Monday, March 23rd, 2020
The U.S. economy is a $22 trillion behemoth. Like an extremely large ship, it takes a lot to change its speed and direction. Those adjustment usually can’t turn on a dime. Under normal economic conditions, the signs of change (good and bad) within the economy are typically visible far in advance.
Officially, the Great Recession of 2008 – 2009 ran from December 2007 – June 2009. Ahead of this period there were a number of signs of pending change and economic stress as early as the Spring of 2007. Data released from the Commerce Department and the Federal Reserve showed rising stresses a full 18 months before the Great Recession actually began.
Usually regularly released economic data is generally sufficient to keep a finger on the pulse of economic growth. It’s the best tool available to track an exceedingly complex economic system, and 99% of the time, it is enough.
Three weeks ago, the economy and the financial markets were sitting on top of the world.
Today, they’re not.
The rise of the Coronavirus, and more importantly, the steps being taken to slow the spread, have proven to be one of the proverbial “Black Swan” events that arise out of nowhere and change everything (9/11 would be another example).
The closing down of major sectors of the US economy is – at least for the moment – putting the brakes on economic growth, hard. Real world changes have been happening far faster that the data which measures those changes can keep up with. There is no data-based model that can keep up with the effects of a financial panic.
It is clear to us here at BCM the recession that we’ve been looking for some time now has arrived. Overnight.
We have prepared for this. We’ve been watching the trend of certain real time data measurements closely over the last three weeks. Those real time trends show us clearly that when the official data is released from the Commerce Department in mid-April, we will measurably know that the world has indeed changed.
We began reducing our exposure to stocks early last week. We have a bit more to do, and we’ll get it done. We will be increasing our holdings in intermediate-term government bonds, as they have historically proven to be the port in a financial storm.
We’ll send out more detail on all the above in the next day or so. We just want you to know that we’re on this as closely as we can prudently be. These are surely strange times, but know that we are with you every step of the way.
From all of us here at BCM,
Bo, George, Montgomery, Jonas, Lenox (yes, he started with us LAST MONDAY!), Hille and Madison.
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About the Author
Joseph “Bo” Billeaud is the founder of Billeaud Capital Management. After earning a BS in Chemical Engineering (University of Louisiana, 1979) and while working in industry for seventeen years, Bo developed the market risk-control models and investment philosophy that undergirds all BCM portfolios. Since effecting a formal career change in 1996, Bo has helped BCM grow into a respected asset management and financial planning firm currently overseeing $400+ million dollars for individual, corporate, trust, retirement and 401(k) accounts…. Read more.