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What Might be Next

Dear Clients and Friends of ZWM,

We have seen this morning’s new unemployment claims numbers, and, like recent weeks, they are staggering. The implication is that when we see the percentage of the US workforce unemployed in two weeks for the end of April, we will see over 20% unemployment. These are very scary numbers. It makes it highly unlikely that the economy can bounce back in a “V-Shaped” recovery. This is more likely to be a 9 to 18 month slog through difficult times. In the face of these challenges, the stock market closed largely flat today. The better markets of earlier this week are great, but I do not think this financial calamity is being fully reflected in the stock market today. While the stock market is a leading indicator, in that it is trying to anticipate economic activity 3-9 months down the road, we think it has gotten ahead of itself. There will be other significant setbacks. But, in 9 to 18 months, we think we will have turned the corner and 2 to 5 years from now, this should all be well behind us.

We do believe that the US economy will recover from the COVID-19 pandemic. And, we believe it will take a few years. The economy was showing signs of falling back before all of this started, and the pandemic shutdown accelerated the pullback of economic activity at a breathtaking speed. But, there are many reasons to believe that the new normal will be different than the old normal, and in many ways. Companies selling products and providing services will have to show that they are safe. Inflation may pick up: it may cost more to deliver a “safe experience” whether on your next airline flight, or your next trip to the grocery store.

Chart of the Day: A Summary of the Impact of Global Pandemics over the past 100 Years. 

Sources: Center for Disease Control and Prevention, World Health Organization, Center for Infectious Disease Research and Policy, University of Minnesota, FactSet. 
Notes: It is not possible to invest in an index. Past performance is not indicative of future results.

So, what will this do to our investment strategies?

First, we believe one unfortunate and likely outcome is that many companies, both large and small, will go out of business. Our goal is to position our equity and fixed income portfolios to minimize these risks. We may be changing a few funds in the coming weeks and months, selling existing funds and buying different funds. This will not impact all positions, as many funds we own for our clients are already well-positioned for the recession that we believe has arrived. Our positions in conservative bonds will remain, although we may make a few changes to those vehicles also.

In any event, please know that we are taking the current events seriously, and our oversight of your long-term financial well-being is our number one concern. We do not have a crystal ball, but we are preparing for something worse, before things get better. We continue to reach out to all of our clients to discuss the implications for you and to review your plan projections, and likely outcomes.

As always, please feel free to contact us with any questions or concerns.

Thank you,
Tom and the ZWM Team