Good Morning,

There are a few things we need to recognize – in my humble opinion – which may help to lend a little clarity to what we are all witnessing in the news and out the window.

Possible Thought:

“Mike – markets are on tilt, the world ended and the Fed is the only thing keeping it up….”

Thoughts to consider:

Humans tend to be wired to think in terms of “good or bad” – while markets have a history of instead seeing through the lens of “better or worse” hinting as to why it seems markets begin recovery when the news is the darkest. Humans think “now” – markets tend to think “next.”

Logically, it is very hard to connect 15%++ unemployment rates back to a market that is rising off the bottom.

Possible Thought:

“Mike – no way the consumer ever goes back to the way it was – no one will want to risk getting sick or dying.”

Thoughts to consider:

This is simply repeating the headlines from untold numbers of soothsayers who do their best business during dark times. Bearish newsletter sales are going through the roof. The “tough trade” is to consider the fact that America gets over everything thrown her way.

I don’t know why – I don’t have the exact answer – but history proves we do. It also proves that during every other dark storm in the past – we were sure it would never get back to “normal” then too…and oddly, we did.

It was always just a series of new normals.

Possible Thought:

“Mike – some industries are just gone forever…no one will be close to anyone. Anything that requires a crowd is finished….you’d be nuts to go to a game, on a cruise, in a plane or stay in a hotel.”

Thoughts to consider:

Yes, there are several industries which have been gutted due to the shock of this virus and the perceived deadliness of it. Some of those industries will need to reconfigure their entire model – or vast portions of it. Some of the players in those industries will not survive the pressures of same. The reality however, is more likely this: technology and science will find solutions as to how we “can feel better” about getting on a place, going to a hotel and taking a cruise.

Human nature is such that we tend to overlook that a) we did not see something coming, i.e., the virus – but then somehow, b) once in the hell of its occurrence, we “quickly figure out” what the very long-term case will be in industry after industry – forever.

We must all understand that this will continue to unfold – and likely increase in intensity even as recovery begins. Sure, “opening up” will look choppy and ugly in the near-term. Indeed, it likely looks choppy and ugly for the rest of the year. Hence, our previous “2020 is a Mulligan” morning note.

What to Do Though?

For some things – nothing will be the best action – as difficult as that is to consider. For others – upgrades are in the works. For still others replacement of positions will be an educated guess on what will recover more effectively, more productively and more efficiently.

Outside of positioning (see chart below) changes, additions and rebalances, something else to consider:

Do NOT take in too much news. It is easy to do when “staying at home” – and is causing a very severe “perception shift in the eyes of the viewer.” Oddly enough, you can imagine we have spent a good deal of time on phone calls. I can always tell who has been watching all the news. The other mistake? Allowing politics to somehow fog an already foggy picture.

We MUST all find the courage to look beyond this nastiness. We need to stand above this chatter and recognize the more important – and more positive – elements unfolding in all the messiness. It is hard – it tests one’s patience and it causes a most certain increase in the consumption of fruit-flavored TUMS – but we are all in this together guys.

Here is all that history has taught me about politics (post President Reagan): At any election time, it is always “this is the most important election of our time.” Then, whatever happens – happens. No matter the result, roughly 50% of the nation will be pleased – and roughly 50% will not be pleased.

Then, the next 4 years are about arguing both sides.

Meanwhile? Generally, the economy tends to adapt over time – just like it will now.

There has rarely been a larger mistake made than when one pays too much attention to politics when measuring and planning investment actions. I am reminded of a verse from the Sunscreen Song:

Sometimes you are ahead

Sometimes you are behind

The race is long

And in the end, it’s only against yourself

Sadly, this is unlikely to change much anytime in the near future.

The larger issue in all of this is much simpler than it feels during times of distress: America is blessed with the most productive set of demographics of any developed nation on Earth.

Do NOT underestimate the benefit of staying focused on that fact.

Be confident we are witnessing the next stage of the sobering elements China will be facing. They have lost global trust. Their citizens love American goods. Their “manufacturing benefit” is ending. They have more people over 80 than under 10 – dreadful. They are running out of people in their 30’s and 40’s – the workhorse group of any major economy – all due to their one-child policy.

Most important: tech, science, speed, 5G, AI, robotics, space – all of these industries will become the “new industrials” of the years ahead. Unsettling indeed – but great for the US – as we are leaders in all of them.

This all sounds like a lot – but it is the basis, the tools, the driving forces of the map of the future ahead.

And now…we need to dig in, be patient and prepare to take advantage of it.

Let’s take a look:

The chart above is my hand drawn structure of what “waterfall corrections” tend to look like over time.

Let’s consider the “feelings” likely behind the A, B & C’s of it all:

a) “Good Lord, this is it – get me out at any cost. I don’t want to own any risk anymore. The economy is finished. The Great Depression was a cakewalk compared to this virus. Are my stops in? The future is changed forever.”

b) “Thank the Lord it came back a little, now I am out…never to return again to a single stock – or at least until it is more clear and ‘this has passed….or the future is more clear'”

c) This is where the market begins to stabilize – with up and down closes in 2, 3 and 4-day swings. The “trade range” is beginning to form – as the last two days have worked back part of the losses of the previous three days. This stage is where one can reasonably begin to make the shifts one needs to make – or rebalances for clients – when the crazy stuff has passed. It also provides some – as tiny as it may be – semblance of clarity on elements to consider for changes/adjustments. Some of these changes will end up being permanent – others will be shifted back later if financial hurdles can be overcome.

How long can “C” last? My suspicion would be the summer time and into the end of Q3 with an upward tilt as we get farther away from the A moving to B period. Further – please note that is a guess….and it ALL changes the moment we hear “The FDA has approved a successful treatment/vaccine” to COVID-19. And by the way – every down arrow in “C” will surely ignite the “uh-oh – new lows are coming” emotions and the incessant related chatter from the talking heads.

The bottom line – The virus made several things we have covered for years – speed up dramatically. In a word – TECH. Both ends of the Barbell Economy© will accelerate the shift – in health, in consumer elements, in services, in expansion, in manufacturing – in every process of our lives…and the kids will run the show sooner through this process.

We consider that a positive.

Closing Ideas

Last but not least – once again, note the issue at hand: we are seeing the crowd misunderstand the “disconnect” between markets and the economy with references to the market being crazy:

We live “now” – the market is thinking “next” long before the crowd understands what that will mean.

Be assured – like we say at the end of many of our videos – in the New Economy ahead….

Everything is going to change…and that is already underway

The 2020’s and 2030’s are set to be, structurally, a replay of the 1980’s and 1990’s…but on steroids.

Stay Safe and Healthy

Please remember – we are here to help as always.

Try very hard to reduce your stress – as we all work through this together.

Together is how our ancestors built this country.

Together is how we will conquer this enemy and carry us all into the New Age ahead.

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