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Mid-Quarter Newsletter – May 2020

The Birth of the Federal Reserve

Global central banks and their unconventional monetary policies have been in the limelight since the financial crisis in 2008. Given the unprecedented actions of the Federal Reserve (aka the Fed) recently, we wanted to give you a closer look into why the U.S. central bank was created and how its mandate came about.

Early attempts to establish a central government bank started as far back as the birth of our country in 1789, but none of those attempts made much headway. By 1860, the need for reliable central financing was clear, as there were nearly 8,000 state banks, each issuing their own paper notes. Thus, the National Banking Act was passed a few years later, which created a uniform national currency and only allowed nationally chartered banks to issue bank notes. The act didn’t, however, create a strong central banking structure. As the industrial economy expanded, the weaknesses of the nation’s decentralized banking system became more pronounced, leading to serious consequences. The 1907 Bankers’ Panic—a three-week financial panic that occurred during an economic recession, where liquidity dried up at local and state banks, causing many of those companies to go bankrupt—fueled a much-needed reform movement.

After six years of debate and negotiations, the Federal Reserve Act was signed into law on December 23, 1913, establishing the Federal Reserve System. Sixty years later, in the early 1970s, unemployment and inflation levels began to rise, reigniting fears of an economic recession. In 1977, Congress enacted the Federal Reserve Reform Act, which explicitly set price stability as a national policy goal for the first time. The very next year, Congress passed the Full Employment and Balanced Growth Act, which established the second policy goal as full employment. Today, price stability and full employment are referred to as the dual mandates of the Fed.

The Fed, along with other global central banks, has responded rapidly and forcefully to the current pandemic crisis. Central bankers clearly want to prevent the pause in economic activity from turning into a permanent solvency crisis and wave of defaults. Many will argue that the Fed’s response goes beyond its mandates—a stance that will be debated for many years to come.


How Business Owners Can Find Opportunities in Chaos
By: Wade Calvert, Wealth Advisor and Partner

While 2020 may seem like a difficult time to be a business owner, there are hidden opportunities to grow in the chaos, especially if you think of opportunity as the ability to make positive changes in your business regardless of what’s going on around you.

Click here to read the article below to learn about five things that every business owner should consider in this environment to capitalize on potential opportunities for growth.


Leadership in a New Workplace
By: Dan Charoenrath, Director of Private Investment Operations

As businesses prepare for a return to work in the coming months, one of the most important questions that every leader must be ready to address is: How do we operate differently to ensure that our people are still engaged and motivated? Beyond questions surrounding how to resume regular operations, we must first consider how we’ll successfully lead our teams through the drastic changes in their work environment. Every person in your organization has been profoundly impacted on an emotional, mental and financial level over the past few months—therefore, it’s unreasonable to expect that we can continue to communicate, direct and inspire them in the same way that we always have. Leading an individual through change can be challenging in and of itself because, by nature, change is uncomfortable for everyone.


Read the full article by clicking here!


New Partners

We are pleased to announce that Wealth Advisor Chris Galeski and Compliance Manager Menachem Striks have become partners at Morton Capital.

 

 

 

 

 

 


Follow Us On Social Media

This year we have focused on updating our social media pages to stay connected as well as provide you with timely tips, videos and advice to help you get the most life out of your wealth. Please click the social icons below to keep up with us on LinkedIn, Facebook, Instagram and Vimeo!

We welcome you to visit our new COVID-19 resources page on our website as well, where you can find trusted and helpful information related to financial planning and replay our entire Staying Connected During COVID-19 webinar series.


Welcome New Team Members: Amber and Benjamin

Amber McBride
Paraplanner

Amber graduated from California State University, Channel Islands, where she studied psychology. She always knew that wherever her career took her, she wanted to help people and solve problems. Before coming to Morton Capital and joining the Financial Planning Team as a paraplanner, Amber worked as a senior paralegal at a law firm specializing in estate planning, trust administration, and tax planning, where she gained nine years of experience. During her downtime, she enjoys traveling, hiking, live orchestral music, and spending time with her family.

Benjamin Markman
Private Investments Administrator

Benjamin Markman joined Morton Capital in July 2019. As a Private Investments Administrator, Benjamin plays a critical role in managing the coordination and administration of a variety of alternative investments. He graduated from the University of Oregon with a Bachelor of Science degree in business administration with a concentration in finance and a minor in economics. Benjamin holds a Series 65 license and is currently studying for the CFA® Level I exam. In his downtime, Benjamin enjoys exercise, playing piano, and chess. 


Oh Babies!

Our MC Family just grew by three! Wealth Advisor and Partner Chris Galeski and his wife, Briana, welcomed a baby girl, Aila Grace, on March 16. Client Service Administrator Carly Powell and her husband, Andrew, welcomed a baby boy, Anderson Eric, on March 27 and most recently, Private Investments Administrator Patrick Garcia and his wife, Pauline, welcomed a baby boy, Presley Grayson, on April 29. We congratulate all three couples on their growing family. Fun fact: this is the first child for each family.

Staying Connected During COVID-19 – Final Webinar

Our final COVID-19 webinar was moderated by our COO, Stacey McKinnon, who asked the following questions of Wealth Advisors Bruce Tyson and Jason Naiman related to the impact of government policy on investor portfolios: 

  • We have seen a massive amount of money printing over the last decade – how has that impacted stocks and bonds?
  • How might the pandemic impact the election?
  • How should business owners think differently coming out of the lockdown?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/mortoncapital/stayingconnectedwebinar05052020

We look forward to you joining us on future webinars!

Quarterly Commentary – Q1 2020

“Weathering the Storm Together”

It is shocking how our lives have changed so dramatically in the span of a few weeks. While these are unprecedented and challenging times, we are grateful that everyone at Morton Capital and their families are safe and healthy. We hope that you and your families are as well. Beyond our company, we are heartened to see the strong spirit of cooperation on display every day in our larger community: hospital personnel and medical professionals exhibiting courage and dedication; pharmaceutical firms rushing to develop a vaccine; industrial companies shifting their businesses to manufacture ventilators; and even a beer brewery helping to produce hand sanitizer and giving it away for free to first responders. We may be isolated in our homes, but we are all truly in this together. We feel confident that we will emerge from this pandemic a stronger firm and community.

 

“The Bull Market Hits the Illiquidity Wall”

In a 180-degree reversal from 2019, volatility spiked and risk assets fell sharply during the first quarter of 2020. The U.S. equity market drop of over 30% from its February peak was the fastest such decline on record. The S&P 500 Index either rose or fell at least 4% in eight consecutive trading sessions, the longest streak in history. Given the sharp stock rally in the last week of the quarter, the S&P 500’s 19.6% loss appeared somewhat tame, especially as compared to broader markets: U.S. smaller company and value stocks and developed and emerging international stocks all experienced meaningfully higher losses. While the negative demand shock affected most commodities, oil was especially hard hit as it collapsed over 65% to the low $20s per barrel. Gold was one bright spot, up close to 4.0% during the quarter after a strong year in 2019. The table below summarizes the first-quarter performance for selected indices versus 2019.

While stock markets and commodities experienced significant volatility, the more unexpected story was the corresponding carnage in bond markets. While U.S. government bonds were up modestly, other major categories of bonds experienced significant losses. The below chart looks at the decline in various bond categories in 2020 as compared to their maximum drawdown during the 2008 crisis as well as their recovery when the markets rebounded in 2009:

Certain types of bonds will undoubtedly face challenges if the current economic climate worsens. However, the sharp selloff in bonds was not only driven by concerns for the future, but also by a wave of forced selling that sucked up all the liquidity in the bond markets. Counterintuitively, higher-quality bonds actually took some of the largest hits since that is where desperate sellers rushed believing that they would have the most liquidity. At this stage, certain bond securities seem to be oversold, as they also were back in 2008. The above chart demonstrates that opportunistic and patient investors who saw this as an opportunity back then were ultimately rewarded with equity-like upside when conditions in bond markets stabilized in 2009. We believe that we are with the right managers to capitalize on these types of moves. We currently have meaningful allocations to bond funds that we categorize as “tactical fixed income,” meaning that the managers have broad mandates to move in and out of various bond market segments depending upon where they see opportunities. These managers are now in a position to take advantage of the current market disruption if they believe it presents an opportunity for the longer term.

 

“Redefining Money at Ludicrous Speed”

In the classic Star Wars spoof, Spaceballs, light speed is not fast enough for Rick Moranis’s evil Dark Helmet. He insists that his spaceship jump to ludicrous speed, causing them to overshoot and lose their quarry. Similarly, recent events feel like they have been played out at ludicrous speed, starting with the fastest 30% decline on record for stock markets, followed up with a comparably fast and drastic monetary and fiscal policy response.

Back in the 2008 financial crisis, various government programs were rolled out by the Federal Reserve (“Fed”) and federal government over many months. In the current environment, government programs to shore up the economy and markets have been launched at a rapid-fire pace. The Fed has announced what equates to unlimited quantitative easing (or “QE”), which is a program where it essentially prints money to provide liquidity to the system. It accomplishes this by buying various securities, ranging from treasuries to corporate bonds, which aims to keep interest rates low and stimulate economic activity. QE was a favorite tool of the Fed’s back in 2008 after it lowered interest rates to zero and ran out of traditional stimulus methods. The scope of this current QE, though, makes the QE from 2008 look like child’s play. The Fed’s balance sheet has already increased to over $5 trillion and is projected to double to over $10 trillion by the end of 2020. These types of numbers are inconceivable in their size. Back in March of 2009, the entire global stock market was valued at around $27 trillion total. Today, we are talking about the Fed, just one of many central banks globally, owning assets of over $10 trillion. These types of policy moves are doing more than just stimulating economies and markets; they are redefining money. Money has historically been thought of as a store of value, but that definition is totally incongruous with the way it is being used today as trillions of dollars (and other currencies around the globe) are created out of thin air to stem the current crisis. The point is not that stimulus is not necessary given the extremity of the current crisis, but rather that there will ultimately be a cost.

 

“Focus On What We Can Control”

While there are many things outside our control in the current environment, there is also much that we can control about our own situations and how we respond to upcoming events. The recent stock and bond market volatility created an excellent opportunity for investors to reexamine and reaffirm their risk profiles. It is natural for investors to think they can handle more risk when markets are going up with very little interruption, as they had for the past decade. But recent events are a better measure of how much volatility investors can handle. Did this latest turbulence keep you up at night or were you confident in your long-term plan? Did you have the urge to get out of risky asset classes or were you comfortable with how your portfolio was positioned? When it comes to risk tolerance, there are two essential components: how much risk you should take to meet your goals and how much risk you are willing to take. The first component is a function of more objective criteria like your time horizon, spending needs and other data that can be input into your financial plan. The second component is all about emotions, but in spite of that it is an equally important part of the equation. Even if your financial plan dictates that you can have a more aggressive portfolio, if emotionally you cannot handle big swings, then that positioning may not be appropriate for you. After all, the best portfolio for you is one you can stick with, in good times and in bad.

Another important situation within our control is whether we have sufficient liquidity or emergency funds to meet our short-term cash needs. Certain asset classes like stocks, or even riskier bonds, are technically liquid on a daily basis. But just because you can sell daily does not mean that it is a good idea. On a short-to intermediate-term basis, stocks in particular should not be thought of as a source of liquidity. Instead, investors should have sufficient liquidity outside of their portfolios to meet their needs and handle any smaller emergencies that may arise. This prevents forced selling at the wrong time.

Finally, we can control how we allocate our portfolios and whether we are positioned aggressively or defensively in any given environment. When risks are heightened, as at present, we believe it is time to be defensive. Rather than avoiding risk (e.g., going to cash), this means favoring asset classes that we feel have more attractive risk/return characteristics than those of traditional stocks and bonds. While alternative assets are not immune to current events, they are typically much less sensitive than those traditional assets. We are in touch with all of our various managers and are monitoring the impact of current events on their portfolios closely. We believe that we are with the right managers that have the right mindset to face these types of challenges. The first order of business is protecting what we have, but if things deteriorate further, there will undoubtedly be opportunities for the longterm as well. We will continue to look beyond short-term noise towards how we can best protect and grow our clients’ assets for the longterm.

Please do not hesitate to contact your Morton Capital wealth advisory team if you have any questions or would like to review your portfolio or financial plan in more detail. As always, we appreciate your continued confidence and trust.

Morton Capital Investment Team

 

 

Disclosures

This commentary is mailed quarterly to our clients and friends and is for information purposes only.  This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author and are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital (MC) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information. Any performance information contained herein is for illustrative purposes only.

Certain private investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. Q3 returns shown are from 06-28-2019 through 09-30-2019 and the year-to-date returns are from 12-31-2018 through 09-30-2019.  Index returns shown do not reflect the deduction of any fees or expenses. The volatility of the benchmarks may be materially different from the performance of MC.  In addition, MC’s recommendations may differ significantly from the securities that comprise the benchmarks.  Indices are unmanaged, and an investment cannot be made directly in an index.

Past performance is not indicative of future results.  All investments involve risk including the loss of principal. Details on MC’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

Staying Connected During COVID-19 – Webinar #5

Led by our Wealth Advisors Alan Kane and Chelsea Watson, this webinar addressed client questions surrounding the latest developments of COVID-19 and its impact on the market. Alan Kane has more than 39 years of experience in financial services. He shared his views on the past major cycles and what we can learn from history in the current environment. Chelsea Watson has been with Morton Capital for over 10 years. She shared her perspective on how we may need to change plans and adapt to life after the pandemic.

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/mortoncapital/stayingconnectedwebinar04282020

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Webinar #4

Senior Vice President and Wealth Advisor, Joe Seetoo, and Wealth Advisor, Priscilla Brehm, this webinar addressed the following client questions surrounding the latest developments of COVID-19 and its impact on the market:

  • Why is the Federal Reserve buying bonds as part of the newest stimulus package? Emotions often drive decision-making.
  • What behavioral biases should I look out for when making financial decisions?
  • I’ve been told to invest for the long term. What does that mean?
  • What does that mean? How should I invest differently for the short term vs. the long term?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/mortoncapital/stayingconnectedwebinar04142020

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Webinar #3

Wealth Advisors, Chris Galeski and Wade Calvert navigate tough water in our third webinar by addressing the following client questions surrounding the latest developments of COVID-19 and its impact on the market:

  • Is Morton Capital finding potential investment opportunities?
  • How does the CARES Act impact my retirement accounts?
  • Some friends are buying, some friends are selling. What do I do now?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/mortoncapital/stayingconnectedwebinar04072020

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Webinar #2

In the second webinar of the Staying Connected series, our Wealth Advisor, Executive Vice President and CCO, Eric Selter, and Wealth Advisor, Celia Meagher addressed the following client questions surrounding the latest developments of COVID-19 and its impact on the market:

  • What does the stimulus package mean for my portfolio?
  • What are some tips on handling my financial emotions during this unsettling time?
  • What is Morton Capital doing behind the scenes?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/403014629

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Webinar #1

Led by our Chief Investment Officer, Meghan Pinchuk, and Wealth Advisor, Kevin Rex, our first webinar on Tuesday, March 24 discussed the latest developments of the novel coronavirus (COVID-19) and its impact on the market. Below are the client questions we addressed:

  • What do all these government policy moves mean for my portfolio and the markets?
  • Should I be looking to buy or sell with everything going on?
  • How will our alternative investments be impacted?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com


https://vimeo.com/400419802/9407412948

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Introduction to a new weekly webinar

Given the current global uncertainty, our advisory team will be hosting weekly webinars to share our take on the news, policy changes, the economy and potential opportunities. Our goal is to stay connected, ease some of your fears and ensure you feel informed and empowered with regards to your financial plan. To learn more about the webinar series, please see the below brief video from our CEO, Jeff Sarti by clicking the image below or the following link: https://vimeo.com/399004159

We look forward to seeing you on the webinar and addressing any concerns you have about the market and your investments.

 

A Personal Video Message to Our Clients from CEO, Jeff Sarti

As many of you know, we have an incredible team at Morton Capital, where we treat each other as family within our four walls and truly look out for one another. Please know that all of you are an extension of that. You are all an extended part of our family and are in our thoughts. Please know that we are here for you if you need anything.

Click the image below to watch this personal. video message from CEO, Jeff Sartiby or visit this link https://vimeo.com/398091805 

You can also read Jeff’s accompanying letter here.