Call Notes: COVID-19 - Client call Tuesday March 24th

1 US Economic Update

Given the rapid economic, governmental, and social developments over the last four weeks driven by COVID-19, the market’s focus had shifted away from being concerned about US economic data. I believe that will soon change. My belief, as well as current consensus expectations across many banks and Wall Street institutions, is that a myriad of US economic data in the coming months will likely have no historical analog.

2 2020 US Growth Forecast - Revised

I cannot stress enough the degree of uncertainty surrounding these projections. These are truly unprecedented events with no adequate historical example with which to anchor our forecast. Our baseline forecast assumes that the severe containment measures being taken will succeed in flattening the epidemic curves by midyear in the Eurozone and US, and that activity will begin to bounce back in Q3 and Q4, supported also by the massive policy responses.

3 How much farther might markets fall?

In my opinion, we may start to see a bottom when either 1) the number of reported cases in Europe and/or the US starts to peak and/or fall, and 2) when the US brings out the fiscal bazooka to support consumers and businesses, as layoffs mount and cash flow shortages abound, as this virus continues to spread.

4 Summarizing bear markets

Looking at the long-term history and every bear market since the mid 1800's, we find that there are three different types of bear markets; each type is a function of different triggers and has distinct characteristics.

5 Summarizing the most recent extreme market event – the Great Financial Crisis (GFC)

While we are talking about drawdowns in equities, most investors do not have a portfolio of just stocks and risk assets; they have diversified portfolios consisting of both return-generating as well as risk-managing assets.