When outcomes are uncertain, the right temperament is everything.
There is a Japanese proverb that states “Fall seven times, stand up eight.”
We all need to take a deep breath, be calm and remain level headed. And believe that we will survive the recent dramatic turn of events.
This is a late quarter update to let you know our thoughts about navigating the severe disruptions caused by the drastic measures being taken to deal with the Coronavirus Disease (COVID-19) pandemic.
First and foremost, we understand that there is a high amount of stress and anxiety you are experiencing. Please be assured to know that we are working tirelessly in monitoring, digesting, and adjusting our path forward to mitigate risk where possible and look for opportunities to recoup some of the losses which are occurring.
The following are a few take-aways which may be helpful to you in coping with times of great uncertainty.
Not many in the U.S. have experienced the magnitude of what is currently happening and the uncertain outlook we face. In handling difficult situations, I am fortunate to have been raised by parents who endured tremendous hardships due to WW11, before they immigrated to the U.S. later in life. From my father, I am a product of a samurai family stemming back to the 12th century. His key teachings to survive and lead are discipline, hard work, integrity and to accept everything as it is.
In speaking about our current situation, with my 90-year-old Finnish mother who grew up in what now is part of Russia is more pertinent. She taught me to keep coping and everything will work out. She endured the Finnish Russian War immediately followed by WWll and was forced with her mother twice from their home before losing everything the third and final time. During that period there were shortages or the absence of most everything including communication. In addition, many families were separated, with her father lost into military service for several years.
Through their struggles, coping and determination and with everyone working together, they made it through the wars. After several years, initiated by a note posted on a wall, my mother’s family was eventually reunited. Those who are able to best cope through this crisis should be those able to stand up again..
The markets are reacting wildly to the drastic actions being taken to handle the COVID-19 pandemic and I remain steadfast in using my finance and economic undergraduate degrees, econometric graduate work, MBA from University of Chicago, decades of institutional portfolio management and trading experience to provide the best possible portfolio management for our valued clients. Besides working through the 1987 crash, I have actively managed portfolios through the 1997 Asian Financial Crisis, 1998 downfall of Long-Term Capital Management, 2000 Dot-Com bust, 2008 Financial crisis. As we all know, it is impossible to predict future outcomes, but with hard work and discipline I am up to the task of guiding our clients through this difficult time.
With the medical, financial, and economic world being in such flux, my following words and opinions will likely change as we continue through this dynamic environment.
The speed and depth of the market drop is currently being intensified by unwinding of many levered and margined (borrowed) positions. These liquidations cause price drops which are inducing further selling of assets, furthering the fall in prices. This cycle will go on until the calls are satisfied or the entity becomes insolvent.
The Central Banks, U.S. Federal Reserve (Fed), European Central Bank (ECB), Bank of Japan (BoJ)… recognize the severity of the situation and are aggressively pumping liquidity (access to capital) into the financial system to ensure financial institutions and strategic corporations can operate.
My guess, due to the persistent amount of liquidity being pumped into the financial system, there may be a financial institution or country on the brink of insolvency. Due to the length of the liquidity pump which may have started last August, it is hopeful that the brunt of an insolvency has been lessened.
There is a silver-lining. Due to the uncertainty of future demand and earnings and lack of capital in the financial system, asset mispricing is abundant, and I am beginning to see specific opportunities emerge. Note that when forced margin selling occurs, it is at any available price, not at what the value of the asset should be, so some assets appear very cheap. Considering the current environment, this is not without risk.
In the very near-term I expect a relief rally which could be quite breath-taking and then a retest of the lows and then gradual improvement going into summer. Depending on how all the global health, financial, and economic variables come together I believe late summer and going into the end of the year may be much brighter than the present.
Since my profession entails processing large amounts of news and data, I have a recommendation. I suggest a high level of scrutiny in deciphering what is relevant, conjecture, or in the worst case, false. From what I’m seeing, there is a high level of disinformation and ulterior motive reporting abound. In addition, I see information which is reported out of context and incomplete. Be aware.
We are close to the end of the quarter and I look forward to updating you again in a few weeks.
To our existing clients, I extend my sincere thanks for your business. You have our continued commitment to your success. To prospective clients, I invite you to come and grow with us.