By Brian Nelson, CFA

On February 24, 2020, we "added" put option "crash" protection, a 1% "weighting" in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, a position that was closed March 2 for a "solid double." 

On March 6, 2020, we "re-established" put option "crash" protection, a 0.5%-1% weighting (June 30, 2020 with strike price of $250). During the trading range March 6, that put option's daily price range was $9.25-$9.91, according to YahooFinance. 

On March 11, the Trump administration announced a ban on travel from Europe to the U.S. for 30 days, but containment efforts in this regard may be too little too late. COVID-19 is already in the United States and spreading aggressively. Containment efforts on travel bans into the United States were the right move weeks ago, but perhaps politically difficult to achieve. 

Director of the National Institute of Allergy and Infectious Diseases Dr. Anthony Fauci noted the following regarding the possible number of eventual deaths from COVID-19 in the United States: "if we are complacent and don't do really aggressive containment and mitigation, the number could go way up and be involved in the many, many millions." The World Health Organization expects a global death rate from COVID-19 of about 3.4%.

The markets were disappointed in the expected fiscal stimulus response, announced March 11, that focused on proposals regarding deferred tax payments and payroll tax relief, items that will not move the needle in addressing what ails the United States, a novel virus that is highly contagious and far more deadly than the seasonal flu. 

With the NBA shutting down indefinitely after a Utah Jazz player tested positive for COVID-19 (and celebrity Tom Hanks and his wife Rita Wilson testing positive for COVID-19), the pandemic is hitting home for a lot of people. Schools around the United States are being closed, conferences and political rallies are being cancelled, and sporting events are being scrapped. 

With the number of infections in the United States already totaling more than 1,000, Dr. Fauci noted that "I can say we will see more cases, and things will get worse than they are right now." Please stay safe out there. As we have noted previously, according to some estimates, the mortality rates for COVID-19 cases aged 70 and above is 8%+ and with pre-existing conditions such as cardiovascular disease or diabetes is 10%+. 

This has all the makings of a serious financial crisis. 

Boeing (BA) fully drew down its term loan March 11, a move that may be indicative of coming stress in the credit markets. Private equity firms Blackstone (BK) and Carlye Group (CG) have urged their portfolio companies to access their credit lines to avoid a credit crunch. Such movements to tap liquidity in large scale could put tremendous strain on the banking system at a time when European banks are on the brink, the oil patch is hemorrhaging cash (loan loss reserves are skyrocketing), net interest income is being pressured due to low rates, and high yield spreads are "blowing out."

Banks - Regional and Asset Management: AB, AINV, AMP, ARCC, BCH, BEN, BGCP, BKU, BLK, BMO, BNS, CM, FSIC, ISBC, KKR, LAZ, LM, MAIN, MTB, NABZY, NYB, OCN, PBCT, PFG, PSEC, RY, SBNY, SBSI, STT, TD, VLY, WBK 

Banks & Money Centers: AXP, BAC, BBT, BK, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TCF, USB, WFC

Related: XLF, KRE, KBE, HLT, WYNN

Related ETFs: VGK, FEZ, HEDJ, EZU, IEV, IEUR, EPV, EURL, SPEU, DBEU, EEA, HEZU

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