QPW Market Update 4.3.2020

April 3, 2020

From “Imagine”…to April Fools.

Dear Clients,

Many of us “gray-hairs” grew up infatuated with the Beatles, subsequently became disappointed by their break-up, and then glommed onto our favorite member of the band, hopefully “treading water” until a reunion took place. John Lennon’s death not only made that impossible, but it gave many of us a realization of mortality, even among the “immortals.”

Actually, I was more of a Paul McCartney fan. Nevertheless, one of the most memorable post-break-up songs by a former Beatle was John’s Imagine. It was a song of optimism, idealism, hope…reminiscent of what the investment environment was only 45 days ago.

The U.S. has just completed one of the strongest economic and equity market advances in history, followed by one of, if not the most malicious, painful and scarring market corrections in history. That reversal took place in less than one month. While it would have been so welcome to wake up on April 1st and hear someone exclaim “April Fools!” to signal that this has all been a cruel joke, unfortunately, the COVID-19 reality persists. Given that truth, today we are focused on what happens next.

In our last letter, I spoke about the valuable partnerships we have with thought leaders in the industry. Over the past month, we have spent as much time counseling with them as we have speaking with you, our clients. These resources and perspectives provide us with a multi-dimensional, multi-layered and global spectrum of data that we digest and interpret to fuel our investment outlook for an unprecedented time.

What have we learned? Key points from our countless discussions:

  • Economically, it is going to get worse before it gets better.  There can be no substantial resolution to economic problems until there is much more certainty surrounding the global health crisis at hand.
  • U.S. GDP is being forecast down between -9% and -40% (quite a range) for Q2.
  • Unemployment may reach twenty to thirty million people in the US, or ~20% of our workforce (some estimates are even higher).
  • Total deaths could exceed 200,000 Americans.
  • Liquidity, which fuels financial markets and is critical to their functionality, remains a global concern impacting nearly all investment categories.

Lest any of these points be new news to you, allow me to counter them with guarded optimism:

  • We now live in a “brand new world,” just as it was post-9/11. Nevertheless, the U.S. economy and markets managed one of the most vibrant revivals of all time since then.  Hope is not a proven nor recommended investment strategy.  But it is a staple to the health and survival of the human spirit.
  • History has shown that market sell-offs of this magnitude are usually followed by 12-24-36 month recoveries that are quite healing in their results.
  • A recurring theme that is being repeated by our sources is “do not panic.” In times like these, choosing to do nothing can be a prudent and purposeful action.

For years we have been speaking with our clients about realistic expectations, risk management and risk-adjusted returns. Your portfolios were built in accordance with those principles. Our investment committee and advisors are in frequent contact sharing information, perspective and applying all of these to your portfolios as appropriate.

We will no doubt enter a new paradigm “post-virus,” and that may involve a slightly new conversation. The core of our risk-management approach to investing will not change. For the near-term, what I would call “during-virus,” we must remain vigilant, cautious and realistic. President Kennedy famously said (with some leeway on the translation) that the Chinese term for “crisis” is a combination of two characters – “danger” and “opportunity”. In this time of crisis, we strive to avoid danger and will seek out opportunity.

In closing I was on a call with Byron Wien, Vice Chairman of Blackstone, on Wednesday (April Fool’s Day).  He reminded us all of a famous tenet, a reality of the market: NO ONE RINGS A BELL AT THE BOTTOM. Whether we are at the market bottom, near the bottom or still far from the bottom, we anticipate volatility and choppiness ahead.

We are living through an unprecedented global event, perhaps multi-generational and society-altering in nature, whose ramifications may challenge even the Great Depression. However, the collective efforts of the Federal Reserve, U.S. Treasury, U.S. Government (despite its polarized state), along with world central banks are also unprecedented.  They are doing and will continue to do what is necessary to mitigate this crisis and set the world on a path to recovery.

Although we are now forced to work remotely and unfortunately do not have a virtual bell to ring to signify the bottom, we are working as hard as ever as stewards of your assets. We strive to be in continuous contact with you during this period, and encourage you to reach out to anybody on our team at any time.  Please do not hesitate.

We wish, most importantly, continued health for all of you and your loved ones.

Have a good weekend,


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