Prices for stocks and some bonds are now attractive. The sell off in banks, energy, airlines and basic industries such as chemicals is overdone. Markets are as “illiquid” as any time in history. Price movements are now driven by loans to hedge funds and others being called by banks. It becomes forced selling.
This started with many, us included, underestimating the ability of the world public to panic over the corona virus. The damage to the world economy is real. The damage is also self-inflicted. We believe in the next 4/6 weeks the panic will end and we will slowly return to business as usual. This return to normal has incurred in China and South Korea. This tells us the world recession will probably be shallow and short-lived.
We are waiting, trying to determine when the “forced selling” and panic selling is over, or close to over. At that time, we will be increasing our equity positions from approximately 35% to 50/55%. Dividend yields far exceed yields on bonds. The Fed will most likely keep rates at the current unprecedented low levels even after the crisis is over. Stock dividend yields are attractive.
There are some that believe the panic over the virus will continue for the balance of 2020 and well into 2021. We disagree. They see the world going into a severe recession or near depression. We disagree. The world dealt successfully with Asian flu, Hong Kong flu, swine flu and others. It will handle the Corona virus.