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2439 North Rockingham Street
Arlington, VA 22207

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Todd Ihrig

(703) 536-3650

 

Market Update

General Commentary from my firm can be found here.

For those who choose to avoid "social media", I will periodically update this page with my recent updates from my social media sites (most recent listed first)



Week of May 25 - May 29:

I continue to struggle with the concept of bailouts to companies that failed to prepare. If we look back over the past 10 years, trillions in company profits were spent on share buybacks as boards and executives chose to reward shareholders in the moment instead of preparing for the future. Obviously nobody predicted THIS specific issue but we all should have emergency cash on hand for unexpected events. Shouldn't we expect corporations to do the same rather than assuming the government (i.e., you and me) will bail them out? #InvestWithAPlan

Week of May 18 - May 22:

Everyone is trying to figure out what the full impact of the Covid pandemic will be and there is no doubt life will change in ways we cannot fully predict. Blog Post  #InvestWithAPlan

Week of May 11 - May 15:

We are in a delicate balancing act "experiment". As individual states and regions begin to open the economy, policy makers are experimenting with the pace and how to reopen businesses, trying to balance the public health issues alongside the economic issues. I do not envy the decision makers and am bracing for lots of fits and starts, lots of market volatility and a lot of second-guessing. The next couple of months will certainly be interesting. #InvestWithAPlan

Week of May 4 - May 8:

Two down... J Crew and Neiman Marcus have filed for bankruptcy and there are likely more companies to follow. It is important to remember that even in a global crisis like this one, bankruptcies are inherently company-specific events. A company with thin margins and little/no cash reserves is going to be at risk where a company that has plenty of cash reserves can weather the storm. Also important to note that Chapter 11 bankruptcy does not mean the company disappears; it gives the company a chance to negotiate with creditors to restructure its debt and continue to operate. Definitely hurts stockholders (usually wiped out) but employees are often pretty high up in the negotiations. There is a very long list of companies currently operating that have gone through and emerged from bankruptcy.

I mentioned in an earlier post that I've been thinking a lot about ways our lives, businesses and economy will permanently change as a result of Covid-19 and our response to it. One example is how "normal" distance working and telecommuting will be and what impact this might have on the demand for corporate office space. What are other changes/pivots that you think might become more "permanent"?

April 2020 was a reminder of why making big portfolio moves in the midst of market volatility can be a big mistake. Turns out, April 2020 was one of the best market months in decades with the S&P 500 index up nearly 13%. That is the single best month since January 1987 and happened during what could easily be described as pretty grim circumstances. Trying to outguess the market is a fool's errand. Focus instead on your long-term investment plan and make tactical moves that can enhance your situation when the market eventually recovers (e.g., tax loss harvesting, rebalancing, investing idle cash, etc.). #InvestWithAPlan

Week of April 27 - May 1:

I have been thinking a lot about how some aspects of our lives may be changing forever. Businesses that were reluctant to embrace telecommuting have been forced to and employees may push to retain some flexibility; what does that mean for commercial real estate? People have shifted most buying online and those habits may not change; what does that mean for local malls/retailers? If we start to think about our health care supply chain from a national security perspective, what opportunities does that open up for US-based manufacturers? Will TP manufacturers have to start laying people off when we all realize we have 8 years worth in the basement? Regardless of the cause of the disruption, there have been important inflection points in our history/economy and I suspect this might be one of them; it will be interesting to see what our "new normal" looks like from here. #InvestWithAPlan

The market certainly seems to think "the worst is over" rallying a good chunk so far this week. While that feels good amidst positive news of potential treatments and some states starting slow reopening, it is important to remember that the side effects of this pandemic are going to be with us for a LONG time. Just because a government official tells us it is OK to resume normal activities, every individual is going to make their own decision based on their circumstances. Some will resume immediately without fear, some will shelter for months. Even if a business opens, not all of its customers will flood in. As I've said before, I am not worried about the system, but we will continue to see individual stories of pain, loss and bankruptcy for many more months. The market cares more about the overall economy but I hope we all do what we can to help our individual communities, neighbors and business owners. #InvestWithAPlan

Saving lives or saving the economy? This may be the ultimate cost-benefit analysis of our lifetimes. NPR's Planet Money podcast did an episode on what goes into the decision to reopen the economy. Very interesting and worth the listen. #InvestWithAPlan

I have been getting some questions about how the market can be rising when unemployment is soaring, businesses remain closed and the virus is still circulating widely. The thing you have to understand about the market is how it processes information. The crisis happened and investors/traders adjusted their estimates of what the economy will look like going forward. That new estimate is now the baseline. So, even though millions of people have filed for unemployment, that only moves the market if the actual number is wildly different from expected. In this way, the market is a forward-looking guess. The market going up today is simply a reflection that investors assume "tomorrow" will be better than already assumed. #InvestWithAPlan

Week of April 20 - 24:

We are experiencing a lot of "firsts" with this crisis. Yesterday, prices of futures contracts for oil went negative as a result of massive oversupply. Real basic supply/demand lessen of basic economics. When producers keep pumping when demand has plummeted, prices will drop. Oil is still central to the global economy so this is just one more piece of our unfolding drama. Ultimately, solving the health crisis will solve the economic crisis but until that happens, be prepared for lots of volatility and randomness. #InvestWithAPlan

I have mentioned before that perspective matters; here is an update. Peak to low in recent decline, S&P500 was down 34%; ouch! As of Friday's close, S&P500 is down just 1% from one year earlier and up 38% from five years earlier. Which number will you focus on? #InvestWithAPlan

Week of April 13 - 17:

We all need a little sense of humor through all of this... from The New Yorker.
 

This time is different, right? Nope. The details are different; the cause is different but the results will be the same as EVERY time in history. Some companies that are not managed well will get hurt and go out of business. But every time economic disruptions happen, innovation and evolution also happens. Old opportunities go away, new opportunities arise. We need to be sensitive to people attached with businesses that will go away but the system will survive this. #InvestWithAPlan

We had a really good week in the market last week; does that mean we are fully on the mend? In previous posts, I said we needed good news on the health front and the market responded to the possibility that new cases are peaking in hotspots. Remember that this is fundamentally a news-bound market and the risks are not over. Just like in 2007-09, the recovery was NOT a straight line; we are likely to experience some setbacks along the way. And, we have the long-term economic damage to consider. Slow and steady; one day at a time. #InvestWithAPlan

Week of April 6 - 10:

On this Good Friday, I hope we all take a few minutes to consider our neighbors. The stat that has been on my mind a lot recently is that 40% of Americans cannot come up with $400 in an emergency. I suspect a lot of those folks are the ones who have been filing for unemployment recently. In addition to the uncertainty caused by this health crisis, they are now facing financial uncertainty and may have lost their health coverage along with that job. For those of us whose worry is their investment balance, PLEASE consider ways to help. Your local food bank (like AFAC here in Arlington) is likely overwhelmed and can use support. Emergency funding organizations (like Thrive here in Arlington) are likely overwhelmed. These groups need your support right now. Your investment balance will recover; let us all help our neighbors from falling off the financial cliff. #InThisTogether

I am so glad to be a member of the Arlington Chamber of Commerce, especially now. The team has been incredibly active in pushing out information around SBA programs as well as other federal, state and local issues. They have been hosting zoom meetings with our US/VA Senators/Representatives and other leaders to provide information and access. We are all struggling to keep up with the flood of information and having a trusted source like the Chamber has been wonderful. If you are a business owner and not involved in your local Chamber, you should consider. It is times like these where those relationships really pay off. #Partnerships

CONSUMER ALERT: "We urge people to take extra care during this period. The IRS isn't going to call you asking to verify or provide your financial information so you can get an economic impact payment or your refund faster," said IRS Commissioner Chuck Rettig. See full text from IRS.GOV

Week of March 30 - April 3:

One major difference between this crisis and 2007-08 is that banks were at the epicenter last time. This time, bank balance sheets are flush with cash and they are using it. Many banks are offering automatic, no questions asked deferrals on mortgage payments and will be the distribution points for SBA loans to small businesses. If you or anyone you know are having cash flow issues during this crisis, talk to your bank.

Efficient markets rely on information. Lack of information >> uncertainty >> guessing >> volatility >> fear >> uncertainty... and the loop continues. The only way to break this cycle is information/good news around the virus that starts to reduce the uncertainty. #InvestWithAPlan

"V" or "U" is the current debate outside of when we see a leveling off of new Covid-19 cases. A "V-shaped recovery" indicates a fast-paced rebound where "U" stretches it out a bit. Honestly, either case is fine for long-term investors. Remember, well-diversified portfolios have a buffer for short-term needs so long-term plans should be OK whether long-term assets recover in a few months, a few quarters or even a few years. #InvestWithAPlan

I have had some good chats with my 22-yr old daughter Madison about how people react to volatile markets and enjoy getting her perspective as a young investor. During one recent discussion I shared my observation that "Stocks are the one thing people want LESS of when they go on sale." I find it curious that our normal consumer behavior will have us spend hours tracking down great sale prices online and help us choose between the $5 organic gluten-free loaf of bread and the $1 store-brand loaf; that always makes me wonder why that same consumer mentality fails us when stocks are falling. Without missing a beat, Madison said "People typically don't have 50% of their life savings in bread." #WisdomOfYouth #InvestWithAPlan

It will be a good-news, bad-news battle for a while. The markets focused last week on the good news on the fiscal and monetary support provided by Congress and the Fed. With that done, focus may once again return to the Health leg of this stool where we continue to see worse news. While I am hopeful we will start to see some better news sooner than later, we should all brace for the news battle that will be occurring in the coming weeks. #InvestWithAPlan

Week of March 23-27:

Full recovery from this mess will take some time and we need a strong foundation to get there. Three support beams need to be in place: Fiscal, Monetary and Health. Fiscal stimulus bill from Congress appears on its way and the Fed is taking aggressive actions on the Monetary front. Once we start to "turn the corner" on the health front and we see the benefits of our collective actions then we will all see light at the end of this tunnel. #InvestWithAPlan

Recommend episode 982 of NPR's Planet Money podcast (13 mins). The discussion with Neel Kashkari, President of the Minneapolis Fed is fantastic and should give us all confidence in the quality and thoughtful nature of the folks leading our fiscal response.

"The market is a device for transferring money from the impatient to the patient." --Warren Buffett. With the market moving as much as it is, anyone moving money around is simply guessing (except for certain members of Congress). #InvestWithAPlan

This is an excellent blog post from St Louis Federal Reserve President, James Bullard, a voting member of the FOMC. He describes a very thoughtful perspective on how we ought to think about the policy response to the outbreak. #InvestWithAPlan 


In a recent email to clients, I asked everyone to think about ways to help their neighbors who might be severely impacted by this outbreak. One client's reply warmed my heart and I asked their permission to share. Please consider these types of small steps. "We have biweekly cleaning visits from two folks who have taken care of us for well more than ten years including special events. We decided we couldn’t risk having them come last week so, when they called to ask whether they should show up on Friday, we explained it’s too risky. However, knowing how little they make overall, we decided we would mail them the regular check and just “bank” the cleaning for the future. We’ll have them do windows or some other special cleaning on top of the regularly scheduled work when things return to normal. She reacted as if she had won the lottery. Apparently, most of their other clients are just canceling. I suspect some of them are experiencing financial hardship as well. We feel fortunate that we can help these folks out in this small way and hope others who are in a position to will do so."

Investor Alert; please share. During times of crisis, please be extra cautious about scams, price gouging, etc. In addition, be sure any "guaranteed" financial product fits your financial situation. Buying something with a guarantee always has a price in extra fees, limited upside, etc. Just make sure it fits your situation or it a little like buying car insurance after your accident. #InvestWithAPlan

Week of March 16-20:

Market declines happen in four stages. (1) Shock, (2) Panic, (3) Stabilization and (4) Anticipation. No doubt we are in #2-Panic mode right now. I cannot tell you when we start to transition beyond this, only that we will as we have EVERY time before. #InvestWithAPlan

My word of the day is Optimism. My emotions and thoughts about the markets tend to work opposite the market itself. Over the past year, I've been increasingly nervous as the market continued to rise. Not because I saw this coming, but simply because it felt overextended. I continued to follow my process, pulling back risk in client portfolios - not because of "my gut" but because portfolio stock allocations were rising and we pared back. With this rapid decline, I am getting increasingly optimistic. I remember this feeling from 2008-09. Rationality was gone, fear was ruling the day and I just kept feeling more confident. Actions are being taken around the globe, communities are banding together to knock this thing down and eventually traders and investors will realize that buying opportunities are there. #InvestWithAPlan

It is incredibly dangerous to make dramatic moves in portfolios in this environment for a very simple reason - we are all guessing. This is always true about investing when we think short-term. But the longer-term perspective we take, the less it feels like guessing. EVERY time in history when a shock hits the markets we have recovered and we will again this time. In the meantime, take comfort in some knowledge about how portfolios are built. Money that you need in the next 2-4 years is NOT in the stock market. This is done intentionally to avoid needing to sell stocks while they are down. So if you are currently taking withdrawals for normal monthly expenses in retirement, there is no need to worry. Sure, the stock side of your portfolio is down (a lot), but there is a built-in time for recovery. If you are not retired and still building assets, congrats! You get to continue buying while stocks are on sale. There is one absolute rule in investing - long-term perspective. Those that let short-term emotions affect their well-designed long-term portfolios are destined to destroy the very plans they are trying to "save". This is incredibly hard to do in the moment but right now the best thing to do is practice social-distancing from your stocks. #InvestWithAPlan

My father sent me a newsletter about social distancing recently and it had a perfect point about the money side of things: "Don't touch your face and don't touch your stocks" (quote from Annie Lowrey, staff writer at The Atlantic).  It is incredibly dangerous to make dramatic moves in portfolios in this environment for a very simple reason - we are all guessing.  This is always true about investing when we think short-term.  But the longer-term perspective we take, the less it feels like guessing.  EVERY time in history when a shock hits the markets we have recovered and we will again this time.  In the meantime, take comfort in some knowledge about how portfolios are built.  Money that you need in the next 2-4 years is NOT in the stock market.  This is done intentionally to avoid needing to sell stocks while they are down.  So if you are currently taking withdrawals for normal monthly expenses in retirement, there is no need to worry.  Sure, the stock side of your portfolio is down (a lot), but there is a built-in time for recovery.  If you are not retired and still building assets, congrats!  You get to continue buying while stocks are on sale.  There is one absolute rule in investing - long-term perspective. Those that let short-term emotions affect their well-designed long-term portfolios are destined to destroy the very plans they are trying to "save".  This is incredibly hard to do in the moment so let me repeat the earlier advice in a slightly different way.  Right now the best thing to do is practice social-distancing from your stocks.  #InvestWithAPlan

Portfolio construction matters most in times of stress. Locating assets in accounts for tax efficiency which helps on both upside and down, using BOTH passive (index) AND active funds, cash buffers for those taking regular withdrawals, etc. #InvestWithAPlan

Not that you need it, but let me prove the market is irrational. A stock price is essentially the sum of the value of the company today (its stuff, cash on hand, buildings, etc.) and the assumption of future growth. The coronavirus has done nothing, zero, to affect current values. The 30% drop is therefore telling us that market participants are essentially projecting that the entire global economy has permanently (like FOREVER) eliminated 30% of all future demands for goods and services. Does that even pass the smell test? No! Because this outbreak is inherently temporary, demand will not permanently stay lower. Simple logic tells us the market is fear-bound and not operating with a shred of rational thought. I wish everyone would just stop and check back in a month or two and see what the world looks like. I suspect the current panic (just like the last one) will look vastly different in the rear view mirror. #InvestWithAPlan

Week of March 9-13:

Market declines are never fun nor desired. BUT, when they occur there are ways to take advantage of them. Rebalance your account, harvest tax losses, buy opportunistically, refinance your mortgage, etc. Or, all of the above. #InvestWithAPlan

In the heat of the moment, it is the moment that seems to matter. But, the wiser course is often to ask yourself what happens AFTER the moment passes. What happened in the markets after 9/11, after the crash of 1987, after the last pandemic, after the financial crisis in 2008, after...? In every case, the market recovered and ultimately hit all-time highs. Sometimes "after" takes months (the S&P500 lost 19.8% in 4Q2018 - remember? - and recovered by Mar2019), sometimes "after" takes years (around 3 after 2008/09 bottom). But, knowing this, wise long-term investors look for opportunity in chaos knowing that at some point we will be "after" coronavirus too. #InvestWithAPlan

At some point, it is easy to see that the market is panicked and not acting rationally. Does anyone really think that the actual value of a company is changing this quickly and significantly? Emotions are ruling the day; investors should #InvestWithAPlan