I’ve been afraid like this on three different occasions (and I’m sure this is true for many people): 9/11, the financial crisis, and now this coronavirus crisis.
These things happened in each crisis:
- People thought it was “the end of the world” as we knew it. A “new normal.” The “world is forever changed,” etc.
- Financially, everyone thought each crisis was a disaster. Jobs were lost, homes were foreclosed on, etc.
- Massive stimulus was put into the economy, ranging from Fed rate cuts, to bailouts, to checks to Americans.
What makes this crisis a bit different, and worse, from a societal perspective is:
People can’t leave their house. They can’t talk to people. They are losing jobs because everyone is quarantined, etc.
For every event that is cancelled, every bar closed, every airport shutdown, hundreds or even thousands of people lose jobs. Some lose permanent jobs. Some lose gig jobs that they were counting on.
SXSW is a great example. A mega-conference that feeds the economy of Austin for the entire year. It occurs over a three- or four-week period in March.
There’s a site, Ilostmygig.com, that is tracking all of the gigs that were lost, and how much in income was lost by young, independent workers who had gigs lined up for SXSW. The dollars lost: $4,285,037.
For example, Leo Aguirre lost a freelance video gig where he was going to make $7,000.
What’s great is: each person who lost their gig posts their Venmo ID and it’s a great way to maybe contribute to society. If you are perhaps more fortunate in this time, you can pick a few random people, send $25 to each person, and help them make up the money they lost.
Again, the role of government is to help people who cannot help themselves for various reasons.
But the role of a community is to also help people and not just rely on a government to do it.
$4 million doesn’t seem like a lot. But it is to those people. Remember the saying, “A recession is when your neighbor loses his job. A depression is when you lose your job.”
Thousands of events cancelled. Thousands of businesses shut down. Many businesses live month to month (just like people) and will go out of business.
My guess is—just like we see a $4 million “slowdown” from SXSW being cancelled if you add it all up (I have not added it all up but have been researching each industry one at a time)—the actual impact to the economy will be around $100–200 billion.
Add to that a “money multiplier” (i.e., people who make money, then spend it on people who then spend it, etc.). Probably the entire impact on the economy will be a short-term hit of $400–500 billion.
That is an enormously painful amount. I’ve lost money. You’ve lost money. Many people very close to me have lost their livelihoods. We are feeling this in a way that makes us feel powerless and hopeless.
My friend, the self-help author Cheryl Richardson, wrote an article about her friend who was astonished to see two women fighting in the grocery store over a roll of toilet paper.
But Cheryl was not surprised. She wrote that when adults feel powerless, we often turn into children. We resort back to our primitive fight, flight, or freeze instincts.
This is what is happening.
We have become children, changing our view of the economy by $1 trillion up or down every day. This is ridiculous. But it’s because uncertainty makes us feel powerless, makes us make decisions out of fear rather than growth.
Every decision is either a fear decision or a growth decision. Each individual has to train themselves now to act from growth rather than act from fear.
First off, what are we uncertain about?
- We are uncertain if containment as a strategy works to stem the virus. It feels like it does (in China and South Korea, containment might have worked, but we are not 100% sure).
- We are uncertain if the entire world is going to be different after this. To be honest, it probably will be and I will address this more in the future. The entire world did, in fact, change after 9/11 and the financial crisis of 2008.
- We are uncertain if any of the financial stimulus will work. The Fed has so far cut rates by 200 basis points, put in trillions more into the short-term commercial loans market, the government is going to send checks to everyone and set aside another $1 trillion to help industries, and even more will happen. But will it work? Yes, but we don’t know when or how.
- There will be chaos in the streets. Robberies, no law, military, etc. I don’t think this will happen but certainly this is in the air.
However, we are also CERTAIN about some things and we can’t forget that:
- The pandemic will end. Whether it’s three months (as in China and South Korea) or five months (as Trump suggests it “might” be although he is being conservative) doesn’t matter. IT WILL END.
- The pandemic will have a peak in the middle. I wrote yesterday that it might be April 15. I admit to being optimistic but that’s based on a conversation I had with Dr. Marty Makary from Johns Hopkins (see my podcast from this past Monday).
- Financial stimulus will have some impact. It saved the economy in 2009 and this is much, much, MUCH, MUCH greater. It won’t have an impact tomorrow but a month? Six months? Let’s think about it:
- A direct check: as soon as you get the check
- Income tax holiday: will have a stimulus effect within next six months
- Fed rate cuts: normally 12 months but they are so massive this time it could be sooner
- Funding the “commercial paper” window: I have no clue but this is happening now and happened in 2008/09 and it protects the banks and many businesses from failing.
The stock market has lost over $10 TRILLION in value from its high on February 19. $10 TRILLION! Almost half of its dollar value (the dollar value different from the price of the various market indices because the biggest companies have fallen very hard).
I mentioned above that individuals and companies might take a $500 billion hit. Again, that’s just a guess. Heck, multiply it by 10. $5 trillion. I don’t think it’s anywhere near that.
But still, the U.S. stock market has lost $10 TRILLION or more.
This is too much.
Does this mean the market is a buy? Yes. If you buy the S&P 500 right now, it will most likely be a lot higher within the year or even within the next three to six months.
The Chinese stock market has already recovered to ALL-TIME HIGHS.
Does this mean YOU should buy? I don’t know. As long as it is crazy like this, it can go down more. Again, if you are a long-term investor, I’d wait until some of the uncertain items mentioned above are a little bit more certain.
Now is the time to start looking at opportunities. But be careful.
I was looking this morning at ENR—a REIT in the leisure recreation space (movie theaters, restaurants, etc.).
It’s fallen from $76 to $20 and has a 20% dividend.
I don’t think it’s a buy. Maybe it will go straight up. But I think it will be a while before we know if people are willing to go back to restaurants (as a society) and movie theaters. Some will. But some never will again.
I mentioned oil last night as an industry to look at and I gave the reasons.
Let’s think of some other industries. Specifically, what industries were used in China to help them with the containment of this virus?
China, with 2 billion people, are reporting 3,000 deaths and about 100,000 cases, give or take.
Assume the numbers are wrong. Assume they are lying. It’s still a fraction of 2 billion people and now the pandemic is OVER.
What tech did they use to help them? (Hat tip to my recent podcast guest Peter Diamandis for a recent letter he wrote):
- Drones were sent out to disinfect surfaces and also used to send samples to hospitals.
- Robots were used to create zero-contact environments with patients who had the virus.
- Biotech for cures and vaccines, although I feel this is a gamble and a lot of these stocks have already gone up
- Virtual classrooms: I think this is going to be a cultural shift in our attitude towards education
- Remote working: More people than ever will continue to work from home.
These are just a few of the industries that are permanently impacted (in a positive way).
Time to start researching companies that can benefit.
These are not recommendations but I will tell you some of the companies I am starting to look at:
- AMBA makes chips for drones.
- IRBT makes robots
- NVDA makes high-end chips for video and graphics. Not only for leisure activities like gaming and video, but for remote work tasks like video conferencing.
I’ll cover stocks and ideas like this every day.
I know I’m not doing an in-depth analysis of each of these stocks. They look interesting to me and we have time to buy stocks. No need to buy at the bottom. These companies will be opportunities for a while.
I am trying to just introduce a method of thinking rationally about what is happening.
Don’t jump the gun and say, “I’ve got to buy now!!!!!” or “I’ve got to sell now!!!!”
Unless there is the permanent breakdown of society, we will move on from this. Most people don’t even have any idea that all pandemics come to an end.
Most people have not compared this pandemic with prior ones like the Spanish Flu, the Asian Flu of 1957, or the Hong Kong Flu of 1968, all of which resulted in many more deaths than we are even close to seeing now worldwide.
But it’s an opportunity for smart investors to look at:
- what in uncertain (so we know what data to watch for)
- what is certain (so we know where opportunities might lie).
And then to use that information and data to make rational decisions about what stocks might have been hit too hard and what stocks might still fall under the category of massive uncertainty.
Most importantly, remember that every single decision is one made out of FEAR or GROWTH.
The good thing is, you get to choose which category your decisions will be in.Share This Post