twice as much as the $234,643 reported by non-advised participants.”
Self-directed brokerage accounts are accounts inside retirement plans that investors can use when they want to invest in stocks and mutual funds not available in their normal retirement plan. But the value that an experienced advisor can provide is not limited to these types of accounts alone.

Here’s why you should consider an advisor if you’re serious about retirement:
Imagine two people, Joe and Jane.
Joe manages his own investments. He’s a smart man, so he takes time to do some research. He can explain the difference between a mutual fund and an ETF. He knows how Apple’s stock has been performing. He checks the markets every day.
But soon, Joe realizes there are a lot of options out there – as in, hundreds upon hundreds. It would take hours, days, weeks, months, years to research every mutual fund, never mind figuring out which one is right for him. Now, Joe just doesn’t have that kind of time to do all that research – nor does he have access to the tools or training that would make that research easier. So, in the end, he puts most of his money into individual stocks, mostly for companies he’s seen on TV a lot.

Jane, meanwhile is equally busy. The difference is, she knows what she doesn’t know. In this case, she doesn’t know which investments are right for her goals, or her comfort with risk. She really wants to know she’s on track for retirement, though, so she works with an advisor who reviews her options, helps her make choices based on what she’s comfortable with, and spend almost all day, every day, doing the research she just doesn’t have time for. The end result? An investment portfolio that’s both diversified and specific to Jane – as well as one she doesn’t have to spend all her time managing and stressing over.

Now, look. I’m a financial advisor, so am I a little biased? You bet! But let’s go back to that study. What Charles Schwab found1 is that investors without an advisor:
• Allocate a lot more of their money to individual stocks than people with an advisor.
• Are less diversified than people with an advisor.
• Have more high-risk “growth” investments than people with an advisor.
• Make fewer trades and re-balanced their portfolios less often than those with an advisor.

In short, the study found that investors without an advisor do less to protect their retirement savings from market volatility or adapt to changing market conditions. They are like cars driving through a rainstorm – without their headlights or windshield wipers.

But there’s one thing the study didn’t say.
Perhaps the most important way that an experienced financial advisor adds value to your life is they can hold your hand when the markets get rough. Market volatility is inevitable – and when it comes, investors like Joe are often prone to panicking. Their retirement savings are going down – and they don’t know why or what to do. In such situations, it’s natural to panic. And when investors panic, they tend to make bad financial decisions.

A financial advisor, on the other hand, is there specifically to keep you from panicking. An advisor can explain why the markets are performing the way they are, and provide ideas on what to do about it. An advisor can help you remain focused on the long term instead of the short. They can act as both headlights and windshield wipers when the markets get stormy.

In short, an experienced financial advisor can provide a lot of value.
The proof really is in the numbers. Only 19% of those holding self-directed brokerage accounts use an advisor. However, they have…nearly twice as much as non-advised participants.”¹
Of course, that doesn’t mean an advisor is right for everyone. But isn’t it time to find out if one is right for you?
If you answered YES, then please call our office at Research Financial Strategies for a free second opinion on the current state of retirement savings. Together, we can look at your portfolio to determine whether you’re on track to reach your goals, if your investments are properly diversified, and if you are growing at the rate you could be. What you do after that is up to you – but at least whatever decision you make will be an informed decision!

The proof is in the numbers. Call for a free second opinion of your numbers today!

Source: InvestmentNews