“In any future great national trial, compared with the men of this, we shall have as weak, and as strong; as silly and as wise; as bad and good”

                                             -Abraham Lincoln

I’m trying to get out a “regular” newsletter even I as I’ve been sending emails two to three times a week during this pandemic crisis. In my last newsletter I addressed Covid-19 and the impact it had up to that point on the markets and the economy, but things started changing rapidly right after that came out and the number of cases in the U.S. is far beyond what we expected at that point. What most experts have been saying for since around mid-March, however; is just starting to come to fruition, April is going to be the worst month when it comes to news about the Cornavirus. Now that most states have stay at home orders of some kind or another (What’s he hold up Iowa?) and testing has grown to where the bottle neck is now in the lab equipment to process the tests not in the number of tests, the numbers are going to keep going up. Furthermore, and more sobering, given the apparent cycle of this disease even if the spread now slows with the various stay at home orders hospitalizations and fatality rates should also peak this month. (There is evidence with the earlier and more significant shut downs in Washington State and California those states may have reached that point in the cycle a week or so ago – so we’re really following that same pattern across the country staggered by a few weeks.) So while the day to day news is going to seem worse, it is really what was projected and if we all stay home and practice safe social distancing and hygiene when we have to go to the grocery store or pharmacy then the rate of increase in cases and fatalities should be much lower by the end of this month.

That is the medical side of things, what about the economic side. I was very encouraged by the CARES act to be honest. Given how dysfunctional our Government has been for the last many years it’s surprising they were able to get such a huge stimulus bill, with so little red tape, out into the world so quickly. I know there’s a lot of worry about the speed of these things, some people won’t be getting their checks for many weeks and the paycheck protection loan program isn’t really up and running yet. But I actually have some sympathy for the entities that are suppose to be ramping these things up. The banks are supposed to run the loan program, but the Government was still tinkering with the application language through Thursday, April 2nd and all these banks whose employees are all working remotely were supposed to have this program running on April 3rd? And as for the checks, we simply don’t have a system to send out tens of millions of checks all at once. Even during WWII when we turned production up beyond maximum capacity it still took three days to cross the Atlantic, there’s a limit to what anybody can do no matter how motivated. But the CARES act has a lot of great provisions and I’ve sent you all information about many of them over the last few days – if you have specific questions please give me a call. For most of my clients it’s the IRA RMD (Required Minimum Distributions) suspension for 2020 that has the most impact. Like the aforementioned agencies trying to get out the CARES act money, we don’t have capacity to call everybody all in one or two days – so we’ll reach out as your normal RMD time approaches.

The big question is, will this be enough? I do believe we need some kind of package that sends money directly to states. Take Massachusetts for example – they pay a portion of Unemployment and other State benefit programs that are going to be used perhaps more than ever before. At the same time they aren’t collecting sales tax on restaurant meals or excise taxes on hotel rooms – plus their revenue from the tolls and the lottery must be down significantly as well. States have to run balanced budgets while the Federal Government obviously does not. There will need to be fund transfers to the States, or we’re going to have the problem we had after the financial crisis where states had to shed payroll just as overall unemployment was going up. Even if you think there’s plenty of waste and too many employees in State government – those employees are getting paid right now and can pay their bills while so many others can’t; this is not the time for that discussion. Other than that, it’s all going to come down to duration. If we can get back to some semblance of normality by June then the actions already put in place by the CARES Act , the Federal Reserve actions and perhaps some additional expansion of the Paycheck Protection Program and direct payments to States – then we’ll probably be okay. Just some quick back of the envelope calculations about the various fiscal and monetary reactions to this pandemic show it should replace enough of the gap in our economy caused by all the shut downs to allow us to muddle through. Not everyone will survive financially, you can never design a perfect solution, but the majority of businesses will make it through and a large number of those recently laid off will get their jobs back. 

What if things do not get back to normal in 60 or so days? That’s the unknown question and that’s where things could get much worse economically. We would need a second stimulus probably at least equal to the first (and remember the $2.1 Trillion dollar CARES act was added on top of the $500 Billion Families First Act which expanded unemployment and sick leave benefits.) On top of that, some businesses that were able to limp by with the paycheck protection loans, especially restaurants and small hotels may have to start thinking about simply closing for good. The longer these things go the more business owners need to think about their futures and the more likely they are to make layoffs permanent, or close areas of their businesses. There are also industries like home sales, where if you can’t tour houses for six weeks those wanting to buy or sell can hold off and you could see a big rebound in the Summer – but if we get to September before that industry can get back up and running, customers may just put things off for the rest of the year. Time is the biggest unknown and the most critical component right now. We’ll all have to wait and see.

As for the markets and investments. The daily emails I’ve been sending have by design not had many specifics about investing – because those require compliance review and we wanted to get those out fast. I’m going to go into some more detailed strategy type stuff here that may require that review so this may go out to you three or four days after I write it. For our clients who get monthly distributions from your investment accounts, we purposely set things up so at least three years of your income needs are in cash or short-term bonds; so while we wish your investment accounts as a whole didn’t suffer these declines – we won’t have to sell low to get you the money you live on. For those of you who are not clients of ours, this may seem like the worst time to make changes – I’m going to tell you it’s the best time. First, you shouldn’t have to worry very much about capital gains if you make changes in your taxable accounts. Now might be the time to invest along with your principles and think about ESG (Environment, Social, Governance) investments without having to trigger taxes to make those moves. There are also many investments that offer various different guarantees; maybe of principal, or of death benefit, or of income, or they simply cushion some of the downside risk of your portfolio. All of these come with a cost of some kind or another – either in higher fees or less liquidity or less transparency or a combination of all three and of course they are not appropriate for everyone. But if you are the type of investor that thought you could handle a market correction (and as of now that’s what we’ve had, a typical market correction in percentage terms just happening much, much quicker that in the past) but you haven’t been able to deal with this downturn -then maybe you should think about trading some liquidity, or paying some higher costs to get some of these guarantees. 

I’m happy to speak to anybody who gets these emails about their financial life, whether a client or not. I have always been a proponent of face to face meetings – they are the best way to get to know each other and the most productive way to get things done. But don’t cost yourself opportunities because we have to meet over the phone or though a video meeting system. We can use the old fashion mail or our Docusign® system to get paperwork done if necessary. We are open for business! Just give me some notice if you want to video chat because I haven’t shaved in two weeks. 

Stay safe, stay home, we’ll all get through this together.