PARAGON Clients protected by Recession Protocol in Early March as CoronaVirus Loomed
Early in the morning on March 9th, after careful deliberation and examination of the likely outcomes of the rapid expansion of the Novel Corona Virus - and, in particular, the likely impact upon the global economy, PARAGON's Investment Committee decided to implement RECESSION PROTOCOL™ immediately. This means that we evacuated all of our clients out of the stock market and into safer assets such as treasuries, investment grade bonds, and cash.
A wise client who specializes in risk management said something to me last week that continues to ring in my ears... "Why risk a lot to gain a little?"
I thought he had a very good point.
You, our valued clients, have trusted us with their life savings, which is a responsibility that we take very seriously. Our first and most important responsibility is not to lose the decades of hard work and sacrifice that your life savings represent.
It is our opinion that this threat to our economy and to our retirement nest eggs is very real, and the outcome is highly dependent upon decisive actions by the governments that run our economy. Those of you who have been with us for a long time know I usually face market volatility with steely-eyed resolve and try my best to coach the rest of you (sometimes bluntly) to hang in there so you can get the returns you dearly paid for with what can only be described as suffering while the market whipsaws back and forth in a seemingly random fashion.
For additional information on the spread of the virus and potential outcomes, here are some resources:
Every market correction has some sort of catalyst that sets it off and the media typically sensationalizes it for their own gain. However, I believe that this catalyst has the potential to be very different.
The reality we now know is that this new Coronavirus is highly contagious and is 10 times deadlier than the seasonal flu many of us get. Many people will get it and have no symptoms at all; others will get it and have mild symptoms but will spread it long before they even get those. Generally only the oldest and weakest of us are at risk of death - but that is enough be highly disruptive to the economy - and the markets.
As we track the spread of this virus, we note that the countries that have had the most success containing and mitigating the spread of this virus are the ones that have implemented drastic - even draconian measures, which are highly disruptive to their societies and their economy. China, to their massive credit, chose to bite the bullet, take their medicine, and shut down virtually their entire manufacturing economy. Singapore, Hong Kong, Japan, and a few others followed suit and seem to have this virus under control. Italy and South Korea waited too long and now have had to institute massive quarantines of millions of people - and are barely getting control of the situation. Other countries - in particular, developed countries within Europe, such as France and Germany, have not instituted these measures and are seeing cases of the virus rapidly spiral out of control.
Unfortunately, the United States, being a large, decentralized country, is extraordinarily difficult for such measures to be implemented in. Likely it will be up to the citizenry itself to decide if, when, and what, measures will be taken. If other countries are any indication of what is to come, I believe we are a bit behind the power curve and will eventually see - either mandated by the government - or voluntarily by hundreds of millions of consumers - activity that will be highly disruptive to the global economy. That is usually followed by recessions and stock market crashes.
I promise to keep you informed of the situation - in particular, how the economy is faring and when it is time to "get back in" and start growing our money again. It is likely that the "post Coronavirus" economy will be slightly different from the present one that we know and significant opportunities will be available. We will be on the lookout for those, and rebuild the re-entry portfolio accordingly.
Thank you for your trust in us. We take it very seriously and appreciate it more than you know.
Best,
Jon
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