Thoughts From My Home Office

March 17, 2020

by Zack Johnson

Several months ago, I came across a competitor’s website whose homepage slogan touted: “Control Your Future.” Upon reading this, my initial response was a feeling of sorrow for this firm’s clientele. These poor people would invariably find disappointment to be their closest financial ally as their relationship headed towards probable failure. I pictured their advisor as Alec Baldwin’s character from “Malice.” “You ask me if I have a god-complex? Let me tell you something: I am God!” Before this writing, I visited their website again and the tagline had mysteriously vanished from their webpage.

This tagline reminded me of great conversations I have had with many of our clients over the past few days. Several of whom expressed how good they think these next few weeks will be for our country. Their reasons:

• We have become self-focused lacking in empathy, understanding and appreciation for other people’s views.
• We pretend to be in control and are unnerved when faced with the harsh reality of how little control we actually have on our circumstances.
• We seek our identity and security in our career, money and a comfortable life. As we chase after these seemingly “good” things, we forget how quickly they can disappoint us and find that we have neglected the things and people that matter most along the way.

As I find personal conviction in each of those statements to one degree or another, I think we are all hopeful that an event like this will unify us and serve as a course correction and wake-up call to ask ourselves what we are truly valuing with how we spend our time and money and where we find our security.

NOW ONTO MARKETS…

I mentioned in a previous correspondence that one of our global asset managers from Capital Group has reported their Chinese companies are beginning to return to work and find their way to normalcy. I found a comparison of the S&P 500 and China’s Shanghai Composite (similar to our S&P 500 index) to be a beacon of hope in the midst of a sea of doom and gloom. If you’ll notice in the chart below, the Shanghai Composite recorded steep declines in January as China was suddenly thrust into economic shutdown from the effort to contain the outbreak. While markets in China have not returned to their peak in December, they have certainly bounced off of the bottom as China returns to work. This should hopefully serve as a foreshadowing of what is to come in the U.S. which is about 6 weeks behind China in its fight against COVID-19.

PERSPECTIVE

One of the great things about our alignment with Northwestern Mutual (founded in 1857) and investment partnerships with premier firms like Capital Group (founded in 1931) is the depth of historical perspective. That perspective and resilience imparts confidence to our clients. They know that the institutions in which they have entrusted the well-being of their personal wealth have weathered many storms in the past and emerged stronger from each one. Jim Fullerton, former Capital Group chairman, shared some words of wisdom in 1974 that are relevant today: “Bear markets do come to an end. And they usually come to an end when all the news is still bad and while the economy itself is still deteriorating. They come to an end not because of some visible external piece of good news, but because raw emotion has carried prices too far down. And then some Wednesday morning, reality slowly begins to take over.”

Challenges do not leave us the same. They will either make us much better or much worse. As I spent time at home this past weekend consumed with the 24/7 news cycle and removed from our community of friends, I realized I was not responding to this trial in a way that would make me better off. I was wallowing and ungrateful for this new reality. As I thought more about the actions that would leave myself and others stronger, both personally and financially, here were a few that came to mind.

• Practice gratitude. My grandfather captained a B-17 (the “Ernt Mernt” as his crew members named the Flying Fortress) through 50 bombing missions in North Africa and Italy in 1943. His plane and his crew members were shot, they suffered severe illnesses and hypothermia, and some died while braving 12-hour long missions through the sub-zero degree skies not knowing if they would come back alive. I am being asked to work from home for an indefinite period of time and take a social vacation. I should be grateful for the opportunity to lead people through the storm and that our firm has all of the technological resources in 2020 to weather it.
  • If you find yourself with extra time on your hands, HBO produced an extraordinary documentary shot by a film crew that flew combat missions onboard a B-17 in 1943 entitled “Into the Blue.”
  • We need reminders that optimism is the ONLY realism that squares with the historical facts of our economy’s permanent advance amidst temporary declines. NYT Columnist Nicholas Kristoff publishes an annual “This Has Been The Best Year Ever (Again)” which is well worth a read.
• Evaluate spending habits. This is a great time to truly evaluate the things that you thought you couldn’t live without. While individuals in certain industries will no doubt take time to get back on their feet, I am confident people will emerge from this with better savings habits and a more secure future as a result.
• Evaluate your estate, business succession and insurance plans. I say this in spite of a potential reaction of seeming like shameless, fear-mongering business promotion as we are in the insurance business. The risk of this pandemic brings “what-if” scenarios into a much clearer picture. If you have people relying upon your income or business for their financial well-being, it is imperative to ensure that your family and your business have adequate life and disability insurance as well as a business succession and estate plan in place. If this is an area of your plan you have been putting off, many insurers (including NM) are offering reduced underwriting requirements to accommodate for people who are uncomfortable completing the medical exam over the next 4-6 weeks.

To close (if you’re still reading), I wanted to leave you with a quote from Dean Witter. In May of 1932, a few weeks before the end of the worst bear market in history, Witter profoundly stated, “Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?” Staying the course during this market of historic abject fear and capitulation is how you will earn the premium return of equities once the firestorm of terror burns itself out and the permanent advance resumes.

Northwestern Mutual has endured recessions, a depression, world wars, natural disasters and pandemics while maintaining its preeminent financial strength for over 160 years. As NM’s CEO John Schlifske aptly stated on Monday, “We were made for this.” Stay steadfast and faithful.