Coronavirus is taking a significant physical, psychological and emotional toll on people across the globe.  In the very, very early hours of Thursday morning, U.S. markets reacted poorly to the President’s address the previous night – there was no offer on the 10 year treasury, signalling an unusual degradation of the most liquid market in the world.  Equity markets opened, and ended the day with the second largest drop in decades.  The NY Fed acted quickly that day, with the unprecedented action of extending treasury purchases across the yield curve by $1.5 trillion.  But it was not until late yesterday afternoon that the markets finally started to show signs of confidence.  The President delivered a well-organized overview of steps being taken by a coordinated public-private partnership to address Coronavirus.  Since then, the House passed the Coronavirus Response Act, with both bi-partisan support and approval of the President.

My heart goes out to those who have been affected.  Please know that although the stock market has been extremely volatile, trading has been orderly and the exchanges are well-prepared to operate through disruptive times.  It is difficult to see stock values retreat from all-time record highs in such an unexpected and swift way.  Right now the projections of economists are so wildly varied, it is difficult to see how shutdowns and quarantines will impact corporate earnings.  I have run numbers, and even if companies have zero earnings for 6 months, the stock market is still ridiculously oversold.  The virus started in China in late December, and it took about 2 months for it to work through the country and for companies to get back to business.  So that would put the U.S. being impacted for March and April.  We are working tirelessly to ensure that portfolios continue to be well-positioned as we move through this.  Many of you have called over the past two weeks to add to your stock holdings.  For those of you taking income, we have long planned for such a down-turn, and have plenty of cash to meet your distributions without having to sell stocks at lower levels.  The Pawleys Dividend Fund, which almost all of you have as the core holding in your portfolio, is down only -12% for the year through yesterday, versus the Dow being down almost -20%, which is a difference of +8%.  The fact that the dividend portfolio is holding up so well, especially after having such a phenomenal year in 2019, is a huge accomplishment.  We hold stocks of companies with little or no debt, solid earnings growth, and rock-solid cash flow.  I continue to believe that these companies are best positioned to perform well in a myriad of economic scenarios, especially during difficult and uncertain times.  

Our top priority is to make good decisions that help ensure that each and every client continues to be well-positioned to meet financial goals.  I realize how difficult it can be during uncertain times, but we have been through tough times before and we will make it through again.  Publicly traded U.S. companies are some of the most resilient, well-run businesses in the world, and in my opinion remain one of the single best ways to grow wealth.  Please e-mail us if you have questions or would like to schedule a phone review.  Thank you very much to everyone, and know that we will continue to work hard monitoring both the markets and your portfolios.

~Katy

This week in the stock market has been one of the most difficult in years.  We experienced pull-backs in 2011 when Europe sunk back into recession, in 2015 when Brexit first became a possible reality, and in 2018 under the weight of trade tariffs.  And yet despite those challenges, solid U.S. companies continued to grow their revenues, propelling the stock market to higher levels.  It is important to keep a cool head, but within the barrage of a hyped-up 24×7 news cycle it can be extremely challenging.  At this point, economists and analysts are projecting that there will be a very modest drop in corporate earnings as a result of sales and supply chain disruptions caused by quarantines and shutdowns.  In the meantime, there are a few recent developments that the press didn’t put in the headlines:

1.  Starbucks and Marriott have reopened most locations in China.

2.  Airbus, GM, and Toyota started re-opening factories in China last week, and today Apple announced factories are going back into production.

3. The U.S. Leading Economic Indicators for January were released at +0.8%.

4. Today The Atlanta Fed adjusted Q1 2020 GDP projections up to 2.7% from 2.6%, driven largely by a solid housing market.

A few days ago, the World Health Organization referred to the virus as an “infodemic,” with false information being proliferated by social media and the non-stop news cycle, and recommended a “vaccine” against misinformation.  As for the markets, since February 12th, the Dow has fallen -12.8%.  More importantly the VIX, which is a measure of volatility, has spiked a dizzying +175% within the same time period.  That combination is indicative of a very short-term, unsustainable sell-off.  We will continue to monitor the markets and economy, and also keep a close eye on the potential impact of the Coronavirus.  Please keep your questions and concerns coming by e-mail or phone.  It is so important to us that we do everything possible to make times such as these easier for everyone, and ensure that we stay on track to meet your financial goals.

Thank you very much!

On Thursday, Cigna announced it will buy Express Scripts, giving ESRX shareholders a combination of cash and CI stock. The deal, expected to close before year-end, will represent the 10th buy-out of a Pawleys Growth Fund holding at a significant premium for our investors. This is a stunning accomplishment for the fund, launched in 2010, given that we typically hold a concentrated portfolio of just 20-25 different stocks. We have a systematic process which strives to identify stock of companies with little or no debt, good earnings growth, and rock-solid cash flow. We never take a position in the hopes that it will be bought-out, it just happens that our methodology has identified stocks that others deem to be very valuable. The initial Cigna offer represents a 31% premium for ESRX shareholders.

Click here to see the take-overs and performance results:
Pawleys Buy-Outs

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