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05.21.20

May 2020 Economic Commentary

By Jesse Ellington, III

More than a dozen market veterans including Buffet, El-Erian, Gross, Gundlach, Tepper and even Fed Chairman Powell have been putting forth very bearish short term projections on the economy and markets. At the same time most risk assets have been moving up significantly driven by unprecedented liquidity. Howard Marks of Oaktree, maybe the wisest of all, has described the current situation as impossible to handicap.

We are also navigating these markets very methodically to ensure we are playing the proper offense and defense. With that in mind, patience is our mantra now, as we try to find clarity in the chaos. We can be assured of continued fiscal and monetary support, but the pace of the restart, combined with the permanent economic damage and changes in consumer behavior, remain very unclear to all. Below is a more concise outline of the pros and cons we see looking out the next 90 to 180 days

  • The Bull Case
    • Unprecedented fiscal and monetary action will drive up risk assets
    • Covid-19 Vaccine or antiviral cocktail
    • Successful restart of the economy in Q2/Q3
    • “There Is No Alternative” to stocks (TINA)
    • Covid-19 pandemic has accelerated the shift to the “new economy”
    • Zero rates for an extended period
  • The Bear Case
    • Significant drop in 2020 and 2021 GDP and earnings
    • Slow re-start of economy
    • Lasting change in consumer behavior
    • Unpredictability of Covid-19 virus
    • Permanent damage to “old economy”

New Normal
Low Rate environment unless we get US credit issue

Acceleration of “tele” and ecommerce across most industries

Deterioration of US/China relations

Political toxicity – election risk and beyond

Please let me know if you have any questions via phone at 804-774-2087 or email at Jesse.Ellington@middleburgfinancial.com.


Disclosures:
Past performance quoted is past performance and is not a guarantee of future results. Portfolio diversification does not guarantee investment returns and does not eliminate the risk of loss. The opinions and estimates put forth constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.


About the Author
Jesse Ellington, III
Jesse started out his career as an analyst perfecting the craft of digging into companies, moved to the investment management consulting business where understanding proper asset allocation was key, and spent 12 years running a hedge fund and honing his macro skills. He brings all that experience to Atlantic Union Bank Wealth Management in his role of Chief Investment Officer. 

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