March 2020 - Wobbly Global Economy Gets A Triple Haymaker

Yes, there is plenty to worry about right now. And it’s not just one thing - unfortunately it’s just about everything.

We believe that a Global Economy that was already weak and sputtering has been walloped by a Triple Whammy of Haymaker punches including the direct effects of the Coronavirus outbreak, dramatic reductions in energy prices caused by an all-out war between the largest oil-producing countries and the economic fallout from all of the dramatic circumstances occurring around the world. Large events are being cancelled left and right, with no relief in sight.

2020 is going to be a rough year – historic for likely the wrong reasons.

Whether one believes in globalism or not, there is no way to deny how interconnected the world is economically. Resources, services, products and people are interdependently coordinated and moved around the world each day. That ecosystem is currently being drastically interrupted, and in some instances, entirely suspended. There is no one on planet Earth that can predict with precision the quantitative effect of these interruptions. Whole cities in Italy, China and other countries are virtually at a standstill. Events are being cancelled and postponed in rapid fire succession. These cancellations are withdrawing huge amounts of money from the world economy that will not be replaced.

Perfect Storm? This is way more than a storm. It will take months to return to normality from where we are now. And the worst is probably still a month or two away, in terms of economic disruption, as many reactive measures are just now being put into full effect. School closures, travel restrictions, quarantines, etc. are still being implemented and are just now being instituted in new jurisdictions. In some areas and countries like Italy and China, it may take a year or more before the economy returns to normal.

The VIX or index of Volatility hasn’t been above 20 since the summer of 2015 and it currently stands at 67. The flight to safety was so severe that the U.S. Treasury market recorded two of its three best days ever, back to back, on Friday March 6, 2020 and Monday, March 9, 2020. Both of these days were record-setting and they occurred in consecutive trading days. The only other single day that compares was the day after the October 1987 stock market crash. Folks, this is not normal volatility. And the pace at which it rose up can only be described as violent. This will have a huge ripple effect on the economy and corporate decision-making over the next several weeks. We are definitely in for a rough ride.

We believe that this current crisis is somewhat unprecedented in modern history, but it is akin to what happened to our country and to the global economy after September 11th, 2001. The shock, paralysis, travel disruption, panic and chaos have some eerie similarities to what occurred in the last 4 months of 2001 and into early 2002, after the terrorist attacks of 9/11. Much of the world seemed to be suspended in a shocked state of “deer in headlights” paralysis, which led to cancellation of normal activities for months and months. Obviously, this had a severely negative effect on the U.S. and global economies, which lingered well into the following year.

We expect much of the same during the next several months. The economy is severely fragile right now and will take a while to recover from the current suspensions of normal activities and the supply shocks roiling the energy industry. It will take a while before a sense of “business as usual” returns to our lives and to our capital markets. In the meantime, we remain optimistic for the long-term, but quite cautious about the short-term.

We believe in America and we believe in the power of our economy. We are going to recover from this time period and we are going to thrive. But right now, things are pretty scary and the next few months are likely going to be pretty bumpy.