“Off The Wall” Blog
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Hope from China, truth about stimulus, and why cash is the ultimate hedge
By David B. Armstrong, CFA | Mar 23, 2020 | Weekly Market Commentary
In the irony of all ironies, the economies of China and South Korea are recovering. Now. While the global economy has come to a virtual halt. It’s either more evidence that we’re in the upside down—or, it can provide us with some hope.
It seems the government is working to introduce several different programs that will amount to several trillion dollars for immediate relief, but this will only serve to stabilize the economy, not create demand. That will only happen once we can all return to our daily lives without fear of catching or spreading the virus to others.
That is going to happen – it only makes sense. It’s a matter of what comes first: the “all clear” is sounded and we return to normal, or the wind that a stimulus package creates in our sails dies out.
What’s going on with the stimulus package?
It’s a moving target. There is some bickering over a few issues, but here’s what seems to be the meat of the deal they are discussing. The relief package will initially total around $2 trillion and will include:
- Two $1,200 direct payments to individuals totaling over $600 billion;
- An extension of tax payments totaling over $300 billion;
- Small business loans and grants totaling over $350 billion;
- Targeted industry/company loans and grants totaling over $450 billion;
- Unemployment insurance and healthcare grants over $250 billion;
- State assistance and many other additional loans and grants totaling over $200 billion.
None of this is set in stone – they obviously may change this as negotiations continue. I’m reading that the remaining issues are things like terms of loans, executive compensation, dividend policy, stock buybacks and equity participation.
While it doesn’t help demand, it provides needed liquidity to avoid further potential risks to the financial system and the overall economy.
Things will likely get a little darker before it gets lighter again. We will be pummeled daily with infection stats and mortality reports but looking at how this has been playing out, the virus will crest, flatten out, then finally decline.
The end of the world is not upon us, no matter how much your survival instinct is kicking in. (I’m working on a second blog that goes into the reason your survival instincts have to be ignored in situations like this.)
Cash is king—and the ultimate hedge
Most Monument clients have seen their cash balances increase in managed accounts over the past few weeks, AND THIS IS BY DESIGN. Stocks that screen for sales in the normal course of our running our portfolio strategy are usually replaced with new stocks. During times of volatility, we simply hold the cash for redeployment once we get a better sense that the crisis is peaking.
Remember, cash is the best and cheapest hedge that exists.
History tells us that events like this are rare but have always been great opportunities to profitably invest for those who maintain a long-term perspective. Look across the valley and towards the next peak – there may not be much visibility, and it’s hard to be sure it’s there, but it is.
Keep looking forward,
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
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David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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