April 2020 Thoughts and Insights

Michelle Trouvé |

I hope this note finds you and your families healthy and safe.

This past month we have experienced nothing like we ever have before, nor could have imagined.  We have a global health crisis that has turned into a global recession bringing the economy to a halt.  As a result, over the past few weeks the markets experienced declines in equities, fixed income, oil, and gold.  Most asset correlations broke down as institutions needed to liquidate their quality assets to raise cash.  Bond sellers were not able to find buyers which caused some areas of the fixed income markets to seize up.  Lastly, to add insult to injury, the Russians and Saudi Arabians decided to start a price war over crude oil during the pandemic. The good news is that many of these dislocations have started to correct.  

The following is a piece from PIMCO that I feel does a good job describing where we are right now and how the markets are expected to recover.


Given the swift and large monetary and fiscal policy response, we expect the global economy to transition from intense near-term pain during the virus phase to gradual healing over the next 6  to 12 months, once the spread of the novel coronavirus is under control and the restrictions are being lifted.

However, our base case remains a U-shaped rather than a V-shaped recovery (see Figure 3) because the restrictions on economic activity will likely be lifted only gradually and at different speeds for different sectors and regions. Also, repairing the supply chain and overcoming logistical and transport bottlenecks will take some time. As a consequence, following the nosedive in economic activity that is currently underway (the downward I in the U), we expect the bottoming process to last a few months after the virus is under control (the L in the U), before output and demand ramp up back closer to more normal levels eventually, helped by fiscal and monetary support (the upward I in the U).


This figure depicts PIMCO’s U-shaped baseline forecast trajectory for global GDP activity, with a sharp drop in the first two quarters of 2020, a period of low activity in the third quarter, and then a recovery in the fourth quarter.


In addition to PIMCO’s economic view, I also subscribe to two technical research firms that use price, volatility, and volume to further understand the timing of market moves. The current technical analysis suggests that we are not yet to the bottom of the U above, probably currently notching at the arrow I have overlaid. We have no historical context for the jobless claims (some estimates believe we will lose 14 million jobs) and companies are no longer projecting earnings at this point.  Unfortunately, the economic news will most likely get worse.  However, we do have a plan.  

As you already know, over the past 18 months we have expected a market decline and have taken a defensive stance, reducing equity exposures, focusing on defensive positions in utilities, REITs, and consumer staples. In fixed income we sold some of our lower credit securities and increased our US treasury holdings as we neared the end of the expansionary cycle.  We also increased our gold position.  However, despite these really good strategic moves, we were not spared from price declines. Our favorite income producers, pipelines and preferred stocks, suffered some of our biggest declines.  

We hold a significant amount of cash right now, and plan to re-deploy it when the technical patterns suggest the bottom is in (hopefully in the next 6-8 weeks). Specifically, we will look for when the rate of change in economic growth and/or inflation begins to stabilize.  Our goal is to try to take the emotion out of investing and follow a process, and trust the math used in technical analysis. We have time to be thoughtful about what to buy. 

I have no doubt that we will survive this together, just as we did in 2008. Those were also scary times, but we persevered and eventually the market healed. And we will recover once again. A silver lining to these very strange times has been our reconnection with family and friends, and the many little joys that come from a simpler, stay at home life. On a personal note, Thursday cheeseburger nights with the Danda’s are now Zoom happy hours, we have a newly painted pickleball court on our driveway for evening fun with the kids who are all now at home, and our pooch is exhausted from multiple walks each day!

I continue to spend my time reading and listening to webcasts related to each of our investments as well as talking with many of you on the phone. We are still available for virtual or over-the-phone portfolio reviews, so please call the office if you would like to schedule one.  Please don’t hesitate to call me with any question, thought, or funny story you may have.



PS - With the CARES Act in effect, we also wanted to provide you with some of the most important take-aways we think you will benefit from. Please see the article of the CARES Act summary and how it affects Taxes and 2020 Required Minimum Distributions.



Opinions expressed herein are those of their writers alone and are based on information believed to be accurate at the time. Danda Trouvé makes no warranties as to the continued accuracy of such information.