The Dividend Cafe - Two Anniversaries Worth Remembering

Episode Date: March 12, 2021

Both anniversaries are vitally important and warrant special attention. One of them may surprise you or at least represent something you have forgotten. Hopefully, that will all change after you hear this podcast.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. Hello and welcome to this week's Dividend Cafe. I appreciate you who are listening via podcast and watching via video. And for those of you who have read DividendCafe.com this week, you may know or about to know that I kind of called an audible this morning in terms of what it was that I wanted to accomplish with Dividend Cafe this week. I had pretty big aspirations for this week's commentary, a whole kind of multi-topic, really pretty broad, comprehensive treatment

on a whole lot of different issues. And there's two reasons why I sort of went a different direction, and I will be doing that next week instead. The first is because I'm kind of under the weather and it's not COVID, but I've been pretty sick. And so that kind of takes away some of the mental and physical ability to do what I wanted to do. But then the second is that I do think it's really appropriate with two really significant anniversaries this week, one of which I think most everyone sort of knows about, and the other is one I'm going to remind everyone about and kind of bring the two together. And I believe that out of that, we'll have a

really useful investor application, and hopefully you'll feel like you got your money's worth out of this week's dividend cafe. Since the subscription price is free, I feel pretty confident that you will feel that way. When I say the first anniversary most people know about, I alluded to March 11th March 11th in the DC today, the other day. And that was a reference to that evening. March 11th was a Thursday this year, but it was a Wednesday last year. And it was that Wednesday night that the World Health Organization officially declared COVID to be a pandemic, a global pandemic, and that the NBA season was suspended. Tom Hanks famously announced his COVID diagnosis in his wife. And President Trump did an address to the nation from the Oval Office where he stated that there would be no more travel in or out of Europe. And so it was really quite emotionally powerful and significant evening. And the next day, the market dropped 2,000 points.

It had already dropped 2,000 points another day earlier in the week. And it had already been down 4,000 points over a couple of weeks before that. So we were in kind of a free fall in markets. But right now, I think I'm focusing on the greater kind of one-year remembrance of where things were. Because as I'm recording this on Friday morning, I think back to the Friday of this weekend a year ago. And there was a lot of just crazy things going on, but we just did not know how crazy, what it all meant. um thursday of the market dropping that 2000 points the day after president trump's famous address to the nation um on that on that thursday um i had walked to cnbc uh their time square studio for an appearance they had booked me on early that

morning before the market was to open and i arrived to security at the front gate that wouldn't let anyone in and they and they announced that they decided no people could come inside anymore i said okay and they asked me to walk across the street to this little diner that is sort of like one of these diners that people go to after Broadway shows. And I just stood there in the like little like, you know, entryway area on my cell phone doing an interview with CNBC across who was across the street. And then, you know, there was just a flood of client calls and everything that day. And I had a really lengthy dinner meeting that night with two gentlemen who are really dear friends of mine, but very respected economists and thought leaders in their own right and really tremendous sources of analysis and perspective for me. So it was timely that we were all just there together

kind of speculating as to what the political ramifications were going to be, the economic fallout, trying to wrap our arms around what was going on. And yet by the next day on Friday, which was the 13th, it was very obvious that no one really knew that. And in fact, what would become a societal wide shutdown, you know, was going to be the prescription. So my wife and the two kids we have that are in school in New York, we all jumped on a

plane that night and flew back to California in the middle of the night. And then that weekend was just really kind of awful. One of our partners at the Bonson Group, his spouse contracted coronavirus and obviously we were all kind of worried about her and her recovery and she ended up coming out fine. But that was like sort of the first person that we knew real well who had gotten it since then. Like a whole bunch of people have got it and recovered very quickly. But there was just a whole lot of really traumatizing events and stressful uncertainties that were playing out. And then that Monday, the 16th of March, was the worst day in the market

since Black Monday. The market was down 3,000 points. And in a way, that's when I knew that the market pain was almost over. I didn't know exactly when, but it was very clear to me at that point, the market was not at that point pricing in its anticipation of a compressed economy and contracted corporate profits. It had gone far beyond all that, but rather was just in the midst of a national margin call was the term I used on a national client call I did the next day on March 17th. And in a levered financial system, we were just seeing that great unwinding. And it ended up playing out for the next week.

But it was the March 23rd, which was the following Monday, the market would end up hitting its bottom through this period. And I'm not going to go through and rehash all of the post-COVID stuff, which was the following Monday, the market would end up hitting its bottom through this period. And I'm not going to go through and rehash all of the post-COVID stuff, because what's so interesting is that the market's story in this, as far as the bottoming, ends in March. And yet the COVID story still hasn't ended. Now, there's a lot of it that I think has ended that others don't. And I won't get into what I mean by that, but I mean something. But I guess what I mean is there's still lack of large crowd events and a very, very compressed level of travel. large crowd events and a very, very compressed level of travel and restaurants not open or fully reopened and a significant part of the labor market that is not restored.

So it's been a full year and we're still living through this moment. And so the only part of it that we can look back on and talk of it as if it were a past event is the stock market side. But when you look into the politics of it, President Biden just gave a speech last night. The vaccines are working their way rapidly through the population. It's a bizarre, a bizarre year and a bizarre event in our country. And yet, the standpoint in that moment a year ago faced with really great uncertainty and uncertainty that would, in fact, play into more uncertainty about economic opening and so forth. economic opening and so forth. I've said it over and over again, but the part that really allowed the market to recover out of its initial distress was that it took its medicine quickly on the de-levering and then the tremendous corporate liquidity facilities that the Fed provided.

There was ample amount of money to be sloshing around. The market loved the Fed stimulus. But then more importantly, the market realized that the pandemic was going to be awful. And it didn't necessarily know how many lives would be lost. But it became very clear that somehow there was a targeted and identifiable vulnerability in the population and that could be better isolated as opposed to some of those early projections of two or three million Americans that could die quickly of hundreds of millions of people worldwide. that could die quickly of hundreds of millions of people worldwide. And so I actually think a whole lot of things have been a surprise along the way too. But this was quite an experience a year ago. And I know all of you lived through it and I lived through it. And I'll never forget it.

I'll never forget any of the details of it. I'll never forget where I was, who I was talking to, at what time of day on each day. This is like vivid memories for me. And most of them pretty unpleasant ones. And then I think back to the other anniversary of this week. March the 9th of 2009, so we're talking about 12 years ago, represented a generational bottom in the stock market. The COVID moment lasted about 30 days in the stock market. It was awful, about 30%. But the financial crisis moment lasted about 18 months in the stock market.

And it wasn't just the stock market, it was housing, it was credit, it was banking, it was the entire global financial system. It was existential. And I think that, and the market not only went down over 50%, you know, the Dow for about five minutes touched the low 18,000s in the bottoming of March last year. But in 2009, it touched in the 6,000s. And so even the bottom from the financial crisis. But the market's now up 481%, give or take, couple points, since that March of 2009 moment. And yet at that March of 2009 moment,

there was a lot of Fed support, but there was significant governmental, corporate, and most importantly, household leverage that had to be worked through, delevered, and policy prescription became to try to relever corporate balance sheets, even as household balance sheets delevered. sheets, even his household balance sheets, delivered. And you talk about memories. Those are things, you know, that a year ago, most people can remember stuff from a year ago, but from 12 years ago and 13 years ago, I still remember all those things just as vividly. But, you know, I remember I was at an economics conference in Palm Beach, Florida, at the Breakers Hotel. I had been on a panel that morning, and then I was sitting in the audience for another speaker with my computer, just sitting there trading and just seeing all these stocks that

were washing out and they were hitting numbers that they would never see again. And they were hitting numbers that they would never see again. And it was a very different business then. But I was, you know, wherever I had cash and client accounts, I was trying to buy. And I did not do that on that day, knowing it was the bottom. But I certainly knew as the March moment from COVID a year ago, there's always this moment where you feel like that capitulation is near. And you don't want to pick an exact bottom because you can't, but you can tell from the psychology of the moment, the technical pressures of the moment, and what is generating that market activity that you're close. And I believe that in both of these cases of these anniversaries that are

memorialized here this week, there was very little that investors could have done. You could talk about how investors could have said, look, I'm going to jump out of this and I think things are going to go further. And then I'll come back in and maybe I won't time it perfectly, but I want to try to get out of harm's way for a little bit. But you got to remember a year ago, the market dropped 2000 points on Thursday, March 12th. And then it was up 2000 points on Friday, March 13th. And it was down 3000 points on Monday, March 16th. And I believe it was up,

Monday, March 16th, and I believe it was up, if I remember correctly, 1,000 points on Tuesday, 17th. So you were at risk of a forfeiting significant recovery based on any kind of idea of trying to exit with things. And even when I talk about from October of 07 to March of 09, And even when I talk about from October of 07 to March of 09, that it was this 18-month-long bear market and financial crisis and all this stuff. There were periods of significant market rallies, including days where the market would go up like 1,000 points back when that was even more meaningful percentage-wise. even more meaningful percentage-wise. So I say all that to say that there's a lot of history in being a stock market investor. There's a lot of history in being alive on planet Earth, and stock market investors get to capture a lot of that history, a lot of the things that happen here on Earth,

the COVID pandemic, the financial crisis, these are moments in time that even if one is not in the stock market, they have profound impact. And the lessons out for investors are just never going to be different. Well, before these events, these moments take place, asset allocation should be constructed that is a byproduct of a holistic client profile, an investor objective, a very detailed, specific understanding of what they're trying to accomplish, given certain liquidity constraints, certain liquidity constraints, risk, bandwidth, comfort level, tax ramifications, all sorts of other things that can play into what the proper construction of a portfolio is. And then in those moments, and they're not if, but when moments, you don't know it's going to be September of 08, and you don't know it's going to be Lehman's downfall. You don't know it's going to be September of 08, and you don't know it's going to be Lehman's downfall. You don't know it's going to be March of 2020, and that it's going to be a global COVID pandemic.

But you know there's going to be these things that happen. And to have the discipline to maintain the plan and be rewarded through time for your patients, sometimes very quickly, sometimes longer. But it always seems to work out for those that follow that right playbook. And this is something I'm using two examples in more modern times, but I can go back a full hundred years with similar tales. So that's my lesson in this week's Divin Cafe. I don't think anyone looks back to the events of a year ago fondly. Hopefully now they feel the society reopening. They have their restaurants in town opening up. You're going back into your offices. People in your town are

going back into their offices. People are willing more and more to actually re-engage into society. The vaccinations are proving to be one of the most successful endeavors that we have seen in the post-war era. And all that's really positive. And so there's plenty of bad memories, but there's plenty of silver linings through all of it. And we try to learn what we can from these tales of history. Thanks for listening to this. I hope you got something out of it. I really always do enjoy kind of reminiscing about some stuff, even some of the bad memories, because I'm one who tries my very best to learn from history.

But if I felt a little better, I'd probably unpack it even more. But honestly, I'm looking forward to next week's Dividend Cafe. I hope you will too. Thanks so much for listening and reach out with any questions as always. Have a wonderful weekend. Thank you for listening to the Dividend Cafe.

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