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Weekly eLetter 3/27/2020 — Dark Clouds, Silver Linings and Such

A pessimistic friend of mine once pointed out that in the middle of every silver lining lies a very dark cloud. I asked him if he were one who normally sees a glass as half full or half empty. He replied that it didn’t really matter as long as the other half could be filled with vodka. The events of the last few weeks have made me think a bit about that fellow, and how he’s holding up. Tough times, these.

Throughout all of 2019 we heard that the biggest problem facing businesses large and small was a lack of available workers. So, it was rather stunning to see the number of people filing for unemployment this week was 3.28 million. To underscore that number’s magnitude, consider that the previous record for number of filings in a single week came in 1982 and was 695,000. But, is it fair, or even meaningful, to compare the current economic chaotic situation with past historical events? We don’t think so and the employment figures are a good example of why that is.

In prior rapid draw-downs, even ones that could be called ‘crashes’, people lost jobs due to shrinking demand in the services they offered or products they made. In the current situation, most of the jobs have not in fact been lost — the employees have instead been separated from them. They want to keep their jobs and their employers want to keep them hired. That fact represents a pretty nice silver lining because it suggests that once the thing that is keeping people from accessing their jobs is removed most of the ‘unemployment’ could disappear.

With respect to the markets, let me point out that there is another silver lining that almost always occurs in big drawdowns. That is the improvement in valuations. As you know, we have grown cautious about lofty valuation levels for a while. Well, that is now not so much a concern!

The Coronavirus and the illness it causes, CoVid-19, are certainly very serious and I don’t mean to minimize their importance. However, if history is our guide, we will get through this just as we have gotten through scary times before. How soon that may come is unknown since the virus has also infected every economist’s and analyst’s crystal balls. Meanwhile, while we are not going to attempt the fool’s errand of calling a bottom, it is heartening to see a lot of upward movement activity this week. Will it hold? Can’t say yet. There is still a chance of re-testing the recent lows before finally getting back to business.

Caution is still the watchword.

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