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Important Musings About the Current Crisis

April 5, 2020

by Tommy Williams

It is said that all truth passes through three stages. First it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident. So it seems with the escalating pandemic. 

The thrilling ride on the rollercoaster continues. Hopefully, whether you’ve enjoyed the ride or not, you’ve strapped yourself in and continued to hang on. We’ve talked about that. Recently we’ve also talked about the difficulty of timing a bottom in the market for those who are interested in purchasing bargains. From my perspective, nothing has changed! We’ve got a way to go before this thing is over. Continue to look at rebalancing and dollar cost averaging. Even though I’ve seen credible research saying we’ve seen the bottom, there are just too many variables to successfully determine if that is the case. 

In case you are wondering, I’ve made some interesting observations. One, for the history buffs, the S&P 500 fell 34% as of Monday 3/23/2020 from its all-time closing high set on 2/19/2020. That introduced the index’s 12th bear market since the end of WWII. The average return for the S&P 500 in the first year following the bear market low close in the previous 11 bears is +39.2%. That is more than 3 times the +12.6% average gain in the 2nd year following the bear market low close. Even former Federal Reserve Chairman Ben Bernanke recently stated that due to pent up demand for economic activity we are likely to see a meaningful surge in the markets – maybe in the fourth quarter of this year. Makes sense, but it may be a long hot summer!

And about the economic stimulus package. The $2.3 trillion stimulus legislation, officially the “Coronavirus Aid, Relief and Economic Security” Act (CARES), represents government spending equal to 52% of the $4.447 trillion of actual government outlays during all of fiscal year 2019. Hope it works as that is A LOT OF MONEY! One has to hope that this gargantuan expansion of government is not made permanent. I’ll spare you the statistics but there is a tendency for policymakers to never look back once the crisis is “over”. Our government spending was too large as a percentage of the economy before this all started.  It is way out of whack now.

Since many of the people I know own small businesses that have less than 500 employees, here is one of the more interesting parts of the CARES Act. As stated in the Act itself, $349 billion of the stimulus package is for those “small businesses” that qualify in the form of loans that will be forgiven if used for payroll and rent.  That is huge for companies like Williams Financial Advisors – our biggest cost, like most businesses, is payroll and rent. Of course, I am very curious about any “hidden strings attached” and how any bureaucracy efficiently doles out that much money? Seems like lots of room for a misuse of funds, but I am sure there are smart people somewhere thinking about that.

It is also convenient that your tax filing deadline has been delayed from April 15 to July 15. I understand that applies to both Federal and State tax returns. That really helps in terms of cash flow – and is helpful to the tax preparers who currently have limited access to their clients. 

In closing, on the other side of this crisis, on what basis can one feel optimistic about the economy – and therefore a rebound in financial markets? Look at China. Their economy ground to a halt (dropped to 30% of its’ operating capacity). Within one month of seizing control of the spread of the virus (confirmed cases/deaths) they ramped up to 75% of capacity. We can do that too if we will just follow through with that handful of simple things which we now find such a nuisance!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. 

Visit us at Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered through Private Client Services, Member FINRA/SIPC. Advisory Services offered through RFG Advisory, a Registered Investment Advisor.  Williams Financial Advisors, LLC, and RFG Advisory are separate entities from Private Client Services. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.