Let’s get real here. For most of us – myself included – life is fast-paced and chock full of family, relationship, and work stressors. This reality, along with the ever-increasing pressures of technology and society at large, can really take a toll on you. Emotions like these are often the most present and powerful forces in your life.
The hardest emotion to control is fear. Yoda wasn’t kidding when he said, “Fear is the path to the dark side.”
Markets have been selling off sharply this week, primarily over concerns related to the coronavirus. Meanwhile, some investors are fretting over the impending Presidential election and changing valuations in Technology companies. All these headlines can be a lot to digest.
Fear as an emotion impacts our ability to understand facts.
How does fear play into decision making?
On the morning of February 27, 2020 in Australia, Prime Minister Scott Morrison implemented the nation’s emergency response plan, and said the government made the decision out of “an abundance of caution” in anticipation of WHO declaring a pandemic.
24 hours later February 28, 2020, Health Minister Greg Hunt outlined Australia’s response to the coronavirus on Friday, saying at this point the virus is contained and urging people to “go about their ordinary business”.
Let’s look at the facts as gathered and presented by Worldometer. Worldometer is an international team of developers, researchers, and volunteers with the goal of making world statistics available in a thought-provoking and time relevant format to a wide audience around the world.
As of February 28, 2020 3:30 GMT
Where did Australia stand at this time?
23 cases reported with 15 totally recovered.
FEAR
This fear has markets selling off sharply this week, primarily over concerns related to the coronavirus. Meanwhile, some investors are fretting over the impending Presidential election and changing valuations in Technology companies.
FACTS
Brian Wesbury, Chief Economist, First Trust Portfolios LP @wesbury pointed out on twitter that as of February 26, 2020 the Total Active Cases of COVID-19 (confirmed cases minus recovered and deceased) fell to 46,222 on February 26th, from a peak of 58,747 on February 17th – a drop of 21%.
What about the “market”
Short term risk and volatility has risen dramatically this week.
What about long term risk?
According to Commonwealth’s Chief Investment Officer, Brad McMillan, the short-term risk profile has definitely risen. The longer-term risk profile, however, has not risen. There are a couple of ways to demonstrate this idea. One is to look at subsequent returns after a pullback like the one we are having, which I covered yesterday. Another is to evaluate how interest rates—a very good proxy for investor fear—behaved in previous epidemic situations.
Lower interest rates on U.S. Treasury securities typically follow increased investor fear. The more fear, the more investors want low-risk securities and the more they will pay for them, lowering the effective rates. The chart below shows the drop in interest rates during previous epidemics and during the current one. It illustrates that we are close to the point of peak fear where previous epidemics bottomed. In other words, this may be close to as bad as it gets.
All of these headlines can be a lot to digest, so I wanted to reach out to remind you that I’m always here if you’d like to ask questions or take a fresh look at your investments and your financial plan.
Got a question or a fear you want to discuss?
Call me 214-239-4700 or send me an email Michael@tannerycompany.com
Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal | Tannery & Company
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