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Client Newsletter & Commentary - Second Quarter 2020
Menlo Park Boy Scout Parker Brown,

Menlo Park Boy Scout Parker Brown, 14

Bright Note During Pandemic: “I had to do something,” said Menlo Park Boy Scout Parker Brown, 14, who produced 1,280 face masks for a local hospital with help from friends, sewing lessons from his twin sister, and 40 yards of bright pink fabric.  Rather than feel overwhelmed by the pandemic, he found a perfect Eagle Scout service project to occupy his time. Whether he knows it, Parker is doing his bit to rescue a virus-ravaged economy.

Your Portfolio & the Rampaging Elephant in the Room

July 27, 2020

May this find you and your loved ones in good health and spirits during these most difficult times. 
We miss being able to meet you in person.  Despite social distancing, however, our firm is fully functioning.  We are available to help you any way possible, now and when the world community emerges from the pandemic.  We have phone, email, and videoconferencing to keep us connected.  Reach out anytime for any reason.
Enclosed is your quarterly portfolio performance review and advisory fee report for the Second Quarter.  With its positive numbers, the latest Market Review underscores the apparent disconnect between Wall Street (record market rebound) and Main Street (record-high unemployment).  We are available to review these reports, discuss your concerns, and explore possible changes. 
Much of the historic market bounce back is due to $2.75 trillion that Congress injected into the economy.  In another monumental first, the Federal Reserve is supporting market liquidity through the purchase of corporate debt. Congress is preparing to pump trillions more into the economy – including aid to state governments - amid the human agony of massive unemployment, business closures, and lost tax revenue.  
We are in a recession; progress against the virus will be the chief variable.  For now, COVID-19 remains the greatest threat to our health and portfolios and perhaps our nation’s social stability and security.
Focus on What You Can Control

In these scary times, we urge focusing on things you can control while detaching from what’s out of your control.  For example, when it comes to protecting your own health - instead of waiting for the government to act - exercise your power to wear a face mask, etc. 
Likewise, we can’t control the stock market nor predict recessions and recoveries.  Clients with a long-term investment strategy, however, are in control and enjoy greater confidence - before, during, and after a crisis.  With proper diversification, they have prepared for a range of outcomes to weather this crisis and the one that will come after that. 
Along the way towards every investor’s long-term goals will come market crashes.  They are all alike in that each one is different. One investment guru makes the case that we are in “The Old Normal.”    In 2020, “This time it’s different” means the pandemic.  Before that, it meant the 2008 Financial Crisis, at other times, Watergate, the savings and loan crisis, the dotcom crash, etc.   
Far from wanting to seem glib, we wish to emphasize the importance of being an emotionally sober investor during times of extremes.  Don’t worry alone. Call to talk through your concerns, observations, and possible changes.
Commentary & Commiseration - The Winter of Our Discontents
The tsunami of events over the past few months leaves so many of us feeling frightened, angry, and disoriented.  Moving beyond market analysis, we feel compelled to acknowledge the national mood, the challenge of coping with COVID-19, and how face masks, if mandated, should save lives and protect our economy.  

This is 2020, a year evoking events of 1918, 1932, and 1968: 

  • Despite sheltering in for four months, a surging virus seemingly has us back at square one.  Our nation’s disjointed, public health response continues while the blame game grows along with infections and casualties. 

  • The pandemic – by its sheer, historic magnitude - is a slow-moving Pearl Harbor, portending structural economic, social, and political change.  Our government is issuing wartime debt to lessen the tragedy of Great Depression-scale unemployment.  We will see ripple effects for years, likely decades to come.  

  • The gruesome murder of George Floyd has reignited a social movement that resembles the Civil Rights struggles, including its violent outbursts, a half-century ago.  Racial reckoning – which Americans generally seem willing to pursue - won’t stop with taking down the Mississippi state flag and retiring Aunt Jemima pancake mix.


Mental Hygiene
Under the strain of these circumstances, a mental health crisis is brewing. The Census Bureau reports one-third of Americans are showing signs of clinical anxiety or depression as a result of the pandemic.  Individuals, couples, and families are at risk of fraying, and we are receiving anecdotal confirmations.
If you or loved ones have difficulty coping emotionally with the pandemic, we sincerely urge you to seek appropriate support (friends, family, clergy) as well as professional help (therapist, personal physician).  Break isolation before it breaks you.  We implore you to turn off the news (remember, TV is not your friend) call a friend, walk in the park.  If it helps, toss this newsletter.
Face Mask = Capitalist Tool
While preventing infection, face masks could preserve 5% of our GDP, according to Goldman Sachs.  The Wall Street behemoth argues we can preserve both public health and the economy:

“The upshot of our analysis is that a national face mask mandate could potentially substitute for renewed lockdowns that would otherwise subtract nearly 5% from GDP…. So, will the US adopt a national face mask mandate? This is uncertain, partly because masks have become such a politically and culturally charged issue.” 

Face Masks and GDP, Goldman Sachs Research, June 29, 2020.

Putting the Public in Public Health

The situation is dire, not hopeless.  To reopen the economy safely, science exists.   Taiwan, for example, a democratic nation of 24 million, has lost a total of seven people to COVID-19.  That many Americans now die every 10 minutes. 
At this stage of the pandemic, the relevant lesson maybe the Italians – kindred spirits who revel in personal freedom and struggle with social responsibility.  Their disregard of science, like ours, resulted in avoidable loss of life.  Since imposing strict measures, Italy is now reopening – tentatively - along with Europe, this time with facemasks worn in co-existence with COVID-19.
San Franciscans have a lifesaving success story that should be a model for the rest of America:  Laguna Honda Hospital, the state’s largest nursing home with its 721 frail and elderly residents.  Owing to a combination of medical and political leadership, thus far there hasn’t been a single COVID 19 casualty at the facility – zero! 
Eventually, a fractured America will agree to a common set of facts if it is to contain and ultimately defeat this virus.  That happens only when respected experts are in charge and the rest of us behave responsibly towards one other.  We will proceed at the speed of trust, no faster.
As always and especially during the pandemic, we are here to talk through your financial plan, portfolio strategy, and any other way we can be of help. Call anytime.

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