The Corona Correction
In over 35 years in the investment management business, this is the first time we have seen an event like this medical crisis, plus we can’t find anything in history of any similarity. So, this Coronavirus epidemic and its effect on the investment markets is truly an anomaly. Although this is the case, our experience has given us some unique tools and perspectives that we would like to share.
We are certain that you all have been tied to the news/media networks to keep updated on what is going on, but we want to communicate what is going on in the investment markets from our analysis and experience.
First, let us break everything down from a few perspectives.
The Virus:
The Coronavirus has been said to have originated out of Wuhan, China back around November/December of 2019. The official designation is COVID-19. From what we understand, this is a very contagious virus that has a serious impact on our respiratory system but approximately 80% of people with COVID-19 recover on their own (1). The virus easily spreads person to person through close contact, which is why everyone is concerned with catching it. It has been reported that the virus can live on surfaces for up to 3 days. The other interesting piece from the medical community is that most cases of COVID-19 are not any more serious than the common flu. Outlined in the article from the Medical News Today, out of the 1099 cases confirmed in China, 16% were severe and another report estimated that 3.6% were confirmed deadly. The real concern with this virus is the containment issue and how it affects the financial markets, which is creating all the unknowns.
Fear Mongering:
Ever since we have morphed into a 24-hour news society, we get the sense that all the news channels want to spread fear. Let’s face it fear sells viewership and fanning a crisis is self-serving for the media. Whether it is terrorism, politics or the current Coronavirus, our media promotes fear and uncertainty for its own financial gain. Ever since September 11, 2001 when the twin towers were attacked by terrorist, the media has gone into promoting fear to increase viewership.
The medical crisis we find ourselves in today has some of the national media declaring an imminent apocalypse. Yes, this is a dangerous virus but so was the 2009 Swine Flu (H1N1pdm09 Virus), which infected an estimated 60.8 Million cases in America with 274,000+ hospitalized and over 12,400 deaths (2). Other major medical crises were the Asian Flu from 1956-1958 that purportedly had a death toll of approximately 2 Million people and the Flu Pandemic of 1968 that had a death toll of approximately 1 Million people. And let’s throw in the HIV/AIDS Pandemic started around 2005 to 2012 that supposedly killed some 36 Million Americans (3). So we’ve seen much worst scenarios over the years.
The Investment Markets:
As you may recall, we have written about a possible market correction in many past articles over the last year. We look at the markets and the respective indicators from a variety of angles but this medical crisis, or what we have labeled the “Corona Correction”, basically throws all analytics out the window temporarily (in our opinion). Case in point, whenever we see the markets down, gold down, oil down, interest rates down, unemployment down, that’s telling us there is a flight to cash. That validates that we are in a fear driven investment market.
The U.S. and global economy are in much better shape than during the 2007 to 2009 recession, but we have seen some incredible volatility in the markets. As of this writing, the markets are also down over 30% from 2020 highs.
This will not be an overnight fix and the markets will not bounce back in the same timeframe that they dropped, but we believe that when we get America back to work and with the U.S. Government adding capital to the market and to companies and citizens, we will see a move back to normal markets and a correction back up.
The good news is that the treasury bonds have started a normal curve and interest rates have started going back up. The 30-year Treasury rate was at 1.75%, the 10-year Treasury was at 1.12%, the 5-year Treasury was at .72% and the 1-year Treasury was at .51% recently, all up from some incredible lows. Although we forecast some potential volatile days ahead, this usually indicates that the markets are settling down.
This is also a time when clear and unemotional guidance and experience can be helpful to others that you may know. Please refer anyone you may know that needs our professional guidance and experience. We want to help other not only get through these challenging times but prosper in the process.
As always, your trusted Schmolke Investment Team is watching everything with close scrutiny. We take the “emotions” out of the equation and have decided to stay on the path of quality investment decisions for you and your families. You are our most important asset and we appreciate your trust and loyalty in these challenging times. We will get through this and God willing, come out of it in a safe and secure manner.
Brian Schmolke
Bart Schmolke
Schmolke Investment Team
“Experience Matters”
- https://www.medicalnewstoday.com/articles/coronavirus-causes
- https://www.cdc.gov/flu/pandemic-resources/2009-h1n1-pandemic.html
- https://www.mphonline.org/worst-pandemics-in-history/
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.