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Friday View: Fiscal & Monetary Howitzer Takes Aim

Friday View: Fiscal & Monetary Howitzer Takes Aim

| March 20, 2020
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As the Bay Area continues to live under a shelter in place order, thoughts often fall on the reality that our local & global economy have ground to a halt. Paper goods are hoarded without much reason, and financial assets continue choppy, unreasonable trading.  Until we have context behind the data around the spread of coronavirus, making sense of next steps should be on hold.

As I speak with clients during uncertain times, I often hear uncomfortable questions.  Part of our role as your financial planner is to provide support for financial behavior--what we call behavioral financial coaching.  Here are some of the questions that tend to arise during times of volatility:

  • “Is now the time to put money into investments, or should I wait?”
    • We don’t know when the market will bottom or volatility will end, but various indicators suggest that answer is “yes” to invest long term.

  • “I’m getting close to retirement and my investments have taken a hit these past couple weeks. Will I have time to recover if I stay in the market?”
    • It depends on how your goals and risk tolerances have changed--no changes there mean know large-scale changes to your investments. Portfolio tilts have happened or will happen based on your risk and changes in market indicators.
    • Bear market recovery times can vary, but are sometimes faster around disaster shocks.

  • “I saw that the Fed injected money into the system. Are banks still safe? Should I be thinking of taking money out of the bank?”
    • The overnight fixed income market has needed liquidity. The Federal Reserve has been proactive on this issue.
    • Banks are financially strong: Better capitalized less bad loans, less levered and overall in much better shape to lend than during the 2007-2009 downturn.

  • “Do you expect the economy to go into recession?”
    • A recession is defined as two quarters of negative growth, and the odds of a recession have increased.
    • Stocks have already been expecting this and pricing in this news 

    As we head into the weekend, here are some of the sub-advisor reports I want to share with you:

    Sizable Policy Action Takes Shape -- BlackRock Investment Institute

    • Following on from earlier calls to action BlackRock comments on how they see direct policy having an important part in what's next

    • They believe that markets will ultimately settle down if three conditions are met:
      • 1) visibility on the ultimate scale of the coronavirus outbreak and evidence the infection rate as peaked over the long term;
      • 2) deployment of credible and coordinated policy packages; and
      • 3) confidence that financial markets are functioning properly. Once we better understand the scale and impact of the outbreak, the policy response is setting the stage for an eventual – and strong – recovery.

    Market Bulletin -- Orion Portfolio Solutions/CLS Investments

    • The Good
      • Unprecedented monetary/fiscal policy may set the stage for a sharp rebound.
      • Testing for the virus is expected to increase. This increase in testing along with the strength of the U.S. healthcare system may have an immediate impact.
      • Discount energy prices will help the main street consumer.

    • What We Don’t Know
      • How Large Will the Global Economic Impact Be -- They think you should expect 2Q contraction in GDP.
      • When the Market Bottom -- Likely when infection rate plateaus or stalls.

    Have a restful and safe weekend, and stay healthy.

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