July 17, 2022

Dear Friends:

Hurricanes and Tar Balls

Approximately 10 years ago, gulf coast real estate in Florida was in the dumps. After having had only 3 hurricanes in the previous 30 years, the Gulf Coast of Florida was hit with 5 hurricanes between 2004 and 2006.  Shortly thereafter, the significant pain of the real estate and housing crisis of 2008-2010 hit. Then after years of hurricanes, the corresponding damage and rising insurance costs, in April 2010 there was an explosion on an underwater oil facility off the Gulf coast that caused the largest marine oil spill in US history, eventually washing up on shore in the form of tar balls, which are clumps of oily residue mixed with debris.  This went on for the entire summer for 5 months!   5 months can feel like an eternity, especially when your investment is covered in oily sludge with no end in sight.  I recall one once high flying developer doing work in the 30-A area of the Gulf Coast commented that “first the hurricanes, then the terrible market, and now the tar balls are hitting – I am out”.  Real estate prices had dropped between 40% and 60% in 4 years. Quite simply, there were very few buyers regardless of the price!  So, our real estate developer friend’s views were very understandable as emotionally he was in “3 strikes and you’re out” mode.

It was a sobering reminder that all markets run in cycles. Similarly, we are experiencing a down cycle in financial markets through the first half of 2022.  Sometimes when the “hurricane winds” come to financial markets and the “tar balls” start hitting the beach, it is natural to want to sell and get out.

Market Update: Inflation, Recession Fears Yield Worst first half of any year in 52 years

With the tech-oriented Nasdaq index and the small stock index both off over 30% year to date along with the broader S&P 500 off well over 20%, it has been a historically rough start to the year.  On top of that the bond market is down over 10% over the same period.  Stock and bond markets down that much at the same time has only happened 3 times in the last half century.  Even though our portfolios at EFinancial Alliance are designed to limit volatility, which they have, it can still test even the most seasoned investors.

On the positive side, the stock market has been in down 20% or more as it is now 7 times over the last 50 years. It is interesting to note that 6 of those 7 times the market has been back up into positive territory and fully recovered within 18 months.  There is no guarantee it will recover that quickly this time, but when it does start to recover the market can move quickly, well before it appears safe to get reinvested.

The most recent example, March 2020 in the worst of the covid crisis, when the markets sold off over 30%.   Do you know how long it was before markets recovered and hit new highs?  The answer is, 9 months later in December 2020.  Markets bottomed in March 2020, despite the fact that there was no visibility of COVID’s end, no vaccine’s even close to being approved, and still multiple waves of new strains yet to hit.

And what about the previously tar-ball ridden Florida Gulf Coast?  Well, little did we know the COVID pandemic would help fuel a mass migration to freedom-loving Florida and drive those same properties that couldn’t be sold for lack of buyers in 2010 to the point where they couldn’t be bought because of bidding wars in late 2020 and early 2021!  This proved once again the resiliency of markets and better times will eventually return.

As always, please reach out if you have any questions or concerns and thank you for your partnership!



Mitch Anderson                                           Destin Tompkins