So now that the Coronoavirus has found its way to Italy, South Korea – unsurprisingly, the U S markets – the global markets have come down with a case of the flu. I’m not going to spend too much time on the topic other than to say, as I’ve said before, that the history of these pandemics is that the market reacts in the short-term. Then rebalances itself for long-term expectations, which means a recovery. And of all the viruses and pandemics out there, the one that has the greatest potential for short-term disruption, compared with almost no potential for long-term disruption, is the Coronavirus. The victims of the Coronavirus are disproportionately people who are not of working age.
One: that is not to downplay the tragedy, the severity and the potential for fear. It is a real potential for short-term disaster, for want of a better word, with small businesses. In fact, in China, small businesses are folding in droves. These are not financial market listed of businesses, and there will be repercussions. In the United States we haven’t seen the reaction, the full reaction, but the markets anticipate. What we have seen today, Monday, is Large Growth is down 3.8%, led someone buy the fangs, the same fangs that drove this bull market for so long. And as we would expect Large Value is down just 2.8%, that’s almost a complete 1% spread between the two sectors of the market. This is the type of environment the “value” was made for.
The real issue, for us is what do we do with bonds? We’re already having this conversation. Bonds get downgraded as companies come under increasing duress. This hasn’t happened yet and and we are looking at at replacing some of our core bond holdings with higher quality treasuries and just higher quality holdings in general. Give us a little bit more margin for error so that should some triple B’s start falling off the investment grade cliff we’re not hurt by that. These are not pleasant times for people who are suffering. These are the times that cause fear. This is the kind of environment where as an investment, you’re really making money. Hang in there. We wish you the best of investing success. Thank you.
