1st Inning or 9th Inning?

This will be brief as we all know what has happened and have no idea where we are headed. Are we in the early phase of this viral event or is a return to normalcy on the horizon?

The equity markets crashed into the March 23rd lows – down 35% in five weeks. They subsequently rallied around 25% as of April 14th – the fastest decline and rise in the shortest number of days in history. There is the very real possibility that stock prices could continue their declines towards new lows as we digest the dire economic news as it deepens in the coming weeks.

The Federal Reserve and the U.S. Treasury have unleashed Trillions of dollars in loans, grants and guarantees. Treasury bond yields have collapsed with yields now ranging between .1% and .6%. In our last letter we mentioned the possibility of negative interest rates this year. They have arrived.

For months we have been talking about investor complacency accompanied by record low unemployment rates and record high stock prices. Over the last year, for various reasons, we had accumulated very large positions in U.S. Treasury bonds for all of our accounts despite the record rise in stock prices. In the past month roughly 22 million have sought jobless benefits, easily the worst stretch of U.S. job losses on record.

This record surge in claims should push the unemployment rate up to 17% in the April data, a new post-World War II high. Under the current circumstances, our Treasury purchases have proven to be a very prudent decision.

A Trillion is a large number. What is a Trillion in seconds? Dollars?

A million seconds is 13 days.
A billion seconds is 31 years.
A trillion seconds is 31,688 years.

J. Brock Hamilton
April 16, 2020