Hi there—here is this week's update!
TL;DR - Too Long Didn't Read
-We’re seeing a watershed moment for the Black Lives Matter movement with the powerful and poignant protests happening across the United States. While this is a significant moment for society, there has been little impact on the markets.
-Our outlook remains the same. The likelihood of a V-shaped recovery is unlikely, and unsophisticated investors are likely leading the charge with the current market euphoria.
The protests are not significantly impacting the markets. Why?
- Historically, protests and civil unrest events have little impact on the markets.
- Stock market volatility has not notably increased in the months following: JFK’s assassination in ’63, Selma civil rights march of ’65, Vietnam war protests of ’67, the assassination of Dr. King Jr. in ’68, and the LA Rodney King riots of ’92.
The probability of a “V-shaped” recovery is unlikely.
- While payrolls surprisingly rose in May, 21 million Americans remain unemployed, with a jobless rate higher than any time since 1940.
- “We do not expect the recovery to resemble anything like a ‘V-Shape’… Consensus expectations have consistently been too optimistic.” – Joe Zidle, Blackstone
- The European Central Bank (ECB) has joined the US Federal Reserve in cautioning investors about the timeline for economic recovery.
- ECB President Lagarde warned that the Eurozone has faced an “unprecedented contraction.”
COVID-19 infection rates may grow again, right as states are reopening.
- We may be in the eye of the storm, as protesters around the nation have had to break all quarantine and social distancing guidelines.
Now is a good time to listen to Oaktree’s Howard Marks.
- “Realize that the tail-end consequences – the low-probability, high-impact events – are all that matter. In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter.”
- “How can we prepare for something if we can’t predict it? Turned around, if the greatest extremes and most influential exogenous events are unpredictable, how can we prepare for them? We can do so by recognizing that they inevitably will occur, and by making our portfolios more cautious when economic developments and investor behavior render markets more vulnerable to damage from untoward events.”
COVID-19 is not over, and Round is positioned well in the face of blind investor optimism.
- We believe the true effects of COVID-19 have yet to hit the financial markets.
- Investors have been euphorically buying risk assets in the face of continued negative economic developments.
- Round portfolios are well-positioned for what’s to come.
- Once we’re on the other side, we’ll be aggressively buying at lower valuations as the opportunities for strong long-term performance present themselves. Tail events can eliminate the greatest fortunes but also create them once you make it to the other side.
Have $100,000 or more to invest? You may qualify for Round Private Client. Contact our team at email@example.com.