Our Insights

Sorry for the length of this quarterly letter – so much to address regarding the economic and financial fallout from the Covid-19 pandemic, the crash in energy prices and the imposed shut down of the global economy.

Counsel Trust managed portfolios contain high quality dividend and interest paying securities and funds that are temporarily lower, but will bounce back as the global economy is incrementally re-opened.  It’s not often we experience such broad-based market decline as occurred in the first quarter.  All asset classes except precious metals declined in panic selling reminiscent of ‘runs on the bank’ during the Great Depression.

Especially dismaying has been the extreme damage done to energy and natural resources – an asset class that we’ve been employing in portfolios to diversify away from equity volatility.  Energy suffered a triple-blind side – first Covid-19, then an oil price war between Russia and Saudi Arabia and then, a closed economy – all three events, hopefully temporary.

Although it’s clear that the pandemic will eventually pass, quite a lot of damage has (and is) being done, the impact of which will last for a while.  Unlike the dot.com crash of 2002 and the Great Recession of 2009, this pandemic / energy correction will heal more rapidly.  However, here are some of the ‘longer leg’ aspects of this ‘black swan’ event:

The COVID-19 crisis is likely to shift the global economic ‘tectonic plates’

  • Increased nationalistic tendencies to look more inward; stronger borders
  • Less international free trade and business travel, especially with China
  • Less supply chain low wage manufacturing abroad
  • More national self-reliance – re-building domestic manufacturing capabilities
  • Greater production and labor costs, possibly resulting in higher product capabilities
  • Greater production and labor costs, possibly resulting in higher product prices
  • Heavier reliance on in the internet – more home shopping and entertainment
  • Increased security / password issues and hacking will require a major interest reboot made possible by 5G and blockchain tracking / accounting.

U.S. economic vitality and longest running bull market was suddenly cut short by pandemic fears and the government sheltering edict

  • Most rapid market plunge in history, (at least temporarily) bottoming out 3/23/20
  • The panic was due more to forced selling to raise liquidity than to fears of a recession
  • However, expect at least a mild recession as earnings severely decline for a while
  • Profound negative impact on small business and the consumer driven economy
  • Expect a slow U shaped economic and market recovery, including volatile market up’s and down’s

Unprecedented monetary and fiscal stimulus, compounding the unending Federal Reserve quantitative easing since the Great Recession of 2009.

  • $2.2 trillion CARES Act- combination business loans and direct employee payments
  • $2.3 trillion Federal Reserve stimulus – broad based bond buying and credit extension
  • The largest broad-based relief package and monetary expansion in history:
  •          Support for individuals, healthcare
  •          Support for small business & large industries
  •          Support for state & local governments
  • Extreme global central bank accommodative monetary policies, massively increasing government debt

Aggressive fiscal and monetary policy cannot levitate real economic growth

Real U.S. GDP growth will come in part from a restructuring of manufacturing, however it will take time

Potential danger of re-emergence of inflation and U.S. dollar de-valuation