The past three weeks of market turmoil culminating Monday when circuit breakers stopped stock trading may be but the beginning of a bigger market plunge, but both McAlvany Wealth Management and Swan Global Investments, two major financial firms headquartered in Durango, say they are designed to weather the storm.
Despite being far from Wall Street, David McAlvany, owner and CEO of McAlvany Financial, and Rob Swan, portfolio manager and chief operating officer of Swan Global Investments, concurred that working in shadows of the San Juan Mountains proved no impediment to meeting clients’ needs.
Durango financial firms say coronavirus was trigger, but market issues lie deeper
“We had no issues today in terms of trading. ... I think one of the things that helps us on our wealth management front is – you know, being concerned with market stability, over the last three or four months – we’ve increased our cash positions to north of 35%,” McAlvany said.
Swan Global has invested in technology not only in Durango but in offices in Puerto Rico to handle a heavy load of inquiries that typically come during the worst market days.
McAlvany said the bargain financial trading website, Robinhood, which offers free trades, has crashed several times in the past few weeks, including again Monday, during heavy trading.
“Technology is pretty straightforward,” he said. “You know, where you see your fascinating failures is with kind of the newfangled tech, which is supposed to be automatic and robo whatever. Robinhood was down again, this is the second time in a very short period of time. It’s one of those things where I think you get what you pay for.”
Beyond investing in technology and staff to deal the load of queries during gut-wrenching market days, both McAlvany and Swan said it’s more important to have the right strategy to deal with market volatility and to eventually recover.
“Anytime markets move around like they did today, you get more client activity, but our strategy is built for these conditions. We want to profit on the backside of this,” Swan said.
Swan Global’s key to dealing with falling markets is to limit losses by purchasing put options, a contract that gains in value as the underlying security – either a stock, a bond, a commodity, a currency or an index – goes down in price.
“You can’t predict the markets, so you always want to be invested, but when you have days like today, when everything falls in lockstep, and over time you have 20%, 30%, 50% corrections, you have to be hedged,” Swan said.
Swan Global’s main focus during market drops is to limit losses and make money on hedges. That then allows Swan, after the market correction, to buy stocks in strong companies at far lower prices.
Months before COVID-19, the coronavirus, began to weigh on markets. McAlvany said moves by the Federal Reserve to infuse hundreds of billions of dollars into the interbank overnight lending market, a market in which banks lend to each other, were giving plenty hints that the financial system was troubled.
The steep drop in bond yields, he added, also should have given people another warning – way before the arrival of COVID-19 – that markets were primed for a fall.
“The reason why I don’t mention the coronavirus is because it’s the layers of instability within corporate and sovereign debt, which are far more important than the coronavirus. This is a disaster. It’s been a disaster in the making for 10 years, and see nobody, nobody, cares until a day like today.”
McAlvany said he actually received relatively few calls Monday from his clients, who were well-aware of his pessimistic view of the market.
He expects to field a number of calls during the remainder of the year from people interested in buying gold.
“There’s some serious issues, which we can’t, we can’t be overly sanguine about,” he said. “I’m not trying to be, you know, the bad news bear. But the gold market has been signaling something’s not quite right for a little while now. And now you see it on full display in the equities market.
“I’m much more concerned about structural problems because the trigger, the coronavirus, is always less important than the market backdrop itself. And the market backdrop has been sort of radical amounts of leverage within the financial system – radical amounts of debt, which have been introduced as sort of a form of growth, but no one examines the quality of growth that’s all built on debt.”
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