By Jason Lambert CFF and Dustin Martin CFF
Currently, NWFTS does not believe the current rally we’ve seen in the markets will hold. Testing a new low is a strong possibility. Unemployment is at the highest levels we have seen in a generation and rising daily. A large portion of the U.S. is sheltering in place. Oil has yet to find a bottom. No vaccine. China’s production is back online but with no demand as the rest of the globe waits in line for its time in the ring with Covid-19. The amount of consumer data collected by American corporations used to build their respective profiles of the American consumer is changing in real time with no idea of what our buying habits by demographic will be post quarantine. The heart and soul of the U.S. economy is small business owners and employees and no amount of stimulus money can save them all.
For these reasons and many more, we do not feel any pressure to aggressively re-enter the market on the growth side. However, we believe there to be opportunity in the more resilient companies currently. The market has bounced back pricing in what we feel to be a very optimistic recovery scenario. Unfortunately, the bounce has been based on stimulus through monetary and fiscal policy. The true breadth of this recession will not be felt in the first few weeks but rather on the prolonged spending habits of Americans. The US economy is based predominantly on service industries and many of those are going to be the hardest hit. We do not anticipate all the jobs that have been lost to come back just as quickly as they went away.
As for income, we have reduced the risk profile of the Income Sleeve and are considering doing so again. The Coronavirus is disrupting dividends at a breakneck pace. Never in Wall Streets wildest dreams did they anticipate a global economic confinement. Neither did NWFTS.
We do not want to sound all doom and gloom. This too shall pass. We think the above mentioned threats will be short lived. There will be a road to recovery. However, our conviction remains that the road will be longer than the current rally is suggesting. Over the long haul, the current stimulus money will find its way to the market just like it did in the 10+ years after 2008. Another asset bubble will emerge. There will be plenty of money to be made in and over the years to come. Try to think in terms of where we will be in months and years, not days and weeks.
The American spirit is strong and Covid-19 will not kill it off. For now, we believe patience will equal profits. We are not afraid to renter the market. When we begin placing trades, they will be done with clarity and conviction with respect to a longer time horizon. For now, everything we thought we knew about the world is temporarily suspended.