QPW Market Update 4.24.2020
April 24, 2020
What you are about to read is an obviously different type of communication than usual, driven primarily by the fact that these are abnormal times.
For example…I have learned that my car now gets 3 weeks to the gallon. Talk about gasoline efficiency!
I have also realized that there are ancillary benefits to a normal work lifestyle. For example, I used to have to walk to get things done: visit clients, see a co-worker, go to a meeting, get from the parking garage to the office, etc. Now…I walk from the bedroom, to the bathroom, to my desk, back to the bathroom, sometimes to the kitchen, back to the desk, back to the bathroom. I used to try to meet a goal of walking 10,000 steps per day. Now the only way I can get those steps in is to ask to use the bathroom of our neighbors down the street. They didn’t like that. Thus, my exercise regimen has decreased.
What have we learned about the markets, the economy, and a potential “light at the end of the tunnel”? Not much is clear. One example: guidance that I have seen from economic forecasters over the past week – and these are bright, respected individuals in their field – is for 2nd quarter GDP ranging from a negative 9% to a negative 50%. (Incidentally, there is a reason that economics is referred to as “the dismal science.”) Although it is common for these forecasting professionals to disagree, it is normally with significantly less variation from one another.
This week, we endured the enlightening and mind-stretching experience of learning that the price of oil can be a negative number, and that the front month oil contract is capable of dropping 300% from +$18/barrel to -$36/barrel (yes, negative $36) in one afternoon. Think about this – that means one can be paid for buying oil?? It also means that for a period of time early this week, a roll of toilet paper was more expensive than a barrel of oil.
Please be prepared, since we are discussing negatives…the dismal scientists are suggesting that even the U.S. will be witnessing negative interest rate policy as a result of global developments and our efforts to overcome the devastating economic impact of COVID-19. Think about that – this means we will be paying the bank to hold our money! Another mind-stretching concept. Even more weird, at the extreme, as in parts of Europe recently, there exist negative mortgage rates. This means – wait for it – THE BANK PAYS YOU to take out a mortgage. So…let’s see, do I buy this small cottage at the beach, or do I go for that big monster on the water? Hmmm.
Dr. David Kelly, Chief Economist at JP Morgan, made some observations this week related to new growth businesses that may emerge on “the other side” of this bizarre experience. Unfortunately, one of them is marital counseling, and another is an increasing demand for attorneys specializing in divorce.
Thankfully, there are positives to all of this too, although they may not be as readily apparent as the barrage of negatives we are all facing on a daily basis. Many households are spending more quality time together, absent the frenetic schedules they were keeping before COVID-19. People are re-evaluating their priorities in life. Projects are getting done around homes (not mine). Relationships are being rekindled as people reach out to connect in both an old-fashioned way – picking up the phone, and a new-fangled way – Zoom! (Zoom and Social Distancing are two terms I use now daily that I had never heard before early March…along with Flattening the Curve, PPE, PPP, and lest we forget the one that started it all, Coronavirus.)
Learning. From an economic, monetary and investment perspective, we have much yet to learn. There are so many unknowns in this new learning experience:
- How long before we come out of this?
- When we get back to normal life, what will our new normal look like?
- What will be the long-term societal and economic impacts of today’s emergency actions?
- When will the markets become normal again, and by what will the valuations be determined?
- What becomes of the college experience? Just as we have discovered that non-commuting can be much more effective than we ever considered, is it necessary to pay for room and board when one can learn at home at a fraction of the cost?
- Will Clorox wipes and hand sanitizer ever again be on the usual store shelves, or will they be found in the ration-controlled section of the store, hidden behind locked cabinets like weapons, certain drugs, and ultra-expensive wines and liquors of today?
I could go on and on.
One thing is known. We will all be victims AND beneficiaries of PTSD (Post Traumatic Sequester Disorder)! We will have a fresh appreciation for our freedoms, our liberties, our simple blessings. Personally, I am tired of Social Distancing. I miss my friends, my family…those people to whom I am closest. I cannot wait to see them, hug them, love them, and just be with them. This fiasco has also cost me an expensive hearing aid, thanks to one of those masks that we have to wear outside of the house. The elastic band that secures the mask can also serve as a slingshot to spiral a hearing aid into oblivion somewhere on Broad Street.
In all sincerity, I cannot wait until I see each and every one of you again.
At Quadrant, we will continue to focus on what it is we are supposed to do. Although we are uncertain about the future, we are certain about our need and desire to be in frequent communication with you, and to help maintain appropriate perspective in an incredibly challenging time. Over the last couple of months, we have witnessed the fastest-bear-market-plus in history, the most volatile market month since 1929 as characterized by an average daily market move of over 4% up or down, and one of the quickest 20%-plus market recoveries in history.
As I prepare to finish this letter, I realize that this communication is lacking some “meat on the bones”. It is not for lack of trying. As I have mentioned before, it is of paramount value having access to some of the brightest, most-informed and well-networked people in our industry worldwide. Our advisory team is in constant contact with those many resources upon which we have relied in the past: Goldman Sachs, JP Morgan, Blackrock, Blackstone, The Carlyle Group, and Spring Mountain Capital. The universal response we are getting is that the future has rarely been more uncertain. As stewards of your assets, our job is to keep learning in the new world, condense the collective wisdom we glean, and convert it to strategies and opportunities to benefit you.
In all candor, no one in our business has ever lived through something like this before. The last pandemic occurred over a hundred years ago. I have been in touch with peers and colleagues of mine who have been in our business for 50 years, and even for us, this is new territory!
As always, please feel welcome to reach out to me or anyone else on our team at any time for any reason.
Have a nice weekend. My best wishes to you all as we head into Week 6, and the lessons it will bring.