Time to Act?

The COVID-19 outbreak has generated a crisis mentality that is gripping much of the world and our client base, regardless of whether the mortality statistics support such a response. In our view, there are three ways to respond to a crisis: succumb to it, survive it, or leverage it to your advantage. As the scope of the outbreak is coming into focus, it is time for us to make sure our clients find themselves in the latter grouping.

Descending interest rates are an early outcome – and opportunity – presented by COVID-19, as investors seek safety from the battered equities market by pouring into fixed-income securities. Ten-year Treasury yields closed February at 1.17% and have tumbled even lower in March, dropping to all-time lows before ticking up again as of this writing. This came in concert with successive emergency rate cuts by the Federal Reserve. Demand for US Treasuries is pushing bond prices up and yields down, making this an excellent time to leverage up and make purchases that will help you grow your business when the economic cycle transitions back to rise. Costs are often lower at the bottom of the business cycle – not just for capital, but also for physical assets and capital equipment. Leveraging the uncertainty in this cycle may allow you to secure concessions from vendors or contractors that may have been inconceivable just 12 months ago, as well as finance your purchases at extraordinarily low rates. Think about your bottlenecks – they could be plaguing you right now – or anything that held your business back during the last peak of the business cycle in late 2018. For some, mitigating these obstacles could mean supplementing an aging fleet of trucks or vans; for others it may be replacing aging, breakdown-prone capital assets or even expanding physical office space to handle the rising head counts that will support expanding business.

There is also personal opportunity in this crisis, perhaps for yourself or your children. Conventional mortgage rates are closely associated with long-term bond yields, so Treasury yields' recent descent to record lows has naturally translated to declining mortgage rates as well. This is likely to bolster an already red-hot US housing market heading into the peak season this spring. Yes, some would-be buyers may react negatively to the fear and noise generated by COVID-19 and sit on the sidelines this spring, leaving more room for the bold to buy in an inventory-strapped market.

As in everything, there will be wins and losses. There will be some definite losses in the COVID-19 crisis – most significantly, the loss of life – but the crisis will present very real opportunities in 2020 as well. Fortune favors the bold.

Connor Lokar
Economist