TU Rick! Cool heads will prevail. I could also quote Kipling, but I’ll spare us from that. I think you have a handle on it. I’m not buying all the hysteria, however I am utilizing this swing and buying some stocks. Carry on sir. 73 David A. Norris, K5UZ Director, Delta Division Sent from my iPhone
On Mar 9, 2020, at 8:46 PM, Niswander, Rick <NISWANDERF@ecu.edu> wrote:
ODV:
I don’t usually provide input on our portfolio other than at the end of a quarter or at BOD meetings, but the events of the last few weeks (and today) are a reason enough to give you an update.
Since about the middle of February, stock and bond markets have wobbled and, particularly today, have reached territory that, while not uncharted, is territory that makes us realize that we are no longer in Kansas anymore, Toto. Here are some comparisons with where we are as of 3/9 and where we stood on 12/31, just over two months ago.
Bonds. While normally the mundane slice of our (and most) portfolios, the recent interest rate slide has been unprecedented. On 12/31, 10-year Treasuries were earning 1.92%, a number that historically was a bit low but not abnormal. Today, the 10-year closed at 0.591% and 30-year bonds closed at 0.9%, both historic lows. Today was the first time in history that ALL maturities of US Treasury bonds and notes closed under 1%. First time ever. The good news is that prices have increased (the teeter-totter effect) but the bad news is that interest earnings are back in the miniscule range. The likelihood of negative interest rates in the US has increased substantially.
Stocks. Today, all the major indices fell at a rate not seen since the Great Recession in 2008. The NASDAQ was down 7.3%, the S&P500 was down 7.6%, and the Dow was down 7.8%. Since 12/31, the S&P is down 15% with the other two recording similar declines.
Before today, markets have been volatile and on a downward trajectory. Most of the volatility and decline has been attributed to the concern of what Coronavirus will do to the economy and to corporate earnings. That concern is well founded. There are no good answers as to what will happen to economic activity and markets hate uncertainty. However, today’s swoon was due to the collapse of oil prices as a result of the implosion of OPEC+. Russia and Saudi Arabia could not agree on how the agreed-upon supply cut should be distributed whereupon the Saudis reduced their price and said they would increase production substantially. Then Russia did the same. The combination of lower demand from the economy and a big increase in supply dropped crude prices over 20% today. Since December, crude has fallen from $66 to $35.90 – a 46% decline. While that should be better for us at the pumps, it is probably a net negative for the US economy and a really, really big negative for shale and fracking. Sorry Texas and PA. There is considerable uncertainty as to how long this fight will last. The longer it lasts, the worse for domestic oil production.
Going forward, the twin uncertainties of oil and Coronavirus will weigh on the market. It will be a while till we get a handle on either one. Markets will be volatile with swings in both directions although more on the down side than the up side.
So, what is up (I should say down) with our portfolio.
During mid-to-late February and continuing through last week, I sold some stock. The economic fundamentals were bothersome and it was time to lighten up. Over that period, I sold almost $1.4 million of stock and parked the funds in the money market account. Stock sales and market losses mean that our stock portfolio is now 42% of the total, down from slightly over 50% at the end of 2019.
2019 was a very good year and we made almost $4.4 million. Now we are giving some of that back. So far this year, our portfolio has lost $1.8 million, a 5.7% drop. While still an uncomfortable number, it is mitigated by the bond portfolio that is up a bit for the year so it is nothing like the headline 15% drop in the stock market.
In round numbers, at the end of 2019 we were 50% stock, 48% bond, and 2% money market. As of 3/9, we are 42% stock, 52% bond, and 6% money market. I am as comfortable as I can be in this uncertain times with the current proportions.
Finally, everything we own is liquid. While I might not want to sell something, I can if needed. We have sufficient cash to fund the initiatives we seek to fulfill.
So, that’s the news as of today. Markets run in cycles and sometimes those cycles are down. Tomorrow is another day and the sun will still come up.
Let me know if you have questions.
Rick, K7GM
Frederick (Rick) Niswander, PhD, CPA, CGMA Professor of Accounting Bate 3110 East Carolina University Greenville, NC 27858
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