The Dividend Cafe - Replay - National Conference Call on Covid 19 and Markets June 1, 2020

Episode Date: June 1, 2020

This is the Replay of the National Video Call hosted by David L. Bahnsen- Markets are continuing to shock investors and a wide array of interpretations of health data and economic data are circulating. We will delve into all of this and more. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to the Bonson Group's national video call, Current Market Outlook Around COVID-19, June 1, 2020. Our host for today's call is David Bonson, the Bonson Group's founder, managing partner, investment officer, and Scott Gamm of Strategy Voice. For this call, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. Please send your questions for that Q&A session to covid at thebonsongroup.com. Thank you again, Erica, and we will go ahead and get right into it. I can't remember, Scott, if this is the third or fourth one that we've done together, but thank you

again for joining us. And obviously the beat goes on, as they say in capital markets. We continue to kind of proceed here through this COVID era and lots that has changed in the economy and what's happening society-wide and even in the last two weeks, quite a bit of developments that we'll get into today. But Scott, let me turn it over to you because I want to address the questions that have come in. I'll reiterate, even as we're talking, people can email livecovidatthebonstongroup.com and we'll get those questions and hopefully be able to get to them on air here in the call. But we've already received some and I know you have some things you want to talk to me about, Scott. So let's get into it. Well, David, thank you so much. And it's great to be with you. And I think after every call, the market goes up.

At least that's what's happened over the past couple of calls. So maybe this is a new indicator. I hope so. I know that there's been a few little things I've used over the years as superstitious things that have had a good impact. And then through time, they end up getting arbitraged away. There was, and I'm being serious right now, even though it's kind of funny, but in the earlier parts of our March market distress,

one of the first days where the market had a violent rebound higher was on that particular morning, very early, I had gone on a certain path on my daily run. And so I stayed on that path for my run until it didn't work anymore. And then we found out the correlation between my daily run and the market is much lower than I would hope. Well, whatever it takes to steer your clients through these markets, we get it. But we can actually say with certainty that since the last call, what, about two weeks ago, the S&P 500 is up about three and a half or four percent. So do you think what we're seeing lately is just a continuation of that rebound from the March lows? Or how do you view things right now? Yeah, it's difficult to provide an allocation

of attribution for what these factors are. But I think there's three major factors. And someone may think it's a third each or 50% one and 25% the other two. I don't know. But I do think that the three major things that have allowed risk assets, particularly U.S. equity markets to continue rising higher. And just anecdotally, it isn't just U.S. U.S. has led the way, but I look every night quite heavily at Japan because I'm so intrigued by how the Nikkei has even participated in this move higher as well. But I think the three major factors are the reopening of the economy has largely begun. It's further along in some parts of Europe.

It's less further along in, let's say, New York City, further along in some of the southern states. So there's even a diversity of reopening experience here in America. diversity of reopening experience here in America. And fundamentally, the reopenings thus far have gone about as well as could be expected. Even in some of the states where there's been a little increase in case growth, it's almost entirely unrelated to the reopening. They've had some meatpacking plants in Minnesota. They've had jail outbreaks in a couple states. But for the most part, I think that the fundamental reopening of the economy, that means we're now seeing some actual activities such as consumer spending, restaurant reservations, airline reservations, things like that. The second then I would add is,

which just simply cannot be ignored and really should not have been ignored at any point in this process, is the Fed and the role of the monetary stimulus in providing a backstop to risk assets and providing very liquid capital markets that have put a risk appetite on. And then I think the third would be the TINA trade. There is no alternative. This is correlated, of course, to the second point about the Fed. But you have a 10-year U.S. Treasury trading at a 0.65% yield. You have a significant fear around some of the Asian equities, not so much Japan,

as we talked about, but China. You have currency questions all over the globe. The dollar is viewed more stably. And so when someone looks at where they want to put capital, when someone looks at where they want to put capital, U.S. stocks have just simply been a kind of better than the alternative type of option. When you blend those three things together, some of which I think are more legitimate than others, it does provide a much more rational explanation for why equity markets have continued in their forward movement. Well, and we've got the jobs report on Friday, which is expected to show an unemployment rate,

perhaps as high as 20% for May. Can we be in a scenario where we've got an elevated stock market and that high of an unemployment rate, can those two things coexist? They can and they probably will. And they certainly have now, not at 20, but you recall just in very recent history, early 09 when the markets recovered, by the time the unemployment rate had come down to a more palatable level, it was really well into 2011, even 2012. So unemployment wasn't 20%, but I mean, in 2010, unemployment was 10%. And markets by then had already recovered 25% in 2009, another 18% in 2010. 18% in 2010. So you had a lot of the stock market doing what the stock market does,

lead as opposed to follow the economy. This is even more the case now because of the highly transitory nature of a lot of that unemployment burst. We know that there's some jobs that aren't going to come back. We know there's going to be some lag effect of kind of sticky unemployment that's going to be tragic but we know that that's the minority of the new unemployment that's been created that just mathematically such a high percentage of the initial joblessness was a direct byproduct of the government forced shutdowns. And therefore, there's some percentage of jobs that get to come back immediately. We can totally debate as to what that percentage is and when we will achieve a more palatable kind of bottoming of unemployment. But I think that whether you believe it's 50% or 80% of the jobs that are coming back there, and it's probably somewhere in between those two numbers, there's some percentage

of those jobs that are coming back very quickly. And so part of your answer there could explain why it wouldn't necessarily be crazy for the stock market to rise on Friday, even if we get this big unemployment rate, because to your point, the market is forward looking. And I think that dynamic has caught some investors who maybe don't follow the market on a daily basis by surprise over these past couple of months, the fact that the market can rise in the face of such bad economic data. That's exactly right. And so the markets do not trade off of bad news or good news. They trade off of worse than expected or better than expected news.

And so it always depends on what's already sort of been baked in. I would add for those who want the nuances and the granularity here, Scott, that this Friday, the most important number will very likely not be the headline number, the unemployment rate, and even the total amount of folks that are unemployed, as much as, and this was the case a month ago, the percentage that are viewing their unemployment as temporary. Now, as I pointed out a month ago, that number then, and it will be the same this Friday, is fallible. It's indicating the employee's perception of their own situation, not necessarily the employer's intention. But one of the things that I think surprised markets

pleasantly was that 78% self-identified as temporarily laid off. And if that number outperforms whatever markets are expecting Friday, I think that'll be taken rightfully so as a very positive indicator. David, as your clients know, you've been writing daily commentary about the coronavirus and its effect on markets for really probably well over two months so far. What are you seeing on the health front? Because you've been doing a lot of research in your daily commentary about this. And I'm just wondering if there are themes you have noticed that could give us a sense of how the reopening of the economy will go. Well, thus far, I think we have to look both to countries that had a head start

on us in terms of their reopening occurrences, and then some of the best practices and situational occurrences within our own states. Obviously, Georgia was far ahead of whatever New York will end up being, for example. I am not a Pollyanna about this. I'm most certainly not a denialist. This is a severe viral spread that has had a, appears much, much lower than expected mortality rate, but a much higher than expected infection rate, and therefore resulted tragically in more deaths than people would have imagined, and obviously a lot more cases. With that said, the numbers right now as testing has dramatically increased to where any day now that we're below 400,000 in new tests, we're sort of like, we feel like we're slacking a little.

You know, we're really up to that 3 million a week number that people thought we'd never get to. Truthfully, the percentage of cases coming back positive is dramatically lower than even some of the other countries had seen until they had really completely broken things. There has not been new cases, and it's still somewhat early, but in the earliest of reopenings, Georgia's numbers have declined. And again, even if some of these states that reopened had increased, but not increased in a way that threw off the medical resources, I think that that would

have been taken positively, because you would have expected you'd see some increases as there was more and more community togetherness and contact. And yet, I think that at that point, the risk-reward trade-off was such that the policymakers viewed it that we needed to get the economy reopened and that we'd have to kind of take the risk at this point of some ongoing infections. And the truth is that those growth of those infections has simply not happened. I don't really care from the vantage point of COVID and markets.com of what the bond syndrome is doing from an investment portfolio standpoint as to what the data ends up showing that could have, would have, should have been done. I imagine a lot of our listeners right now have opinions. I have some and even mine are evolving and changing as more information comes in, but

it's sort of immaterial to what I care about from an investment standpoint as we try to handicap the various scenarios that we face going forward. I think that a so-called second wave is becoming, relatively speaking, less and less significant because it keeps getting watered down as to what it looks like. Some period in which there is a spike from the trend line or then trend line data could probably get called second wave. But as far as some incident across the society where it again strains access to our medical resources, strains hospital beds, PPE, the respirators, the ventilators. I think it's highly unlikely. And I think that some degree of public confidence in engaging in economic activity is going to continue to grow.

And frankly, it's starting off at a higher spot than I would have expected. The only thing I'll add to that, Scott, I know you're sitting in the tri-state area, New York, New Jersey have been two states that have obviously suffered some of the worst. And I'm out here right now in Newport Beach, California, where Orange County has fared unbelievably well, again, relatively speaking. But I think that that reopening and that public confidence that goes there with is probably going to be very different in certain geographies. Some communities are going to have a different paranoia or fear than others for very rational and understandable reasons based on their respective recent experiences.

So, David, then with all that, you mentioned earlier about the health data versus the strategies that you're implementing at the Bonson Group for client money. How do you handicap those strategies for the second half of 2020? What themes, what strategies are you looking at? Or have there really been no changes in terms of where you're allocating money? Now, there's been a couple of pretty important changes. And the plan that we've sort of created, let's call it now two and a half months ago as we were in the height of the COVID distress. And really this plan was being formed before markets had even bottomed, but we're now in the execution and implementation phase. And we feel very proud of where it is and where it's going and very confident that we're doing the right things. The truth is that we wanted to

raise some cash to deploy through the economic recovery that could be deployed in what we believe will end up being a somewhat volatile and choppy period. The reality is that the equity markets we thought were going to have a significant snapback quickly, and they did. They went higher than we thought, quicker than we thought, but we never intended to take from equity money when equities were already distressed. We always intended to take from what we think is the most expensive asset class out there which is some version of high quality bonds whether that be treasury bonds investment grade corporates or high grade municipal bonds depending on the client and the account in the situation and and it really i'm confessing that it was accidental

but it accidentally worked out well to our timeline because at that point, we really could not tap the bond market easily because bonds were quite dislocated in the midst of all the hysteria of that COVID peak in the second, third, fourth week of March. So now we've been able to successfully access some degree of trimming down of those bonds that had fully recovered in price, were very rich, were sitting at very low yields, and yet we're not going and putting that all into equities. Obviously, equities have increased in price a great deal too. So what we're doing is we are sandbagging some of this cash to average into the equity markets over the next six months from the second half of the year, July through December. Will that work out great for timing or will we end up adding to that at

Dow 26, 27, 28,000? I don't know, but I don't think anyone's going to be upset if that is the case. And indeed, if equities come down a little bit and we're adding in at 22, 23, 24,000, I think that will be opportunistic and provide some better entry prices for deploying some of this new cash. The most likely scenario, Scott, if I were to try to forecast this, which I would not, but if someone forced me to say what I think will happen, it's going to be both. I think that we're going to have some months where we're deploying with the Dow a little higher and some months where it's a little lower, but that we're going to try to take advantage and manage the risk and reward set of the next six months of economic recovery.

That the phase one of stock market recovery has played out. And that phase one was the snapback, the bounce out of deeply oversold conditions and technical irregularities. And that the phase two that I've called now for over two months, the grind, that we're in the grind phase. That's now begun. And so we want to deploy some cash throughout the grind. And we believe whether it's vaccine driven, herd immunity driven, societal confidence driven, corporate earnings being surprising to people just on the basis of how the economy and its recovery shapes out. Whether it's Q4, Q1, Q2, we think that a better time is coming. And we think that this will enable our clients to maintain their strategic asset allocations and yet manage some risk reward along the way. So that's a long answer to your question as to what we're

doing now. Within the equity portfolio, we already made the readjustments that we thought were prudent. We're continuing to monitor that as well. There frankly were a couple stocks on our shopping list that we wanted to add. We did get to add some in March, a couple new names. I can't say names on this broadcast, but that was done back in late March. There were a couple others I had hoped we'd get to nibble at, and they just sort of got away from us price-wise, and so that's a good thing. It means that there was some of that equity recovery taking place. What I face at the other end of this is a bigger challenge for me, and it's pretty much dominating a great deal of my intellectual bandwidth. My research efforts right now are largely focused on what I want to be able

to do on the other side of the grind, because I think the traditional asset allocation metrics are going to be different. If we were sort of a 50-30-20, to use a round number in asset allocation, sort of a 50-30-20 to use a round number in asset allocation, 50 equity, 30 bonds, 20 alternatives. I see a time coming when we might be 50-20-30, lower in bonds, higher in alternatives. I also see potentially a time where there may be some clients with no bonds, that they don't care about the parking lot benefits with yields that I think are going to be 1% or lower for a long, long time. And yet the spread aspect of bonds, the credit markets, kind of riskier things, the bonds that don't act like bonds that act a little bit more like stocks, we might sort of start treating that like a separate

asset class from bonds. So I'm a little ahead of myself here, but I think that's okay. I want clients and listeners to hear this thought process. One of the takeaways that from the COVID moment, the way that less liquid, less safe, and more juicy bond classes acted in March combined with where we believe AAA bonds, treasuries, bonds that act like bonds are going to be for a very long time. We think it's potentially very appropriate to view bonds as an asset class that may not offer any return for the foreseeable future we're not there yet they're still spread in munis they're still spread in corporates but we want to look at credit as a different asset class from bonds that act like bonds so we're rethinking some allocation decisions as we get to a point later in the year and going into 2021.

Well, and you mentioned alternatives, I'm wondering if you can shed a brief light on what specific areas of the alternative space that you, you know, think are attractive and that you're looking at for clients? Yeah, I mean, the whole point of alternatives to us is to be very focused on the managers, not the quote unquote asset class, because it is what makes it alternative is a reduction of beta and an increase in desired alpha, a low correlation to traditional equity and bond markets. And so you have risk, but the risk comes down to the execution of the manager. By and large, I'm extremely pleased with how our alternatives have done throughout the last few months. There's been a couple that have really disappointed and a couple that have just blown me away and a whole bunch in between. But as a diversifier of equity risk and as a, again, not necessarily true of every manager,

but across the entire alternatives suite that we deal with, it's most certainly provided those benefits that we would own it for. On a go-forward basis, we most certainly see our alternatives becoming a bigger diversifier to bonds than equities. We were already very reasonably weighted in equities. We were already very reasonably weighted in equities. I just don't see a time coming where I'm going to feel the need to pull our dividend growth equities that have the constitution of risk factors that they have from, let's say, for a client who's at 50% down to 30%. It could happen, but it's unlikely. More than likely, the increased alternatives would come from a changing dynamic in the risk-reward set of fixed income. And so, therefore, across the alternative space right now, we're deeply focused, as

always, on the manager, on their processes, what some that got things wrong before. We want to see what they're doing for repair recovery. And for those who have done real well, we want to see what they're doing to ensure a continuation of process and success. But if I had a kind of bias right now in not just particular managers, but underlying style or approach or whatnot, it would be in the illiquid space of private credit and private equity. And that was a theme of ours coming into the new year. And we were allocating that way throughout January, February, but it's a slower deployment of capital for obvious reasons. And then the COVID moment hit and it obviously had to alter a lot of that execution. But I believe that there is significant opportunity in the dry powder that sits within various private credit strategies and private

equity strategies for two different reasons. We're extremely pleased with our private credit partners have held up here delivering positive returns throughout the COVID moment, not just on a relative basis, on an absolute basis. And I'm frankly very pleased that our private equity partners have performed as well. And yet I'm more forward-looking. It's a big mistake, by the way. I want to say this. If you're looking at your alternative strategies and you're saying, well, someone did poorly in March and someone else did well in March. I don't think you can make your decisions in June, July, August to punish or reward people from their March performance. Now, their March performance could cause you to rethink your confidence in them,

or it could cause you to have greater confidence in them. And that is a process we have to go through to see if it's valid or not. But in and of itself, portfolio management is not about punishing or rewarding. It just doesn't work that way. It's something we do with our children. It's not something we do with managers. You have to make decisions on what you view the right outlook to be now. And so, yeah, we do feel now that there is great opportunity in private credit and private equity, both because the economy has produced opportunities in distress and in companies that have great business principles, great business models, great management teams, but have been forced through some of the

economic malaise. And therefore, there's an opportunity at an entry point to achieve a really opportunistic purchase. And there's a lot of dry powder to go do it with, which there traditionally has not always been. So that's sort of our viewpoint around the alternative side. All right. Well, we have some great questions coming in from people watching. So I want to get to some of those right now. watching. So I want to get to some of those right now. Somebody writes in, are recessions in the future more likely to be truncated given the willingness of the government to engage in fiscal and monetary easing? Are sessions? Recessions. Oh, recessions. I'm sorry. More. Well, that's been, that's an interesting question. And I don't know the answer, but I am not against that inclination.

The 2008 recession lasted about 18 months, if we're being intellectually honest. And yet it was the deepest recession. The 2002 recession lasted very short, only about two quarters, but it was a much milder set of circumstances. The most economically sound answer I can give is it will depend if it's a business cycle recession or a more secular or structural recession. And what I mean by that is cyclical recessions are not only never going away and part of economic life in a free enterprise economy, but they're very healthy things. You get inventory buildups, those have to be worked down. This is where some of the great Austrian school of economists have done tremendous work to help us understand the cyclicality of recessions. tremendous work to help us understand the cyclicality of recessions.

And interventions into cyclical recessions that tend to be more shallow can actually be very problematic. Structural recessions whereby you have an entire credit dynamic, where there is this huge contraction of credit, like the Great Depression is a huge example. The Great Recession of 2008 is another example. Those, I think, are a bit different of a story. So I am more skeptical on the ammunition and its potency for structural recessions. But for cyclical recessions, I think it's very clear that you have a greater appetite politically for fiscal stimulus and a Fed who is very willing to employ all sorts of monetary tools. So that would lead me to believe that recession lengths can be truncated into the future, but not without a cost. In other words,

they solve for one problem, but create another problem because they inevitably create a misallocation of capital and various distortions in the marketplace. So the answer may very well be yes, but be careful what you wish for. Yeah, no, those are some important points. careful what you wish for. Yeah, no, those are some important points. Another question we're getting, where does China fit into your overall global thesis right now? We've got escalating trade tensions between the US and China, and then perhaps a re-escalation of the protests in Hong Kong, which were really front and center last year. Yeah. I laid out three different thoughts in Dividend Cafe on Friday, and I'm kind of standing to this sort of thought process because I don't think these three things are contradictory,

and yet all I can do is state them and let people decide if it's good news or bad news. I think that right now the rhetoric or the bark against China will be elevated. I think the bite against China will be pretty status quo up through the election. And then I think after the election, one way or the other, regardless of who wins, you probably do face some significant deterioration of the long-term mutual economic dependency between the U.S. and China. And so what that means for our overall economy, what that means for our culture, what that means for a lot of other aspects besides the stock market, that's something we have to discuss and debate. But my own view would be that the reason that the market on Friday was a little bit volatile, not much, but the market at one point, I think it dropped 370 points.

It ended up flat on the day after the president was announcing some of their new, you know, commitments against China, their new sanctions, stipulations, all of this. It was powerful rhetoric. And I don't doubt that he means it and so forth. I mean, the flex was real, but the market obviously kind of shook it off. What the market will respond negatively to is an escalation of tariffs, the announcement that phase one is being thrown out, you know, those types of things. Right now, we're on the edges, Scott. We're talking about kicking them out of some index funds. We're talking about buying less Chinese stocks in pension funds, things like that. It's not,

it's small ball. It is. It doesn't mean it's inconsequential, but it's not significant. significant the longer term element that I believe is coming will be a re-regionalization of our supply chain at least around certain key technology components to national security and around pharmaceuticals I don't think the country's going to tolerate going through a point again where we have a health condition that we cannot fully look to because we're too dependent on broken supply chain elements in China. Whether or not that means finding different global partners, or it means re-onshoring, or it means a combination of both, but I'm pretty confident that's going to happen. means a combination of both, but I'm pretty confident that's going to happen.

Another question we've got, why do you provide market technicals in your daily COVID missives if you don't believe in technical analysis? I've been waiting for this question to come. First, let me affirm the premise. It is very true. I don't believe in technical analysis as a predictor of future market events. Technical analysis is incredibly useful as an evaluation of past market events. I've spent 20 plus years criticizing those who believe that looking at something that just happened tells them something investable about what's about to happen. And you kind of see it right now. Most of the real prominent technical analysts have seen all these indicators go into a direction that really is forcing them to become bullish on equities. And they've been bearish all the way through and all they can kind of say is, well, oh, it didn't work. And that's fine. But my point is that I use technicals because it's very descriptive about what's happening in markets. So I think a better way for me to answer

the question is not why I do use it or share some of this data and share some of this market information with our clients. It's more what I'm not using it for. What I'm not using it for is to provide any sense of predictive information. When I look at the breadth and depth of markets, when I look at the kind of general chart patterns, they tell me nothing at all of interest to me about what's going to happen in the coming days, weeks, or months. What they do indicate is what has just happened. It provides you a sense of what the sentiment level is. It provides you an understanding of certain anomalies, which are

very helpful. A great example, Scott, was something I shared in one of our early calls, A great example, Scott, was something I shared in one of our early calls, that at that point, the S&P, I think, was down about 15% on the year, and yet the average stock in the S&P was still down over 25%. Again, an indication of that disparity between a market cap weighted and an even weighted index construction. even weighted index construction. These are things the market technicals are very interesting for me, not in terms of using the chart to try to predict what will happen in a short term timeline. David, what is your outlook on oil prices and what it means for the stock market in the second half of 2020? Yeah, I'm looking up here at the screen. We're sitting at $35 in WTI crude. No question in February, if I looked at my screen and saw 35, I'd be horrified. And no question if I looked at my screen in the second half of March or all through April and saw 35, I would have been overjoyed. So my belief is very much in line with what I've been saying quite consistently through the period. Of course, there was a supply glut

in the early part of the year relative to where demand ended up going that no one could have known about. And then there was the add-on supply glut from the just really insanity of what Russia and Saudi Arabia did in the middle of March, early part of March. That production glut and the kind of kamikaze mission that OPEC and a lot of OPEC plus countries were on of continuing to produce unprofitably and export a lot of that production and build up excess inventories into this great recessionary uncertainty, those things are gone. That excess production and that kind of suicide mission is off the table. So you still have far decreased production,

which gives much of an elevated baseline into commodity price assets. But then you have the demand side. And I think demand is incredibly low right now for obvious reasons. But I think it's higher than it was a week ago. I think it's higher than it was two weeks ago. And we're going to keep seeing more and more of that as airlines go back online, as automobiles start traveling again. And so we bottomed in that demand erosion. And the questions that exist for oil prices are really the same questions exist for the overall domestic and even global economy is just what the overall shape and composition of the recovery will look like. So I think a supply demand imbalance has largely been found and is being found as we speak. That's a healthy thing. It de-risks the volatility around oil prices. But then in terms of getting back to kind of a $50 range,

where there's a lot of profit margins into producers, it's going to take more time. It's going to take more time because that economic demand side cannot just turn on full throttle right away. But then either can the supply side come back on full throttle right away, because so many wells have been shut down. There's so many rigs that have been shut that getting those back online is going to have a lag effect. And so it allows for prices to move even higher. I'm not going to predict what oil prices will end the year at, but I do believe that the great technical brokenness of a month and a half ago is gone and likely won't be seen again. And that in terms of getting the oil

industry, which I'm far more concerned with, the oil and gas sector into a place of profitability to drive job creation, to drive CapEx. I think that's going to be a slow process over the months to come. We've got another question coming in, David. How are you able to stay optimistic about the market throughout all this terrible news? Assuming they're referring to the, you know, devastating jobs numbers and economic data we've been seeing? Yeah, I don't think that I've stayed optimistic about the market in very short term periods every day. There's been days behind the scenes where I assure you, my wife can attest that I have to take on a great deal of anxiety and short-term pressures. You know, you want to do your best at deploying new capital,

and that's tricky to do when the markets are in that kind of free fall they've been in in March. But where my optimism has stayed very resolute and maintains such now is around the long-term objectives for anyone invested in equities. I think this is somewhat kind of a refresher course right now, but it's one of the most important things I could ever share. I really don't want anybody invested in equities to play what stock prices might do in a month or two months or four months. We really want to own companies and we really want to own companies that we believe are sustainable. And we have to measure that through their free cash flow generation and the portion thereof that they return to us. So a lot of my optimism was based

on the fact that I knew that we had companies in our equity portfolio that had been through periods like this before, maybe not the exact same catalyst, but were accustomed to up and down cycles and had the balance sheets to withstand it. That's rule number one in any business, first survive. And we knew our businesses had a strong capacity for survival and even in a lot of cases to thrive through the period. The portion that gives people anxiety about stocks, Scott, you know this very well, are always the things that no one has any control over.

They're sentiment oriented, not that someone believes all of a sudden XYZ company in five years will lose its capacity to generate profits on their goods and services, but it's in the short term when people lose a lot of confidence and faith and risk appetite comes down, it brings the whole valuation of otherwise very good assets and good operating enterprises down.

Well, I have known for 20 years that I cannot control nor any of my clients can control the valuation levels that are put on a given risk asset. So I do have a pretty strong discipline about staying focused on operating performance. Now, even operating performance can be challenged in these periods. And that's where me and my entire investment committee, we have a very good group of professionals that are focused on looking out for those opportunities or where stories have changed, where we need to be adding more, where we might want to trim back a little. where stories have changed, where we need to be adding more, where we might want to trim back a little. We had a couple companies in the tech space that we thought had gotten just a little bit on the expensive side. We still totally believe in the story and their ongoing dividend growth. They're up on the year. They had a little more China exposure. We trimmed them back a little a week or two ago to add to some of our other positions that were a little

lower priced. So we want to be active through this, but the optimism stems from the fact that I would not be invested in equities if I didn't have long-term optimism in the very nature of free market enterprise to begin with. Free markets me, are incompatible with pessimism. Well, and when we talk about this whole optimism versus pessimism sort of dynamic, it reminds me of something you wrote in Dividend Cafe from early April. So right when we were dealing with all of these terrible stock market swings and you said that, you know, the bear case for stocks is pretty evergreen. In fact, it's always evergreen. There's always something to kind of worry about. And, you know, March and April notwithstanding.

Yeah, I was thinking about the unrest and the weekend events and the news cycle over the last several days, I would have expected futures would open significantly down and we'd come into a bit of a sell-off just on the basis of kind of the unruliness and fear and concerns out there. And not only were they not down that much, by the time it all goes out, they were up. And then this morning, who knows where markets end today, but as we're sitting here talking now, markets are up pretty nicely. So the reality is that that would have been another example

of a really good reason to be bearish or you turn on your television set and you see this kind of societal unrest. And I think that the bear case is very evergreen and it just has to change its outfit every so often. So things like COVID are more substantial. Maybe a weekend of social unrest is less substantial. But the point being that there are always reasons to not be invested. There are always reasons to fear what you are invested in. And that's what makes a market. And it's also what makes a risk premium. You know, if you're going to get some return on your capital that is higher than

what you could get in a totally safe asset, there's a reason that that has to happen. And that reason comes down to the embedded volatility and uncertainties that exist in things like equities. So my view right now is that none of those principles have remotely changed through COVID and none of them are going to. Yeah, no, well said, David. And as we wrap up here, I'll toss it back to you for a final point and a final update of your thinking as we kick off a new month of trading. Well, thank you again, Scott.

we kick off a new month of trading. Well, thank you again, Scott. As I mentioned on the last call, giving a lot of our viewers and listeners some context as to your role, Scott and I go back to his days at YahooTV and thestreet.com. He's been a longstanding industry media professional, and he understands markets. He understands the Bonson Group. We work with Scott's company closely, and so this really just organically has come together. And I hope you will continue to appreciate Scott's efforts to make this happen. We plan to continue doing these every two weeks until we feel that no one cares anymore. For the time being, I hope you're getting something out of it. I want you to understand the ongoing evolutions in our thinking and our priorities.

The issues that we've talked about are unstructured credit. Quite a bit over the last six to eight weeks, we've largely been executing upon. My view has really been reinforced that that was the slowest kind of thawing out to happen, that there was tremendous dislocation that existed around reasonably esoteric assets on residential mortgages, commercial mortgages, securitized assets. And what we've really seen since we began this investment, where we deemed it to be appropriate, is two things, both of which we like. It's been very much going in our favor. It's been positively moving as we've been investing,

and yet not at such a breakneck speed that we think the opportunity has gone away. There's still very wide spreads. There's still a reversion to the mean that we think has to take place. And we anticipate this becoming a profitable, albeit opportunistic trade in the months to come. There were clients that we put this in heavily, clients that we did very lightly, clients not at all, based on their respective situations, liquidity parameters, and, of course, risk profile. But on a tactical basis, we're communicating with you heavily what we're doing on the equity side. And as far as the big picture stuff, Scott asked the right questions today for me to be able to give you our viewpoint and how we see this stuff

shaking out. So as I'm sitting here talking, we're at 25,500 in the Dow. I'm not going to set a low point or a high point in the next couple of months. But if we were a few thousand points lower or a few thousand points higher, neither would surprise me and neither would bother me. We're positioned to be able to take advantage and feel good about either of those circumstances as we continue to move forward. So please, if you're a client of the Bonson Group, reach out to your advisor.

Any questions you have on your particular situation, any questions you have about your own cash flows, where all of this intersects with your financial planning, take advantage of this time to kind of dig in and make sure that you understand where you're at, where you're going, and we can make adjustments where needed. But I really believe that our planning department right now is very geared towards reinforcing the efficacy of what we're doing in a portfolio

towards your long-term goals. If you're not a client of ours, certainly reach out if you have questions, want to understand more of what we're doing, we'd love to chat with you as well. Even if it's not regarding a potential relationship, we're happy to answer questions you have just to kind of make you feel better about your own situation. So I'll go ahead and leave it there. Thank you again, Scott. Thank you, Erica, for keying all of this up. And please reach out to us with any questions you may have. And we'll look forward to another call in two weeks, which I guess would be June the 15th. And I'll have a special announcement then about our daily COVIDandMarkets.com. But in the meantime, please continue checking out everyday COVIDandMarkets.com.

We're doing a daily market missive there. I'll go ahead and adjourn our meeting. Thanks so much. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC.

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