Better...Sooner

“A bank stress test is an analysis conducted under hypothetical, unfavorable economic scenarios, such as a deep recession or financial market crisis, designed to determine whether a bank has enough capital to withstand the impact of adverse economic developments.”

The above quote was taken from “Investopedia” The details of stress tests are quite complex. Please note the use of the word “hypothetical”, in the opening sentence.

Well, there’s no need for hypotheticals at the moment. Banks and all manner of financial sector firms—insurers, mortgage companies, financial advisories, brokerage firms, etc.—are living their own stress test in real time and so we all are.

The 2019-2020 coronavirus pandemic has disrupted normal life and brought tragedy to many families, communities, countries and the collective world.

Our role for clients is to help answer questions and understand particularly relevant elements of the day to day news-flow. While everyone has their familiar sources for information, we make dramatic efforts to access a wide range of data and professional opinion as well as reach out to surprising talent within our clients, many of whom are well-regarded scientists directly related to various efforts underway in virology, epidemiology, cell research and social modeling. Besides this incredible pool, we work with experienced public and private investors that have their own theories and assumptions about the pandemic and pricing issues in the various bond, currency, real estate and equity markets.

While what follows is partially a condensed opinion, it has been derived from the collective thinking, research and opinion from a remarkably able and talented pool.

To begin: no one…and everyone…is a lay meteorologist in a hurricane….

Continuing with that analogy, the current question is when will the eye of the storm arrive? And then, how long will it last? And lastly, when will the rest of the storm pass over and how destructive will it be?

What might be taken for the eye of the storm? Could it be:

1. A moderating of new cases of covid-19 in the hardest hit European countries?
2. A moderation in the number of cases in the US hotspots and a collective, pending moderation in the US?
3. Could it be growing evidence of some seasonality with this coronavirus?
4. Will we get some clearer evidence of effective treatments?

It would seem that some of these questions will be answered, at least partially, in the coming days and weeks.

For you that have experienced one or more hurricanes, you know that no two are alike, but it’s my belief that while the storm is still with us, we’re the eye of the hurricane is beginning.

We are now able to start assessing the damage and it’s extensive. We’re functioning, as a nation, but in a confused state and we’ve begun to provide financial aid in the most (appropriately) generous fashion ever in American history.

Only now, unfortunately, are we beginning to adequately test for Covid-19. We will see future testing for those who may have had Covid-19 and now have antibodies as evidence. The number of approved tests in both cases have been fast-tracked by the FDA (particularly as the CDC’s missteps created dramatic and tragic delays) and innovative corporate solutions are appearing.

Is it possible that the U.S. might not even have the back half of this Hurricane Covid-1? (The dreaded fall/winter return of Coronavirus 19).

Our belief--which should be partially reflected in calmer bond and stock markets—is that it’s probable.

This has been and will continue to be a stressful time. And we appreciate what Nobel winner Robert Shiller described now as a time of the dual pandemics of Coronavirus and Anxiety.

And finances are challenged. Portfolios are affected by the difficulties inherent in pricing assets amongst unknown outcomes. Mortgage or rent payments, deferred or delinquent, foul legal covenants and roll through the banking market. Companies with little or no revenue might no longer satisfy lending/ borrowing rules. Distressed public companies may reduce or temporarily eliminate dividends. Sales tax receipts hurt municipal and state coffers. Friends, neighbors and relatives’ jobs or businesses are upended and the loss or threat of loss of income and healthcare is more than dramatic for some.

These are tough times.

They will end.

But that’s obvious…and trite…and inadequate. There’s no “math” in that. What we often say around here is a version of “this is what’s very likely to happen” but it’s the when that gives it relevance, and we can’t know but we have a reasoned, weighted opinion.

Sooner…than later!

There is a stunning alignment of scientific talent and human resolve that will, for the first time in human civilization, bend the curve on a world pandemic. It will be less that we could have done. It will be less than so many deserve. But it will be a remarkable feat. Our leap in understanding of how cells function will help so many people. Our ability to confront future mutations of viruses will also be dramatically enhanced. These are not small things.

And our fuller appreciation of science will re-enforce the necessity to better understand our environmental stresses including the very complicated cause and effects of past and future behavior.

And most importantly, we can embrace the collective concern we feel for all people everywhere who are suffering and that the power of cooperation can multiply solutions. Sars-CoV-2 will diminish…and effectively end…but the list of challenges is hardly reduced. If we can look past what is—at this point, a time of in dramatic health challenges and volatility in markets, we’ll recognize the current power for solutions.

While we’re trying to reach out to everyone, I also invite each of you to call us. We’re here to answer any questions and re-work any modeling we’ve done for you. We’re here to help shoulder your financial worries. Please let us.  

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investors should consult their investment professional prior to making an investment decision. Dividends are not guaranteed and must be authorized by the company’s board of directors. Expressions of opinion are as of this date and are subject to change without notice.