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Castle Financial Special Update, Sunday, March 22nd 2020

Castle Financial Special Update, Sunday, March 22nd 2020

March 23, 2020
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Castle Financial Special Update, Sunday, March 22nd 2020

As the stewards of our valued clients' wealth and financial future, we have already made preemptive and tactical moves in clients’ accounts to preserve capital during this ongoing Pandemic crisis.  As noted in prior Special Updates, we sold out of all Bond funds prior to the bond market implosion and proceeds from those sales are currently in FDIC insured money market funds, government money market funds and ultra-short-term US treasury securities for now. 

The All Terrain Opportunity Fund is a large holding in most clients’ accounts and the fund has held-up exceptionally well during this crisis in our capital preservation mode as this Pandemic crisis continues to unfold. We will be adding money to the All Terrain Opportunity Fund where it makes sense in certain client accounts in order to “tactically” take advantage of market dislocations in many different sectors as bargains present themselves. We have also reviewed all client accounts to make sure we have ample cash available to cover clients’ monthly cash withdrawals and future IRA required minimum distributions, so we do NOT have to force sell equities to meet these needs. Unfortunately, many inexperienced advisors have held onto bond funds with the logic that bonds generated counter balance for equity price declines. From my experience, we did not see that counterbalance in the 2008/2009 financial crisis and, for that reason, we sold clients' bond holdings before the major carnage in bonds. For now, cash and cash equivalents are some of the few asset classes that are working to steady price declines from equities in client portfolios.

There are no precedents for what we are seeing today with this Pandemic. When industries and small businesses are on lock-down and employees are without work and a paycheck, this is becoming all too real for many households. The government was late in reacting to this invisible enemy, but things appear to be moving much quicker now. Most of the population was complacent about the potential affects as they went about their days as if everything would continue as normal - optimistic fatalism. Our government did not get the facts from communist China about the Coronavirus and China intentionally withheld vital information which is causing death the destruction in many ways around the world.  The equity markets are in freefall as revenues for many companies are drying up on a short-term basis. Unfortunately, there will be significant damage to many small businesses that do not have the balance sheet cushion to wait this storm out. Many large companies will also not look the same once this Pandemic is behind us. Anyone that tells you they know what will happen from here, is guessing and there will be an eventual rebound in stocks off the lows, but nobody really knows what those lows will be at the bottom.

Potential Investments for Coming out of a Crisis

Spending money and buying products and services is in the DNA of billions of people. The longer people hold back spending, the larger the snap-back in spending will likely occur after this crisis abates. Yes, there will be financial hardship and corporate restructurings which seems unavoidable at this point. However, we all have to be focused today on protecting our health and changing our behavior for a period of time. Once we get a handle on the spread of this virus and attempt to back-stop companies and individuals, consumers will begin spending money on the things they want versus only the things they need. With that in mind, let us observe where the bargains may come as we did experience coming out of the 2008-2009 financial crisis. 

Where will people go when they feel confident to get back to their daily lives and emerge from shelter?

When you are stuck in your house or apartment for an extended period of time, you begin to realize what upgrades you need. It is easy to put purchases on the back burner when you are busy with life and work. My family and our entire staff have been in a self-imposed lock-down for about two weeks now working via the Cloud with no staff overlap an our offices for our business continuity plan other than going to the grocery and drug stores. When life gets back to normal, we would think that companies like Home Depot, Lowes, Restoration Hardware, Williams Sonoma (Pottery Barn, West Elm, etc.) will see some serious traffic. All of these stocks are down 30% or more thus far. I am NOT recommending the purchase of these stocks, but simply making observations.

The Food & Beverages Sectors:

I and sure that many people will be tired of eating the same things and craving different favorite foods and beverages post crisis. The restaurants will be particularly hard hit and many will close. However, many high quality, publicly traded restaurant brands will see a radical return of traffic. As with most industries, balance sheets matter most. The fast-casual brands with high brand relevancy and strong balance sheets are: Chipotle & Domino’s Pizza. Starbucks will likely see a surge in traffic once the lock-downs abate. I suspect there will be some significant strategic mergers and acquisitions in this sector as strong brands begin buying highly relevant brands that do not have the balance sheets to sustain a longer slowdown. For example, a niche brand with a strong balance sheet is Monster Beverage. Energy drinks are a favorite of younger consumers in USA and abroad and the Monster brand is very sustainable and Coke is a part owner of Monster so they will likely be fine. Again, I am NOT recommending the purchase of any stocks and just making observations. 

Media & Entertainment:

Many people have been watching more TV than normal. Streaming movies and shows are undeniably seeing a surge. Verizon recently stated they were seeing a 12% surge in internet use over the last 30 days and they have accelerated their spending on infrastructure with the acceleration in traffic. Verizon is a great brand with a high dividend and solid balance sheet going into the crisis. I am also sure Netflix subscriptions are surging all over the world, but my only concern is their need to tap the debt markets to pay for growth. When the debt markets shut down and companies need money, the short sellers get aggressive. Roku has to be benefitting as more people using the Roku platform sign up for new platforms like HBO, Showtime, Starz, etc. The last time I looked, Roku had about 33 million-plus people likely considering doing the same and the stock is down a whopping 56% in 1 month! Disney+, the new streaming service from iconic brand Disney should be doing fine although their theme parks and travel businesses are completely shut down. Accordingly, we want to be careful that Disney’s current stock price does not fully reflect the current damage across all their businesses, so caution and patience is recommended. Again, I am NOT recommending the purchase of any stocks and just making observations.

How about Music?

I certainly think many more people are listening to more podcasts. Spotify stock is down about  22% from the highs and has held up relatively well considering the damage in many other consumer names. Spotify is an asset light business and is a business model that does not require any personal contact and the company has a good balance sheet. Apple, Amazon, and Google are beneficiaries as well and those stocks are down 25% or more with strong balance sheets. Those brands will survive and likely benefit from this crisis. The strong always take market share in times of distress. Again, I am NOT recommending the purchase of any stocks and just making observations. 


The gyms are closed and with the coming warmer weather, people will get outside when they can, and exercise to free the mind from stress and anxiety. I love swimming and am looking forward to swimming again once the clubs open. The most relevant brands serving the exercise categories are also on mega sale with the stock market drop. What brands will likely benefit when spending comes back? Nike stock is down 38% from the peak, LuluLemon is off about 50%! Adidas is another major potential beneficiary once the dust settles. The stock is also down about 50% in a little over a month. These brands will likely see a surge of pent up demand spending once the virus gets contained and spending and activities begin to return. Planet Fitness will be another potential beneficiary. The stock is down about a whopping 71% in one month as sellers purge themselves of any retailer where people congregate. The company had a solid balance sheet going into this crisis. Again, I am NOT recommending the purchase of any stocks and just making observations.

In Conclusion, here are some bottom-line takeaway points to consider:

*Our safety is paramount!  We all need to stay away from public gatherings and have a supply of what we may need if we start feeling ill.

*The government will have to back-stop more businesses than it did in the 2008/2009 crisis and the FED and other central banks around the world will try to shore up the credit and debt markets and keep money flowing globally.

*Drastic times call for drastic measures and drastic fiscal stimulus measures will continue to roll in form governments around the world.

*As a result of this crisis, we are seeing some of the most iconic, relevant brands and companies serving global consumers decline to more attractive valuations which only happens every decade or so from a financial crisis or market dislocation. 

*Spending is in our DNA and we can stop it for a time, but when it comes back, and it will, the pent-up demand building will offer a breathtaking surge in revenues and stock prices from the crisis lows to come. However, I warn readers of this update that the major equity market indices have the potential to decline another 20% plus or more from the current approximate 30% decline if the recovery from the crisis does not play out well from the current state of this global pandemic. There is also the potential of economies collapsing under the weight of the unprecedented global debt, fiat currencies being created out of thin air, and severe economic contractions around the globe. However, if we reflect back on history and past crises, “This too Shall Pass” and “The Sun will come out Tomorrow”, so let us all come together to get through this crisis and pray for better days to come.

Our hearts and prayers go out to all those affected by the Coronavirus (COVID-19). Many of our clients are senior citizens and we would strongly encourage everyone to be especially considerate of our seniors’ risk to the virus and make every effort to provide assistance in any form, if possible. Sometimes even a simple phone call to “check in” goes a long way in these difficult times.

If you are a valued client of Castle Financial, you are in good hands and we always look forward to hearing from our valued clients. If you are not a client of our firm and are reading this update, feel free to contact us at 732-888-4994 or visit us at  Please note that I am NOT recommending the purchase of  any stocks in this update, but am simply making observations and please check any stock percentage decline numbers for accuracy. A full prospectus on the All Terrain Opportunity fund can be found at The fund is rated 5 Stars by Morningstar.