TAKING OUR MEDICINE

The corona virus is first and foremost a health care issue, and secondly an economic issue. The best way to reduce the secondary economic impact is an all out attack on the primary health care front. Before this crisis evolved, I admit I overestimated the preparation of our country's health care system to handle such an event. I also overestimated the willingness of the government and the general public to take radical action in the face of a coming pandemic.

Messages from public officials have become more draconian over time, moving from washing your hands, to avoiding large crowds, to shutting down restaurants, bars, and schools. I don't fault their actions, but question their timeliness. The public has also been surprisingly noncompliant with requests to curtail social activity. Until recently neighborhood bars, restaurants, and churches were mostly full despite official “requests” to practice social distancing. With little public buy-in, some officials finally started moving to mandatory closure orders to kick things into gear. Doing so earlier would have been prudent, although it's easy to second guess them after the fact. In the days ahead, I expect more mayors and governors to issue sweeping lockdown style orders like the Chinese and Italians.

So now we find ourselves having to swallow some pretty significant shutdown “medicine” because the virus has gained a firm foothold, and the resulting economic symptoms are sure to be more significant than initially thought. The government has reacted accordingly. The Federal Reserve has cut short-term interest rates to basically zero. Congress and the administration have already passed one aid package involving family medical leave, unemployment, and small business loans. They are working on another package as I write this letter.

Despite all of these measures, markets have been unable to gain a foothold and sustain any upward momentum. Why are they still unsettled? Most of the available tools the government has are designed to stimulate consumer demand for goods and services. They do not address supply related issues. Lower interest rates, unemployment benefits, paid sick leave, and other cash payments are designed to maintain or enhance peoples' capacity to spend. Such supports are critical given consumer spending (demand) represents about 70% of our economic activity. However, what if people have the cash, but can't or won't spend it. If the car or electronics you want to buy are not available because of factory closures then you're out of luck. If the restaurant you want to visit is closed for business you're stuck eating your own (or your spouse's) cooking. These are examples of supply constraints which are much harder to overcome. The only great supply side fix seems to be waiting for the virus to subside.

If you have not already re-balanced your portfolio, my advice is to hold tight. For more aggressive investors, there will likely be some great buying opportunities, but there's no need to rush in.

Frank Rizzo, Certified Financial Planner, CRC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 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.