Special Report – A Second Update

The Coronavirus has made it to the U.S., and the data is likely to get far worse before it starts getting better. We are not epidemiologists, but it seems reasonable to expect our experience in the U.S. to be like other countries. Once widespread testing takes hold, the number of positive cases will jump. The good news is that the countries which experienced the virus first (China and South Korea) are seeing a significant drop in new cases as the virus appears to be slowing down there. China has reported 40 new cases in the last 24 hours and South Korea has reported 367. 

South Korean Health Minister, Park Neungho, in a recent CNN interview stated that, “We are hoping that we have passed the peak, taking the numbers into consideration, and cautiously expecting we have passed the peak.”

We are not at the peak yet in our country. On a local level, a quarantine site has been setup at Miramar Marine Corps Air Station. The CDC is moving people from the Grand Princess cruise ship which has been sitting off San Francisco for several days to multiple sites across the country. Some of them will be coming to Miramar. In a coordinated response, law enforcement officers from across the country are being shifted to facilities which have been setup to handle the influx of people waiting out the incubation time for COVID-19. We have a unique view on this situation as we have family members that are a part of the Federal response and can hear about it from the inside. 

Likely to Get Worse Before It Gets Better

Today is the most volatile day to date for U.S. stock markets since COVID-19 arrived on the scene. Markets have now retreated to where they were in January and June of 2019. 

Bonds continue to serve as a stabilizing factor as yields have fallen across the board and increased bond returns. Our expectation is for bonds to essentially flatline from here as yield compression has brought interest rates to historic lows. 

Paying Attention to What We Can Control

Following is a picture we have in multiple locations in our office. It reminds us everyday of doing what we can to stay true to our core principle of helping achieve inspired outcomes for our clients by providing advice to make meaningful life decisions.   Losing the last nine months of market growth is painful, but it is not outside the norm of what we expect in the typical business cycle. A global epidemic/pandemic is firmly in the left-hand bubble, as it matters in a very real way. Unfortunately, it does not end up on the list of things we can control. 

What we can control is how we manage your assets and your financial plan. To date we have rebalanced all qualified retirement accounts for which we can rebalance with no tax consequences. During that process we have also tilted the portfolios to be more U.S. centric as it is likely there will be more pain internationally then domestically. We are assessing all non-qualified accounts on a one-by-one basis. This should allow us to take advantage of tax-loss harvesting and rebalancing with an eye towards minimizing gains. 

Attached as additional materials are two pieces highlighting the cost of market timing and riding out intra-year dips. These are inter-related rules of investing as intra-year dips are expected and we do not want to miss the market rebound from those dips. If anything, now is a great time to put money back into the market you have on the sidelines and have not invested. A common phrase typically holds true: Wall Street is the only place where you can have a massive sale, and no one shows up to buy anything. 

Should You Refinance?

With rates coming down as far as they have, a very important question to ask yourself is if it is time for a refinance? Typically, mortgage rates follow the 10-year Treasury which has recently reached its lowest point in history. If you call your bank right now, you are unlikely to see loan rates falling in coordination. From our discussions with mortgage brokers, rates have disconnected for the time being and the larger banks are keeping rates higher. Practically speaking it may be to avoid inundating the system and causing closing times to move from the 30-day range out to as far as the 120-day range we saw years back. It also might be to avoid getting caught in what is a very short period of low rates during a panic. That said, if you have a rate in the 4-5% range, or have Private Mortgage Insurance (PMI), now is a good time to check and see if there is something you can do. We will be happy to provide recommendations for who to work with on both conventional and VA loans. 

The Doctor is in…still

We highly recommend the following video to gain more insight into how COVID-19 works and what to do to prevent yourself from getting it. Dr. Peter Lin in conjunction with CBC News, Canadian Broadcasting Corporation, prepared an excellent breakdown of the virus and how to prepare yourself.