UPDATE ON THE ECONOMY AND STOCK MARKET
We are now living through an unprecedented time in the U.S., and in the world at large, when institutions, schools, universities and more are being shut down from public attendance so as to curtail the spread of a virus named COVID-19. The stock market is reacting with shock, gapping downward again today.
What happens next?
The virus will likely dissipate as the warmer days of spring unfold, as does any annual cold or flu virus. I was caught by surprise by the extreme reaction of the media to this virus, which I believe fanned the flames of the ensuing drastic actions taken by governments across the land. After all, COVID-19 is not Ebola. No sickness has ever scared me, other than Ebola, which actually terrified me.
As the virus dissipates, people will begin voicing concerns like, “Why did we have to shut down commerce and public gatherings over this situation?” There will be 50 books written on the topic, analyzing the herd behaviors.
Amidst all this, there will be casualties. I’m not talking about the tiny percentage of the population that dies each year from colds and flus, almost exclusively due to previous degrees of infirmity and old age. I’m talking about all of the people who are about to lose their jobs.
Schools across the country are moving their studies online while students retreat to their homes. Both of my college daughters are being sent home as a result. From Harvard University to your local elementary school, these institutions are being shut down.
Imagine for a moment that you own a food service company that supplies any school in America with the food that stocks its cafeteria. When that school shuts down, you’ve just lost a big customer. You’ll be bringing in less revenue, earning less income, and you’ll therefore have less money available to pay salaries. You’re going to have to immediately lay people off from their jobs. If your business was exclusively focused on supplying food to public venues such as sporting event centers and schools, you are facing bankruptcy.
Now imagine that scenario playing out in dozens of different types of businesses across the land. Perhaps you own a deli or a nail salon or a florist shop in an office park where the majority of workers have been instructed to telecommute. How many weeks can your business survive, without customers, before you can no longer pay your bills? Not many, I’m sure.
Yes, the stock market has fallen. Stock markets always recover and go on to reach new highs. I don’t like what’s happening, but I know that our stock situation will improve, probably this year. The economy is quite another story. We’re in for a significant recession, even if not one more person dies from COVID-19. Please expect ugly economic numbers to unfold in the next several quarters. And more importantly, please expect a lot of suffering and panic and bankruptcies among your friends who work at or own companies affected by the shutdown of public gatherings. You know who these people are. Go speak to them now, because they are panicked, and rightly so. They know their budgets intimately. They know whether they can survive. And please don’t think that a business loan is going to make them feel better. A business loan might keep their business open for a few more weeks or months, but it will be one more noose around the neck of a person who may have already been living paycheck to paycheck. The prospect of taking on more debt is not palatable. (In case you’ve ever been self-employed, it’s not exactly a financial party.)
I’m here to answer questions. I will continue buying low soon, but probably not today. Even I need to pause and take this all in.
I wish you peace, and I’m looking forward to far better trading days, a few months hence.