Quarterly Update

May 2020

Garrett R. D'Alessandro, Chief Executive Officer | May 2020

Survival, Stability, and Prosperity

The stabilization process, which will likely take a few quarters, should be followed by a period of gradual return to prosperity as consumers and businesses gradually resume some level of activity, jobs are regained and spending resumes.

The U.S. economy and most major world economies are facing their worst crisis in over 60 years. Each economy is struggling to survive the social and economic shutdown resulting from the COVID-19 pandemic. What will determine each country’s ability to survive is largely predetermined based on three factors:

  • Strength, resiliency and prosperity of their economies prior to the crisis
  • Monetary and fiscal capability to support the economy during the shutdown
  • Political governance and policy actions

What every major nation, including the U.S., needs to do during the crisis is make sure we survive this unprecedented decline in the economy by applying the maximum possible monetary and fiscal reserves available. Survival is the only objective now. Every nation, whether it is the U.S., China or Germany, has to put to use the national financial resources available to offset the losses happening to workers, consumers and businesses during this shutdown.

Each country has a sum of monetary and fiscal capital they can put to use to mitigate the potential for long lasting recession after the COVID-19 crisis. We want to emphasize the importance of spending all appropriate and available resources to replenish what consumers and businesses are losing due to the shutdown. How well each country does this will determine how well each economy will stabilize and eventually return to growth and prosperity. The failure of any country to spend generously now will likely lead to years of lower living standards for millions of that country’s consumers and businesses.

Those countries that can survive in reasonably good economic condition will be best positioned for the post-COVID-19 world. Based on economic analysis in terms of fiscal and monetary balances, countries like the U.S., China and Germany are notably better positioned to implement stronger actions. Those countries that do not have or apply such fiscal and monetary funds at this time will suffer longer and deeper recessions.

The stabilization process, which will likely take a few quarters, should be followed by a period of gradual return to prosperity as consumers and businesses gradually resume some level of activity, jobs are regained and spending resumes. The level of growth depends on many factors, primarily the degree to which consumers and business believe they are safe from COVID-19 illness, the jobs creation cycle and consumer willingness to spend at some level approaching prior norms. Each country around the world will likely be slow to regain normal levels. How slow and how long depends on the jobs created and how many businesses return. In the U.S., we have confidence positive trends will resume, albeit slowly, for several quarters once the shutdown ends. We believe the shutdown will end through a phased reopening at different levels in different states.

There will be a time when all the money spent by the governments and borrowed by consumers and businesses will have to be repaid. That presents a long-term challenge. How these debts are repaid will determine each country’s ability to sustain prosperity and moderate inflation over the long term. As it stands now, the U.S. is amongst the best positioned countries globally to come out of this crisis.

The stabilization process, which will likely take a few quarters, should be followed by a period of gradual return to prosperity as consumers and businesses gradually resume some level of activity, jobs are regained and spending resumes.

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Important Disclosures

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change.

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There are inherent risks with fixed-income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed-income securities and during periods when prevailing interest rates are low or negative. The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT), and taxable gains are also possible. Investments in below-investment-grade debt securities, which are usually called “high yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell, and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance. Index Definitions

The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The Bloomberg Barclays U.S. High Yield Index is an unmanaged index considered representative of non-investment-grade bonds.

The Bloomberg Barclays U.S. Corporate Index is an unmanaged index that is comprised of issues that meet the following criteria: at least $150 million par value outstanding, maximum credit rating of Ba1 (including defaulted issues), and at least 1 year to maturity.

The Bloomberg Barclays Municipal Bond Total Return Index is a total return performance benchmark for municipal bonds that are backed by insurers with Aaa/AAA ratings and have maturities of at least one year.

The JP Morgan High Yield Index is designed to deliver high level of income from a portfolio of below investment grade securities. Indices are unmanaged and one cannot invest directly in an index.

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