April 2nd, 2020
Dear Client/Prospect:
What a difference a quarter makes. After a promising 2019 and start to 2020 the markets have dropped tremendously due to the coronavirus and COVID-19. Last week we had a nice double-digit bounce-back, but the volatility has continued this week. We’ve seen both a lot of panic but also a lot of fateful ignorance in recent weeks due to the outbreak. It’s tough to turn on the news day after day while confined to your homes (in many states) and see all the negative and alarming news with this pandemic. It is real though! With that being said, I think it’s important to provide some perspective on other pandemics and global crises.
• Swine Flu-active from April 2009-August 2010; 60 Million U.S. cases and deaths, globally tough to quantify but ranging from 151,700-575,400 and unknown amount of recovered cases
• SARS- active from 2002 to July 2003; 8,098 total confirmed cases with 774 deaths and 7,234 recovered patients
• Spanish Flu-active from January 1918 -December 1920; 500 Million total cases with around 450 million recovered patients and 50 million total deaths and 675,000 of them in the U.S.
• COVID-19-Active from December 2019 (est)-currently; 216,722 confirmed cases in the U.S. with 5,138 deaths (John Hopkins University data) and over 50,000 thousand deaths worldwide and confirmed cases stand at 981,000 and rising.
The impact of this virus is extremely hard to predict, maybe even impossible, but it appears we as a nation are taking the right precautions to protect ourselves and minimize the outbreak of future cases. Some of the smartest minds in the world are working on a vaccine and medicines to help. I’m sure someone will crack the science to get the world in a better place. We may see a lot more pain and more sickness before this subsides, but we will survive and be stronger and much more aware as a country.
Economically, we won’t sugarcoat it. 6.6 million people are out of work, which is double the number of 3.3 million from last week. Many Americans are having to put their pride aside and file for unemployment benefits. That’s real data and we haven’t had that many people out of work in a long time. The pain is new and experienced by many for the first time ever and the economy will suffer in the short-term. Retail stores are shutting down which causes many full-time and part-time hourly workers to be out an income. The housing market will struggle even with the historic low interest rates. Most people will not purchase a house if they can’t look at it in-person or walk through it. This will impact realtors and the mortgage industry. Many of these professionals work on straight-commission or have variable compensation. Can you imagine?
We must remember it will be temporary and it will get better at some point. It’s great to see so many people helping or lending a hand in this time of need. So many are less fortunate, and it also helps by supporting many small businesses that are struggling to stay afloat. Get out and help your local small businesses that have been kind to you for so many years. Help your local restaurants and get curbside pick-up while you can afford to do so and be safe and smart about it.
The 2020 near-term investment outlook is murky. Many or the companies we own will start to report earnings this quarter, but the recent pandemic may not impact earnings severely until next quarter. This will be something to watch and we will monitor them very closely. It is nice to see some companies report good news. Lululemon (LULU) recently reported continued growth last quarter with no debt and a billion dollars in cash on their balance sheet. Quite remarkable for a company that had to join the digital on-line marketplace. Since changing and adapting their business model their growth has been fierce and impressive to put it mildly. Not just a yoga pants company anymore.
I want to send out a special shout-out to my Michigan clients and specifically the metro Detroit area during these scary times. This is where we started our business in 2004. Our thoughts and prayers are with the Michiganders, where it all began for us. Stay smart, stay safe and lend a hand when able.
Sincerely,
J.B. L’Esperance, ChFC