March 17, 2020 –

When discussing the financial crisis, most cite 2008 and the S&P 500’s significant 38% decline. Ironically, most forgot, or have pushed from their memories, the first quarter of 2009 when the S&P declined another 25% until March 6th, when it finally found a bottom, capping a 58% decline from peak to trough. For me, there were many significant memories that stand out along the way such as Bear Stearns or Lehman. What was ingrained in my brain was February and March of 2009, when it seemed as if all hope was lost. In hindsight, it is now easy to see this as an amazing opportunity; but, at that moment, it was as if the capital structure of our society was finished. Small and regional banks were being taken over by the FDIC at an alarming rate and, while most people don’t remember or care to believe this, cash shortages were beginning to emerge and subtle bank runs were transpiring. I remember discussing with colleagues what would happen once the financial system actually did collapse and ensuring that our loved ones had the proper staples on hand to weather the food shortages and cash crisis that was bound to follow. At that moment, there was no conceivable end in sight. 

On top of that financial meltdown, my father began having kidney failure and I had to hop an immediate flight to Arizona in an attempt to spend some time with him before an emergency surgery. I will never forget sitting in his room, as he prepped for his operation, watching the then Treasury Secretary, Hank Paulson, on television discussing the Trillion dollar mortgage buying package for which he had just been given authorization. When he was asked about the breathtaking size, he simply said “If they know you have a bazooka, maybe you don’t have to fire it.” My father joked  that this was a “Hail Mary” and there was no way it would work. 

That day, the Dow opened 6,595.16 and promptly traded nearly 2% lower to 6,469.95. I joked to my father “You’re going into your surgery as a bear; you’ll come out a bull” He was rolled away and that day the market closed up 0.50% and never looked back. Not a single person saw what was coming, but when it came it was the relief the market was looking for and we were off to the races. 

Unlike the systemic issues of 2008 and 2009, this virus is hitting us at a time of full employment and economic stability. Until just now, our US economy had never been better and, unlike the systemic financial crisis, we know this virus will eventually subside. Furthermore, when it does as will the quarantine measures our globe is currently undergoing, we will usher in a wave of pent up demand combined with unprecedented stimulus. While the motivation for our administration to see our economy bounce back as quickly as possible is easy to understand, with it being an election year, central banks around the world will follow a similar path to ensure their population returns to work and the consumer once again ventures out to spend money. 

In the meantime there certainly is pain, especially among the small businesses in our country reliant on the daily cash flow of consumers. We remain a service based economy. There are countless Americans who have abruptly seen their jobs vanish as the indoor customer base evaporates. The longer this quarantine lasts, the longer the underlying economic conditions erode, and it is precisely why the stock market has shed 30% from its peak just 3 weeks ago. While no one can predict when this cloud will lift, the panic on Wall Street will continue until we finally hear any good news whatsoever about the virus, whether that is in the US or possibly, and more importantly, Italy. 

Similar to March of 2009, the mood and future looks and feels incredibly bleak. It is as if the foundation of our economy is being shaken to its core. I refuse to believe this is the end of the capitalist system; but, rather, this too is something that will eventually make us stronger as a nation. 

This morning we’re seeing a small bounce in the equity futures after yesterday’s historic point and percentage decline. It is difficult to trust any bounce now without hard evidence of progress with the virus which, at present, we do not have. We are as oversold as I have ever seen and we are reaching historic extremes through panic selling across the board. History also suggests this is a terrible time to be a seller. We’re on the lookout for better news and better opportunities. At some point we will look to put cash back to work at these depressed prices. There is no rush to do so, at the moment, and patience is key.