The Coronavirus and the mitigation measures being taken by governments, businesses and individuals are causing concern and fear worldwide.
The virus itself needs mitigation measures because it may be more contagious than the flu. Everyone is being asked to sacrifice by staying home, exercising recommended hygiene measures and adhering to all social distancing recommendations. If you want to understand why this is necessary, I came across the following illustration which I thought was very well done.
Pay attention to the line that says, “health care system capacity.” It is for this reason we are asked to sacrifice for a short period of time. We don’t want to put any more pressure on the healthcare system here in the U.S. than there already is.
I would ask everyone not to panic. Although no one can predict how long this issue will last, we do believe that it’s a temporary situation. You don’t need to store enough cans of soup and toilet paper in your garage or basement to last till the next ice age and create shortages and panic buying.
I am confident that the Coronavirus will be a short-term event. The economy and markets will begin to recover when we begin to see the curve of new cases being mitigated. The number of cases will increase before they decline. In fact, over the next few weeks, the number of cases is expected to increase because we have brought to market a million test kits this week.
Coronavirus mitigation policies and actions will impact the economy worldwide. It’s too soon to predict a long overdue recession, however, if we do enter a recession, they are usually short lived. The average recession lasts between 6 to 18 months. Human behavior does not change, we still need the necessities of life, such as food, water, clothing shelter and safety. So, companies and markets will continue to exist. Markets will recover, they always do. Please see the chart below.
It looks like 1 to 2 thousand points up and down are becoming the norm for the Dow Jones Industrial Average (DJIA) these past few weeks. That is pure panic from fear of the unknown. Markets do not do well when the situation can’t be analyzed with some degree of certainty. A well-diversified portfolio of stocks, bonds and cash will mitigate the portfolio’s volatility. So, if you see the stock market down 10% for the day, a well-diversified portfolio won’t be down nearly as much.
We stress test all our financial plans and portfolio against the worst- and best-case scenarios. So, while we never know when these events will occur, we do plan for them over the long term.
In the meantime, here is some positive news:
- Crude oil is trading at $30 per barrel, which is good for the consumer.
- Interest rates have been cut to the bone, so while you are home, if you have a mortgage, go online and see if it pays to refinance, which may put more money in your pocket.
- The President has asked Congress for a temporary payroll tax cut through the end of the year.
- Time magazine reported yesterday that a new Coronavirus vaccine was already in trial.
- This is also a rare opportunity to spend some quality time with your family.
So, as my British friends like to say, “Keep a stiff upper lip and stay calm and carry on.”
On behalf of our entire staff, we wish you good health and clean hands.
We will keep you updated as we learn more.
Ronald W. Rogé
Chairman & CEO