A crisis builds. Mental preparation.

I'm going to go off the normal bi-weekly Friday schedule with this newsletter in the hopes of helping you through this. It is breathtaking how fast the world is changing. Downtown Burlington, Vermont looks like an empty scene from a science fiction movie set. Schools are closed, consumer demand for many businesses has evaporated. Americans are worried about mortality rates, people in the third world are worried about starvation.

This is my fourth crisis as an adult (my mom might debate the timing of adulthood). The dot-com implosion, 9/11, and 2008 comprised the prior training ground. Today I want to highlight some things that might help you based on those experiences. In later emails we'll go into more financial details, today it's about a framework.

There is a chance the changing seasons will blow the Coronavirus away like the flu, which we all hope for. But it's time to prepare mentally if that does not come to pass. The rest of this email assumes the viral impact continues to grow.

First, this is a very big deal. It's an exponential, exogenous event. Significant portions of society are disrupted, transaction rates have plummeted to near-zero levels in many industries, people are living in isolation, and we enter the crisis with almost every debt level, both governmental and private, at record levels. The rapidity at which these changes occurred is stunning. No one alive has experienced a world where the perpetual motion machine of the economy just stops.

My experience at this point is that most people will be in denial. For the next few weeks they will assume this is a normal recession, it won't get too bad. More likely (but not definitely), what you'll see is that layoffs will start en masse and the chain of dominoes begin to topple. The markets already anticipate this, though they may or may not have the level correct. People take time to understand and accept the scale of large economic crises.

Second, you will probably not exit this crisis the same person as the one who entered. You won't have a choice, so it's best to work toward accepting that now (it's not easy), be nimble mentally and assume life is going to change. Events like 9/11 and 2008 fundamentally altered us as a people and a nation. Having no school system for children brings the reality home quickly - that last happened 102 years ago.

Why are the two paragraphs above helpful? Because once you have the framework in your mind, you can start to process on a foundation. People will look for assurance everywhere, and to some degree the assurance comes from your mental approach. If you accept that changes are coming and that you are going to spend time helping others, you'll probably do well (emotionally and financially). If you watch a lot of financial TV and think the next year will resemble the stability of the past decade, that is a construct that will be tough to weather.

For our clients, those Treasuries are behaving as they should. I can see the debt instruments others are using buckling under panic, at precisely the wrong time. The Treasury idea came from an academic about fifteen years ago, and I bought into it completely, although we made one modification based on 2008, which is also functioning better this time. It's not a boat in stormy seas, it's an aircraft carrier.

Dan Cunningham

Info sources I suggest you read, sent in by clients:

Coronavirus: Why You Must Act Now
CDC Update
Harvard School of Public Health Update

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