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Touching Base

Gunther Kruger - Mar 20, 2020
Touching base in trying times. The beginning of our new reality, recession, market reaction and way of life.

Touching Base


Hello to everyone in this trying time. We are writing this from the confines of our home offices as Vanessa, Margaret and I are practicing the prudent thing and social distancing. We have secure online access and are fully functional.


We are attaching a “Bull and Bear Chart”. With this we are not trying to be trite but we do find that these are useful in trying times to provide perspective on where we have been before. Please have a look at it.


As we write this, global markets have declined some 32% in 3 weeks in a frenzied response to the Corona Pandemic. More specifically, the Market is trying to find the appropriate pricing levels for a global economy that has now been lurched into a global recession. Stock markets value companies based on earnings, the much vaunted PE ratio. With a global shutdown earnings will become scarce or undiscoverable and this is what is causing markets to gyrate up and down (mostly down) as the news changes from day to day, hour to hour. But make no mistake about this, we are in a bear market which will take some time to exit. But exit we undoubtedly will.


But it is also not just stock markets that have been affected, all over the world credit markets are becoming disjointed and yields have been cut by central banks, in some cases to zero. All of this puts pressure on the global credit markets. The good news is that, from lessons learned during the crisis of 2008, global governments have been responding to all of this by flooding the markets with massive amounts of liquidity. Governments are also busy trotting out stimulus packages and social security safety nets for the many that will be effected by the unavoidable negative effects of all of this.


This is an unprecedented time and events are unfolding as we speak. This is not the time for “buying on the dips” and “looking for opportunities”. Some things are being currently priced at incredible bargain basement levels. But until global events play out and until markets stabilize and bottom out, those bargains could become better yet. Our job, first and foremost at this time is to be there for our clients, represent things as the way they are and not the way we’d like them to be. You can rely on us to give you the plain unvarnished truth to the extent we know it to be so.


Based on past experience we expect some level of stability to develop in the short term as most of the “panic” selling will have been completed by now. Then we’ll have some rays of hope, markets will rise somewhat, perhaps retracing 30-40% of their early lows. Then we’ll have some bad news, disappointment, reversals and a retest of previous lows. If those levels hold, and only then, will markets bottom out. JP Morgan is forecasting a US GDP drop of -4% in Q1 and -15% in Q2. Then it is forecasting a steep rebound with an overall decline in GDP of about -2% for all of 2020. The economy may have a steep rebound, the stock market will likely need to lick its wounds for some time when this is over.


So what to do?


Above all don’t panic. Please understand that if you own stocks you own underlying businesses. These are real companies with real business models, and real cash flows. These cash flows will be disrupted for the time being but this will not be a permanent state.


Stay liquid. In other words ensure that you have sufficient cash on hand with us or at your local financial institution to meet your emergent personal needs.


Use rallies wisely. If you feel you want to reduce your exposure to global equity markets, or to raise cash for the time when opportunities will indeed present themselves, use rallies, which are likely to be short lived, do that.


Stay healthy. As stated, we’re social distancing but still working full time, actually more than full time right now. We’ve stopped watching the non stop talking heads scream at us about the oncoming Zombie Apocalypse. Same for the financial news networks. If you listen to them you’ll likely end up with no money. If you listen to us we’ll all get through this.


Director Ron Howard made two movies in the 2000’s. One is Cinderella Man, a bleak story about a boxer’s trial and tribulations in the Dirty 30’s. He also made another movie, Apollo 13, the story of man’s triumph over extremely adverse circumstances . I know which one I’ll be watching this weekend.


One last thing. Our phones are being routed to our home/cell phones. If you phone any of us and we are on the phone we may not know that it’s you calling as the routing seems to be coming from obscure places (ie Texas). Best to e-mail that you’ve phoned and we’ll call you back ASAP.


Stay healthy. Stay strong.


Gunther, Vanessa & Margaret