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Authored by Michael Lebowitz via RealInvestmentAdvice.com,

We are coming upon that time of year when the markets play second fiddle to debates about which twelve seed could be this year’s Cinderella in the NCAA basketball tournament. For college basketball fans, this particular time of year is dubbed March Madness. The widespread popularity of the NCAA tournament is not just about the games, the schools, and the players, but just as importantly, it is about the brackets. Brackets refer to the office pools based upon correctly predicting the 67 tournament games. Having the most points in a pool garners bragging rights and, in many cases, your colleague’s cash.

Interestingly the art, science, and guessing involved in filling out a tournament bracket provides insight into how investors select assets, structure portfolios, and react during volatile market periods. Before we explain answer the following question:

When filling out a tournament bracket, do you:

A) Start by picking the expected national champion and then go backwards and fill out the individual games and rounds to meet that expectation?

B) Analyze each opening round matchup, picking winners, and then repeat the process with your second round matchups until you make your best guess at who the champion will be?

If you chose answer A, you fill out your pool based on a fixed notion for which team is the best in the country. In doing so, you disregard the potential path, no matter how hard, that team must take to become champions.

If you went with the second answer, B, you compare each potential matchup, analyze each team’s respective records, strengths of schedule, demonstrated strengths and weaknesses, record against common opponents and even how travel and geography might affect performance. While we may have exaggerated the amount of research you conduct, such a methodical game by game evaluation is repeated over and over again until a conclusion is reached about which team can win six consecutive games and become the national champion.

Outcome-Based Strategies

Outcome-based investment strategies start with an expected result, typically based on recent trends or historical averages. Investors following this strategy presume that such trends or averages, be they economic, earnings, prices, or a host of other factors, will continue to occur as they have in the past. How many times have you heard Wall Street “gurus” preach that stocks historically return 7%, and therefore a well-diversified portfolio should expect the same return this year? Rarely do they mention corporate and economic fundamentals or valuations. Many investors blindly take the bait and fail to question the assumptions that drive the investment selection process.

Buy and hold and constant dollar cost averaging along with a host of passive strategies, all of which are largely agnostic to valuation, are outcome based strategies. These strategies can appear full proof for years on end as we have been witnessing. However, as seen twice in the last 20 years, when these strategies are followed blindly without appreciating a portfolio’s risk/return profile, dramatic losses will eventually occur. Outcome-based strategies break a cardinal rule of building wealth; avoid as much of the downside as possible in bear markets.

“The past is no guarantee of future results” is a typical investment disclaimer. However, it is this same outcome-based methodology and logic that many investors rely upon to allocate their assets.

Process-Based Strategies

Process-based investment strategies, on the other hand, have methods that establish expectations for the factors that drive asset prices in the future. Such analysis normally includes economic forecasts, technical analysis, and a bottom-up assessment of an asset’s ability to generate cash flow. Process-based investors do not just assume that yesterday’s winners will be tomorrow’s winners, nor do they diversify just for the sake of diversification. These investors have a method that helps them forecast the assets that are likely to provide the best risk/reward prospects and they deploy capital opportunistically.

Well managed process-based strategies, at times, hold significant amounts of cash. To wit, Warren Buffett is currently sitting on $128 billion in cash. This may have cost him over the last few years, but he has a reason for being so risk averse and is sticking to his process.

Buffett and others are certainly not enamored with historically low cash yields on their cash per se, but they have done significant research and cannot find enough assets offering a suitable value/risk proposition in their opinion. These managers are not compelled to buy an asset because it “promises” a historical return.

What Are We?

At RIA Advisors, we follow a process. We use a combination of technical and fundamental analysis, along with a strong assessment of macroeconomic factors to develop an investing framework and investment guidelines. This process allows us to:

• Properly choose assets for the short term as well as the longer term (trading vs. investing).
• Determine the proper allocations to various asset classes and sub-asset classes.
• Measure and monitor risk which helps limit downside by forcing us to exit positions when we are wrong, and take profits to rebalance asset weightings when we are right.

Investing can be easy at times as it was for most of 2019. It can also be very difficult as we are currently witnessing. Having a process and adhering to it does not eliminate risk, but it helps manage risks and limit mistakes. It also helps us sleep at night and avoids letting our emotions dictate our trading activity.

A or B?

Most NCAA basketball pool participants fill out tournament brackets, starting with the opening round games and progress towards the championship match. Sure, they have biases and opinions that favor teams throughout the bracket, but at the end of the day, they have done some analysis to consider each potential matchup.  So, why do many investors use a less rigorous process in investing than they do in filling out their NCAA tournament brackets?

Starting at the final game and selecting a national champion is similar to identifying a return goal of 10%, for example, and buying assets that are forecast to achieve that return. How that goal is achieved is subordinated to the pleasant but speculative idea that one will achieve it. In such an outcome-based approach, decision-making is predicated on an expected result.

Considering each matchup in the NCAA tournament to ultimately determine the winner applies a process-oriented approach. Each of the 67 selections is based on the evaluation of the comparative strengths and weaknesses of teams. The expected outcome is a result of the analysis of the many factors required to achieve the outcome.

Summary

Winning a bracket has its benefits, while the costs are minimal. Managing wealth, however, can provide great rewards but is fraught with severe risks at times. Accordingly, wealth management deserves considerably more thoughtfulness than filling out a bracket.

Over the long run, those that follow a well-thought out, time-tested, process-oriented approach will raise the odds of success in compounding wealth by limiting damaging losses during major market setbacks and by being afforded generational opportunities when others are fearfully selling.

Hunter Biden has reached a settlement in his paternity case after an Arkansas judge shut down his latest attempt to delay the case, after the former Ukrainian energy company board member, crack aficionado, and strip club patron (turned artist) argued that he would be unable to attend scheduled hearings this week – citing his wife’s pregnancy, “intense media scrutiny” surrounding his father’s presidential bid, and travel restrictions caused by the coronavirus.

According to the Washington Free Beacon, Arkansas circuit judge Holly Meyer admonished Biden for his repeated attempts at delaying the inevitable.

“For context in ruling on this Motion the Court has reviewed the history of this litigation and finds that the Defendant has been given considerable leniency regarding continuances and delay,” she wrote in her order. “The defendant’s attempts to delay this case are mounting such that one begins to see a pattern of delay.“

On Wednesday morning, lawyers for plaintiff Lunden Alexis Roberts alerted the judge that they had reached a final settlement with Biden that, pending court approval, will end the nearly 10-month-long legal battle.

“Late last night, after the court entered the order, we reached a global, final settlement of all issues,” Roberts’s lawyer wrote in an email to Judge Meyer.

The agreement comes after months of delays from Biden, who is now on his second legal team for the child support case. Lawyers for Roberts last Friday called for Biden to be held in contempt for his continued failure to submit financial documents, which would likely shed light on just how much he earned through connections to foreign companies, including his lucrative position on the board of Ukrainian gas company Burisma. –Washington Free Beacon

Judge Meyer added that Biden was aware his wife’s due date was approaching when he originally agreed to this week’s deposition, and made clear that her presence “is not required nor even suggested.”

As to the “intense media scrutiny,” the judge noted that he will continue to be a public figure.

“The defense second cites ongoing publicity surrounding the 2020 primary and presidential elections, as well as media attention as good cause to continue this case,” her order states. “The Court cannot foresee this subsiding as Mr. Biden is a public figure and interest in his person will continue.”

And as for the coronavirus excuse, Meyer said “The defendant can come by plane, train, or automobile but life and work will and should continue in our communities and courts. No health threat specific to the defendant has been identified, reasonable precautions are appropriate.”

The settlement is expected to be submitted by attorneys for plaintiff and baby-mama Lunden Roberts “later today or tomorrow.” The terms have not been stated.

What’s more, Biden will still have to appear if the court does not approve the settlement.

Authored by Ryan McMaken via The Mises Institute,

This is how the budget process in Washington begins.

Step one: the president submits his budget to Congress.

Step two: Congress puts the President’s budget in a drawer somewhere and forgets about it.

Step three: Congress passes a budget it likes instead.

This reality, however, has been conveniently ignored in recent weeks as some pundits and politicians have claimed Donald Trump “gutted the CDC.”

Trump has been busy “slashing the government agencies” that combat disease control, one headline reads. Another claims”the Trump administration has spent the last two years gutting critical positions and programs that ….weakened the federal government’s ability to manage a health crisis.”

Well, it’s possible there is a federal program out there somewhere that Donald Trump “gutted,” but the CDC isn’t one of them.

This is largely because Congress ignored the administration’s budget request and increased the CDC’s budget from 2017 to 2018, and again from 2019 to 2020. Trump didn’t object. As ABC news reports:

All of Trump’s budget proposals have called for cuts to CDC funding, but Congress has intervened each time by passing spending bills with year-over-year increases for the CDC that Trump then signed into law.”

Nevertheless, leftists of all stripes that used the imaginary “gutting” to claim both that Trump is a fool, and that the reason the CDC hasn’t handled the COVI-19 outbreak with flying colors is because its budget has been “gutted,” “slashed,” and “depleted.”

But here’s the reality: the CDC’s budget is now more than seven percent larger than it was under President Obama’s last two budgets.

That is, the actual enacted program budget for the CDC in 2016 and 2017 were both under $7.2 billion. But for 2020, the budget Congress actually adopted — i.e., not the recommendation from the White House — is nearly $7.7 billion.

Here’s the analysis from Factcheck.org:

I attempted to re-create this, and came up with a lower number for 2018:

This, of course, is why it’s so important to use budget numbers that reflect actual enacted budgets and and the year-end sums of various budget resolutions. The “proposed budgets” coming out of the White House are next to useless when it comes to actual budget numbers.

Specifically, I used 2020and 2019 enacted numbers from this source . I used the 2018 numbers from this source . This numbers appear to match up with the earlier 2018, 2017, and 2016 budget data from this source and this source .

These facts matter, largely because government interventionists so often seek to create a narrative in which every problem can be solved by a large centralized government with the ability to enact grandiose plans. And if these government agencies don’t seem to know what they’re doing? then it must be because the government has been “gutted” or simply hasn’t been taxing the people enough.

Until today, the selloff was painful, violent, unrelenting… but it was mostly order and made complete sense: stocks were getting liquidated with the bathwater by formerly euphoric investors, with the resulting proceeds shoveled into safe-havens such as Treasurys which helped send the 10Y yield as low as 0.31% on Monday morning as countless Treasury shorts – all those who had listened to JPMorgan – got crushed. However, today something changed.

After initially bonds were strongly bid for much of the Asian, European and morning US session, there was a sharp reversal before Europe closed for the day, with 10Y yields blowing out from a low of 0.65% around the time Europe opened, to a high of 0.85% by the European close, then following a modest dip, the selling resumed, sending the 10Y just shy of 0.90%.

Immediately, unfounded theories emerged: a risk parity fund was deleveraging and blowing out of both bonds and stocks; oil exporters were dumping TSYs to obtain cash amid the price plunge in crude, bond vigilantes fuming at the upcoming coronavirus-driven budget deficit explosion, a fund was margin called and liquidated all of its best performing assets. The truth is nobody knows what caused it, but the puke in both stocks and bonds raised quite a few eyebrows, while hammering 60/40 balanced fund returns, generating the biggest weekly total return drop in a combined stock & bond portfolio since Lehman.

What is perhaps just as notable, is that whoever was puking duration did so until the very close with an accelerating liquidation and erratic futures price action observed in the late U.S. afternoon and peaking by 4pm, when the ultra-long bond futures plunged nearly 6 points in less than an hour – an unprecedented move – and the Ultra contract closed well in the red even as stocks crashed into a bear market.

Was today’s bizarre balanced portfolio unwind a one-time event, or have forced liquidations finally made it to risk parity funds? We’ll know tomorrow, if not overnight, but if for whatever reason US Treasurys are no longer a safe haven if one or more forced sellers are set to drag prices lower, then watch as the real safe haven – gold – jumps above its all time high on very short notice.

As NBA mulls playing in front of empty stands, NCAA has confirmed that ‘March Madness’ will drastically limit attendance at its games.

NCAA President Mark Emmert statement on limiting attendance at NCAA events:

The NCAA continues to assess the impact of COVID-19 in consultation with public health officials and our COVID-19 advisory panel. Based on their advice and my discussions with the NCAA Board of Governors, I have made the decision to conduct our upcoming championship events, including the Division I men’s and women’s basketball tournaments, with only essential staff and limited family attendance.

While I understand how disappointing this is for all fans of our sports, my decision is based on the current understanding of how COVID-19 is progressing in the United States.

This decision is in the best interest of public health, including that of coaches, administrators, fans and, most importantly, our student-athletes. We recognize the opportunity to compete in an NCAA national championship is an experience of a lifetime for the students and their families. Today, we will move forward and conduct championships consistent with the current information and will continue to monitor and make adjustments as needed.

This is just the latest sporting event to be impacted:

• Chinese Grand Prix slated for April has been postponed.
• Bahrain Grand Prix suspends ticket sales for March 22 event. 
• Ladies Professional Golf Association (LPGA) canceled three upcoming tournaments across Asia.
• FIFA postponed the Asian qualifiers for the 2022 World Cup.
• 2020 BNP Paribas Open in Coachella Valley, California, was canceled after virus cases surge in the region.
•  New York City Half-Marathon planned for March 15 has been canceled. 
• Formula E’s Sanya E-Prix on March 21 in China has been canceled.
• Formula E’s Rome E-Prix on April 4 in Rome, Italy, has been postponed.
• The Olympic qualifying tournament in Taiwan has been postponed.
• BMX European Cup rounds March 19-28 in Verona, Italy, has been postponed.
• Hong Kong Rugby Sevens for April 3-5 has been postponed until October 16-18. 
• Singapore Rugby Sevens for April 11-12 has been postponed until October 10-11. 
• Asia women’s rugby championship in Hong Kong for March 14-22 has been rescheduled to May 8-16.
• Asia Sevens Rugby Invitational, doubling as an Olympic Sevens test event for April 25-26, is now canceled.
• Barcelona Marathon on March 15 postponed to October 25.
• Seoul Marathon on March 22 canceled.
• Rome Marathon on March 29 canceled.
• Paris Marathon on April 5 postponed to October 18.
• Milan Marathon in Italy on April 5 postponed.
• Wuhan Marathon in China on April 12 canceled.
• Arsenal v. Manchester soccer match on March 11 postponed.

As we detailed earlier, Covid-19 truly is an event-killer.

Authored by Yascha Mounk, an associate professor at Johns Hopkins University, via The Atlantic,

We don’t yet know the full ramifications of the novel coronavirus. But three crucial facts have become clear in the first months of this extraordinary global event.

And what they add up to is not an invocation to stay calm, as so many politicians around the globe are incessantly suggesting; it is, on the contrary, the case for changing our behavior in radical ways—right now.

The first fact is that, at least in the initial stages, documented cases of COVID-19 seem to increase in exponential fashion. On the 23rd of January, China’s Hubei province, which contains the city of Wuhan, had 444 confirmed COVID-19 cases. A week later, by the 30th of January, it had 4,903 cases. Another week later, by the 6th of February, it had 22,112.

The same story is now playing out in other countries around the world. Italy had 62 identified cases of COVID-19 on the 22nd of February. It had 888 cases by the 29th of February, and 4,636 by the 6th of March.

Because the United States has been extremely sluggish in testing patients for the coronavirus, the official tally of 604 likely represents a fraction of the real caseload. But even if we take this number at face value, it suggests that we should prepare to have up to 10 times as many cases a week from today, and up to 100 times as many cases two weeks from today.

The second fact is that this disease is deadlier than the flu, to which the honestly ill-informed and the wantonly irresponsible insist on comparing it. Early guesstimates, made before data were widely available, suggested that the fatality rate for the coronavirus might wind up being about 1 percent. If that guess proves true, the coronavirus is 10 times as deadly as the flu.

But there is reason to fear that the fatality rate could be much higher. According to the World Health Organization, the current case fatality rate—a common measure of what portion of confirmed patients die from a particular disease—stands at 3.4 percent. This figure could be an overstatement, because mild cases of the disease are less likely to be diagnosed. Or it could be an understatement, because many patients have already been diagnosed with the virus but have not yet recovered (and may still die).

When the coronavirus first spread to South Korea, many observers pointed to the comparatively low death rates in the country to justify undue optimism. In countries with highly developed medical systems, they claimed, a smaller portion of patients would die. But while more than half of all diagnosed patients in China have now been cured, most South Korean patients are still in the throes of the disease. Of the 7,478 confirmed cases, only 118 have recovered; the low death rate may yet rise.

Meanwhile, the news from Italy, another country with a highly developed medical system, has so far been shockingly bad. In the affluent region of Lombardy, for example, there have been 7,375 confirmed cases of the virus as of Sunday. Of these patients, 622 had recovered, 366 had died, and the majority were still sick. Even under the highly implausible assumption that all of the still-sick make a full recovery, this would suggest a case fatality rate of 5 percent—significantly higher, not lower, than in China.

The third fact is that so far only one measure has been effective against the coronavirus: extreme social distancing.

Before China canceled all public gatherings, asked most citizens to self-quarantine, and sealed off the most heavily affected region, the virus was spreading in exponential fashion. Once the government imposed social distancing, the number of new cases leveled off; now, at least according to official statistics, every day brings more news of existing patients who are healed than of patients who are newly infected.

A few other countries have taken energetic steps to increase social distancing before the epidemic reached devastating proportions. In Singapore, for example, the government quickly canceled public events and installed medical stations to measure the body temperature of passersby while private companies handed out free hand sanitizer. As a result, the number of cases has grown much more slowly than in nearby countries.

These three facts imply a simple conclusion. The coronavirus could spread with frightening rapidity, overburdening our health-care system and claiming lives, until we adopt serious forms of social distancing.

This suggests that anyone in a position of power or authority, instead of downplaying the dangers of the coronavirus, should ask people to stay away from public places, cancel big gatherings, and restrict most forms of nonessential travel.

Given that most forms of social distancing will be useless if sick people cannot get treated—or afford to stay away from work when they are sick—the federal government should also take some additional steps to improve public health. It should take on the costs of medical treatment for the coronavirus, grant paid sick leave to stricken workers, promise not to deport undocumented immigrants who seek medical help, and invest in a rapid expansion of ICU facilities.

The past days suggest that this administration is unlikely to do these things well or quickly (although the administration signaled on Monday that it will seek relief for hourly workers, among other measures). Hence, the responsibility for social distancing now falls on decision makers at every level of society.

• Do you head a sports team? Play your games in front of an empty stadium.

• Are you organizing a conference? Postpone it until the fall.

• Do you run a business? Tell your employees to work from home.

• Are you the principal of a school or the president of a university? Move classes online before your students get sick and infect their frail relatives.

• Are you running a presidential campaign? Cancel all rallies right now.

All of these decisions have real costs. Shutting down public schools in New York City, for example, would deprive tens of thousands of kids of urgently needed school meals. But the job of institutions and authorities is to mitigate those costs as much as humanly possible, not to use them as an excuse to put the public at risk of a deadly communicable disease.

Finally, the most important responsibility falls on each of us. It’s hard to change our own behavior while the administration and the leaders of other important institutions send the social cue that we should go on as normal. But we must change our behavior anyway. If you feel even a little sick, for the love of your neighbor and everyone’s grandpa, do not go to work.

When the influenza epidemic of 1918 infected a quarter of the U.S. population, killing tens of millions of people, seemingly small choices made the difference between life and death.

As the disease was spreading, Wilmer Krusen, Philadelphia’s health commissioner, allowed a huge parade to take place on September 28; some 200,000 people marched. In the following days and weeks, the bodies piled up in the city’s morgues. By the end of the season, 12,000 residents had died.

In St. Louis, a public-health commissioner named Max Starkloff decided to shut the city down. Ignoring the objections of influential businessmen, he closed the city’s schools, bars, cinemas, and sporting events. Thanks to his bold and unpopular actions, the per capita fatality rate in St. Louis was half that of Philadelphia. (In total, roughly 1,700 people died from influenza in St Louis.)

In the coming days, thousands of people across the country will face the choice between becoming a Wilmer Krusen or a Max Starkloff.

In the moment, it will seem easier to follow Krusen’s example. For a few days, while none of your peers are taking the same steps, moving classes online or canceling campaign events will seem profoundly odd. People are going to get angry. You will be ridiculed as an extremist or an alarmist. But it is still the right thing to do.