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President's Message - The Unexpected and Unwelcomed Break from "Normal"

April 08, 2020
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Dear Friends,

Not one economist or analyst in America forecast that the United States would intentionally shut down a very large part of our economy for close to 3 months this year. Yet, that is exactly what we are in the middle of – a full-blown, intentional “time out” for our economy. We, like many, believe this will likely not extend much beyond 2-3 months. Thus, it is likely government officials will, in all likelihood, be able to reopen our economy again in the not-too-distant future.

First, we hope that you and your family are safe and remain healthy. Please do follow all protocols to reduce the possible spread of Covid-19. The Cabot team is managing well. We, like many of you, have transformed to a mostly work-from-home remote model. Fortunately, we have a very capable manager of our technology (Sonia Ernst) who has properly prepared us to be ready to work remotely on our computers, laptops and phones. Further, like most of you, we are conducting Zoom meetings and phone conference calls on a regular basis. We can and are handling all normal service issues from our remote locations. If you need any help, please reach out to the Cabot team for assistance.

What are our thoughts on the economy and markets? Wow – where to start? After much consideration, the way we are looking at this is really a temporary time-out for the economy. We have never seen this type of behavior before; however, we do know what is coming. An intentional economic recession for a very short period. We will have a sharp drop in economic GDP in 2020 along with the bottom dropping out of earnings for many companies. It is still quite uncertain, but many economists believe our real GDP will drop dramatically (as much as -5.0%) for 2020 as companies adhere to the shutdown and keep staff social distancing. Then it is expected by many that GDP will ramp up again to the +5.0% percent level or more in 2021. There is a very wide range of forecasts, so not much consensus on the timing of the shutdown for now. We do expect that by mid-April we will have a much clearer view of when we will return to “normal”.

As investors, we will not sell our well-researched investment positions at price levels which we believe are temporarily depressed. As we recently reviewed our holdings, we reaffirmed our belief in the longer-term earnings power of each company. Thus, we will choose to evaluate them on the earnings power of the full year 2021, not the 2nd quarter of 2020 during our temporary shutdown. We could endure further declines in portfolio values; however, we do believe once we can see the restart to our economy, prices and values will rebound sharply.

Thanks for your continued confidence. We are honored to watch over and help you manage your family’s wealth.

Sincerely,

Robert T. Lutts

President, Chief Investment Officer

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