We hope that you are well and looking forward to a resumption of normal activities.

The recent decline in stock prices is a reflection of the global financial stresses, which triggered a multi trillion-dollar global margin call and a 30% correction in US stock prices.  Investors on margin are forced to sell what they can, not necessarily what they want resulting in declines across all asset classes and a selloff which typically lasts 5 to 8 weeks.  European stocks declined more because banks there have not written down the bad debts from before the 2008 financial crisis. Since the EU has no provision to bail out its banks, European investors are moving their money to the US, which caused an 8% gain in the dollar in recent weeks. There is a shortage of dollars in the interbank repo market because US banks will not lend to European banks. The Federal Reserve has increased its repo support $1.5 trillion to forestall a rise in interest rates.   

We are seeing the beginnings of a coordinated effort on the part of central banks and governments to offer stimulus and easing programs which are likely to result in the sale of another $8 to $16 trillion in bonds.  This is expected to lead to a rise in interest rates and support a rise in inflation.  The bond market is at risk from rising interest rates and debt defaults. The stock market, in our opinion, is the better and safer long-term investment because companies have the ability to innovate and raise the prices of their products.  We believe that the current selloff represents an opportunity to acquire well-chosen companies at favorable prices. We expect our accounts to be rewarded for the cash raised earlier.

The coronavirus and government programs to control its spread have led to restrictions on travel, large public gatherings and the closure of schools.  Many states have expressed a preference for people to work from home. While this has affected the travel and hospitality industries and retail stores in particular, there are some beneficiaries.  Essential services which facilitate working from home, at distance learning and medical care are all seeing an increase in demand. We are seeing strong growth in the enterprise software and cloud-based systems that support these services.  When restrictions are finally lifted, we expect that a new normal will increasingly embrace these less costly, more efficient and effective technologies in which we are investing. Continued adoption of at-distance services is expected to develop much the same way as online shopping and video streaming. We are focused on those companies and sectors which are generating free cash flows and enjoying good growth, which we believe will lead to stronger returns for investors over time.

We welcome the opportunity to connect with our clients, friends and prospective investors.  Please feel free to call us with any questions or concerns you may have.