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The Best of What They Said and I Read Week Ending 3/1/2020

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice

  U.S. Global Investors - Investor Alert – February 28, 2020 – Frank Holmes 

  • “As I write this, the market is officially in correction territory, with the S&P 500 off 14.5 percent from its all-time close on February 19. It took only six days, in fact, for the S&P to fall 10 percent from its high into a correction­­—a new record…and there may still be more pain ahead. Today the World Health Organization (WHO) raised its threat assessment of the coronavirus, or COVID-19, to “very high,” and warned that the illness could soon reach most, “if not all,” countries across the globe in the coming days and weeks.”
  • “I choose to remain optimistic, though. The underlying economy is sound. Nothing has changed about that. This selloff is purely incidental to the outbreak, and once it’s contained and the number of new infections begins to plateau, I expect to see stock markets recover sharply. The same goes for the industries that have been hardest hit by the virus, including travel and tourism, airlines and energy.”
  •  “…Goldman Sachs Group Inc. economists said they now expect the coronavirus to inflict a “short-lived global contraction” on the world economy that will force the Fed to slash interest rates in the first half of this year, reports Bloomberg. In a report released on Friday, Goldman economists led by Jan Hatzius said the outbreak of the deadly virus meant they now predict global GDP to contract on a quarterly basis in the first two quarters of this year before rebounding in the second half. “All else equal, this would imply a short-lived global contraction that stops short of an outright recession,” the economists wrote.”

 Barron’s – February 28, 2020 – Didn’t Sell Before the Big Plunge?   Here’s the Good News. – Randall W. Forsyth

  • “…It was just the Wednesday before last, Feb. 19, when the market set a record. Since then, the major averages have suffered a swift, sharp shock of nearly 15%. In the week just past, the Dow Jones Industrial Average fell nearly 4,000 points, or 13.6%, to 25,409…The S&P 500 index lost 11.49%, ending 12.76% below its recent peak. The technology-led Nasdaq Composite slumped 10.54%; it is now 12.73% under its recent high.”
  • “…The Fed released an unusual statement on Friday afternoon to let the markets know that it isn’t oblivious to Covid-19’s effects on the economy and the markets: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”
  •  “But investors should note that, after steep declines, stocks usually have been up substantially a year later.  Jeffrey DeMaso, director of research for the excellent Independent Adviser for Vanguard Investors newsletter, looked at the 55 days over the past 33 years when the S&P 500 has fallen by 3.5% or more (as in Thursday’s 4.4% plunge). He found that, following 45 of those plunges, Vanguard’s S&P index fund has been up an average of 20% a year later. Not a bad bet.”

The Wall Street Journal – February 28, 2020 – As Markets Fall, Ask Yourself if Now Is the Time to Buy – James Mackintosh

  • “…The starting point should be positive: Barring some apocalyptic mutation, a pandemic will be over within a few months, and growth should resume. There will be lingering effects on the economy’s growth rate as companies respond by diversifying supply chains, as well as potential changes in consumer behavior (anyone fancy a cruise?). But they are unlikely significantly to hamper long-term growth.”
  •  “…One obvious economic danger is that the damage becomes self-fulfilling. Companies are already having supply troubles because of the China shutdown; if they respond by laying off workers, demand would also be hit. Central banks are more limited in their ability to stimulate by cutting rates than in past recessions (although futures markets are now pricing a Federal Reserve cut at next month’s meeting, with most expecting a 0.5 percentage point cut).”

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