There are still a lot of questions about COVID-19 and its effect on the market, so I want to share some new information.
This is a very serious situation. The main thing we can all do right now is practice the right amount of social distancing. If we all do this, we can flatten the curve and cause this thing to be substantially less worse than it would be if we don’t pay attention to it and give it proper attention.
Simple things we can do: Instead of shaking hands and hugging, we should all start to wave, salute, give some sort of sign. That’s easy enough and can have a big impact. We also need to take social distancing seriously!
COVID-19 is a serious and real threat. This is not just the flu. If the estimates are right, it might be seven times more deadly than the flu. Hopefully, if we can contain it, it doesn’t get as wide, but it can be an even bigger problem if we don’t take it seriously.
We need to be smart. We need to help contain it. We need to be diligent. But we don’t need to panic. We don’t all need to have three months of toilet paper from Walmart or Costco. What we need to do is practice social distancing. What that means is we should try, when possible, to stay about 6 feet away from other people in public. We should cover our mouths with a mask or something else. We should have gloves on in public. If not, we should use alcohol wipes. Let’s just do everything we can to prevent its transmission.
We are officially in a bear market, but we expect the market to resolve much more quickly than previous bear markets. Just as quickly as it went down, it can go up very quickly. No one knows exactly how far it will go down, and we don’t know how fast it will come back, but it could happen very, very quickly. While this is resolving, it could still drop more. No one knows for sure because it depends on many things.
Remember, value is irrelevant to short-term market moves. It just happens. At the same time, we have issues with oil prices. If we find it prudent to make changes, we will. We know how to do this. We have set criteria and we are making sure that every manager is following that criteria and meeting expectations.
Again, remember, it’s not about how much the market falls in the short term necessarily. It’s about how well we expect it to respond over a three-year period. This is no time to be selling. Especially if you’re still selling, have cash on the sidelines or if you have a small withdrawal rate. Otherwise, you should have a pretty good emergency fund. It might actually be an excellent time to invest.
We are in the early stages of this thing. Remember, for every person who is infected, two or more others can be infected. So, it’s not just about you. It’s about other people. It’s about you protecting this thing from going wild.
The window of opportunity is now to diminish the impact.
Again, we want to practice social distancing. We want to stay out of crowds when possible. We want to avoid restaurants and bars and so on for at least the next few weeks is possible. We want to exercise excellent hand hygiene, which means washing your hands for the amount of time it takes to sing Happy Birthday twice. If possible, wear something over your mouth like a mask. Yes, it does help. We want to wear gloves when we’re touching something that’s suspect. I even recommend wiping your mailbox down. Think about it: The mail carrier is touching everyone’s mail, so if someone has it, they can bring it to you.
Things are getting better. The number of new cases in China seems to be contained as of now. That’s what we want. We want to make the right moves to stop this from spreading. If we do the things that are being prescribed – we don’t travel, we don’t shake hands with people we don’t know – what can happen is we can free up hospital beds and we can reduce the cases of deaths up to 67 times, according to neurologists.
Now, this is not just about reducing the incidents of cases and deaths, which it is about, but it’s about making sure our healthcare system can handle it. If this disease does come to your area, you don’t want the hospitals to be full. If we don’t take the right measures now, this won’t be the case. That’s why this is so serious and that’s why I think the market has reacted so negatively.
According to Ben Thompson’s blog, the rapid spread of Coronavirus throughout the world could have been substantially curtailed if the broad swath of measures in China and abroad were introduced a few weeks earlier. Just a few weeks! If restrictions, such as travel bans, early detection and isolation of the infected, were brought just a week earlier, it could have lowered the number of cases by 95 percent, saving thousands of lives.
So, what is the economy going to look like? How long will this last?
There are various forecasts. We could go into recession for the first half of this year. It’s quite possible. The oil price shock, the extended closure of sporting events and schools, the travel that’s lost, the restaurant and venue revenue that’s lost won’t ever be replaced.
I would expect a very strong fiscal discipline, and there will surely be politicking around between Democrats and Republicans – what’s the right way to do it? The thing is, we need to do it.
The market has devastated a lot of stocks, so I expect the market will react much more quickly than the economy, upward.
We have had bear markets since the 1800s. Bear markets can go down 30 percent on the average decline.
Bear markets like we experienced in the Great Depression are called destructional declines. Destructional declines are associated with a recession or a world war or something like that. It’s extended, the economies are devastated, there’s destruction of productive capacity. These are the deepest.
Cyclical bear markets are those that happen quite frequently, and those are the second most shallow.
The shallowest of all bear markets are typically event-driven bear markets. The average length of this is substantially lower in months than the others – in the eight-month range. The time to recover from an event-driven bear market is substantially faster – within a year timeframe at least.
We should expect fiscal policy to provide a tailwind toward the mid-year, definitely by the third quarter.
During the last period of economic distress, which this could be, we’ve seen fiscal policy step up, and we’ve seen payroll tax cuts, which is being proposed by the president right now, income tax cuts, tax rebates, accounting measure to help businesses, extra payments from Social Security, unemployment extension, etc. We can expect to see some of these moves soon.
This is a serious and real crisis.
We need to be smart. We can’t panic.
Because this is an event-driven market, we should expect it to resolve much more quickly than other bear markets. While it’s resolving, it could still drop more.
Value is irrelevant to short-term moves. This is no time to be selling.
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