Growing up in Houston in the 1950s I spent a lot of time playing with the kids in my neighborhood. There were no personal computers, smartphones or cable TV, online streaming, not to mention video games. If the weather was bad, we’d stay indoors and play board games. But if it was good, we’d be outside playing games in the neighborhood. One of our staples was hide-and-seek. I remember many games ending when the person who was “it” gave up and shouted out “Ollie Ollie Oxen Free” which meant that you could safely come out from your hiding place without the fear of being tagged out before you got to home base.
Over the last several weeks of “social distancing” and “sheltering in place” I’ve sometimes felt that I was in an extended game of hide-and-seek. I’ve also just assumed that sooner or later – and hoped sooner – someone would give the all clear, and I would know – with certainty – that I could come out and not have to worry about contracting COVID-19. While I still hope that will be the case at some point, I no longer think that is likely to be sooner rather than later.
I should acknowledge that speculating about the path, timeline, or ultimate impact of this virus is almost certainly a fool’s errand. There are many variables that will come into play. Even experts with similar backgrounds and qualifications have come up with a wide range of scenarios. Andrew Ross Sorkin, in the May 3rd edition of The New York Times, confessed his concern over the number of times even Warren Buffett responded to questions at Berkshire Hathaway’s annual meeting, saying “I don’t know.” If the crystal ball of the “Oracle of Omaha” is cloudy, we mere mortals should no doubt tread carefully.
In addition to a lot of “I don’t knows,” however, Buffett said something else: “The American miracle, the American magic has always prevailed and it will do so again.” We share Mr. Buffet’s conviction in America and its resiliency, realizing that achieving that resilience may take some time.
Unfortunately, what happens in the meantime can only be the subject of speculation. We could spin out lots of different scenarios and try to assign probabilities to each, but the fact is we don’t know and neither does anyone else. Under almost any scenario, however, it would seem we could go through an extended period of time without hearing “Ollie Ollie Oxen Free.”
If you look at the three phenomena we’re confronting here – a public health phenomenon, an economic phenomenon, and a financial markets phenomenon – it’s interesting to consider the extent to which the three are in sync with one another. In simple terms, the data on the public health and economic phenomena are bad and may get worse, and the data on the financial markets is good – if the S&P 500 within 20% of its all-time high qualifies as good – and may get better. So what’s wrong with this picture? Maybe nothing. Maybe there’s a good reason the financial markets seem to have decoupled from the underlying public health and economic phenomena. The financial markets are by nature anticipatory. They always look forward. There’s been an enormous amount of liquidity injected into the economy and financial markets, which may be felt unevenly over time. But in the spirit of hoping for the best, yet preparing for the worst, we also have to acknowledge that the financial markets may have been overly enthusiastic, which is to say the scenario they’re discounting is not nearly so protracted and difficult as the one that will possibly materialize.
If that turns out to be the case it would probably mean additional volatility for a longer period of time. That can certainly be unsettling; though the effects of volatility can be dampened to some degree by being well-diversified. Volatility also presents opportunities, in the form of portfolio rebalancing, tax-loss harvesting, and gifting and other planning possibilities.
So “Ollie Ollie Oxen Free”? Probably not for a while. But in the meantime – which may be a while – we are preparing for further volatility while continuing to invest through a long-term lens. We think there will continue to be opportunities that present themselves and plenty of other constructive work to be done along the way.
For a discussion of specific planning options that may currently be of interest, please see the April 24 blog post on the RGT website by our partner, Mike Shockley, titled “Planning Opportunities During the COVID-19 Era”.
Please reach out to RGT if you would like to discuss your portfolio in more detail.