The stock market was up huge today. I don’t like it.
I want the market to go up. I’m absolutely sure that there is a greater than 95% chance that the markets will be SIGNIFICANTLY higher in the near future.
But as I wrote last week (when the market was higher than it is now), I DO NOT BUY when markets go UP OR DOWN 10% in a day.
That’s too insane. It means there is too much uncertainty. It means amateurs are getting in the game (or billionaires, who can afford more risk).
The market is a barometer of uncertainty.
But this is what I think will happen. And this is what I would do, given the data we now have.
A) In a huge down market like this I want to invest in great opportunities that have one of these two characteristics:
– a chance to go up more than 100% relatively quickly
– a stable choice that has a great dividend. We’re all getting 0% in our savings accounts and if a company that was unfairly crushed in this crisis now has a dividend of 15% (and many do) then COUNT ME IN.
B) I don’t want to invest in the middle of a sh*tstorm.
Just because things are going up, doesn’t mean I should rush to buy. Just like when things are going down, I shouldn’t rush to sell.
Instead, there’s still a lot of uncertainty (and this is day by day):
– data on coronavirus. When will it peak? What is the mortality rate? So many questions. Although I am very optimistic, the uncertainty is still destroying people’s faith in the market.
– data on the stimulus. It hasn’t passed yet (unless it did two minutes ago). I’ll break down the stimulus point by point in a future post but I haven’t seen the final version so…uncertainty.
– the lockdown uncertainty.
The economy is not a lightswitch. You can’t turn it off for three months and then turn it on.
The average restaurant, before this crisis, had only 16 days of cash in the bank.
Which means already most restaurants and the millions of workers they employ, are out of business and unemployed.
The number of unemployment filings this week will be greater than any week since the Great Depression and might actually be the greatest ever.
Every single day of the lockdown pushes the economy closer to a breaking point.
(how many days of cash does each small business have?)
Now, I do think we are getting closer to CERTAINTY. (I am an optimist at heart).
This is what I think will happen.
But again, these are all just guesses:
A) Coronavirus timeline: in every country, it’s unclear what strategy worked.
Some companies did aggressive testing and didn’t lock down or close businesses (South Korea, Singapore, etc).
Some countries did aggressive lockdowns (China). Some countries didn’t really do anything until too late (Italy). I’d say the US falls somewhere in the middle.
Although we are too early to really tell, in all the countries that started a month or so earlier than the US, the pandemic peaked and then, as pandemics have ALWAYS done throughout history, slowly drifted down.
This pandemic seems to have lasted 3-4 months in every country. Regardless of strategy.
So it’s unclear if any strategy works: it might be the case, the pandemic starts strong, effects the weakest (so deaths spike early), and then reduces its strength as it infects younger people, and then dies out.
There’s some evidence Italy might be nearing a peak of “new deaths per day”. I’m keeping an eye on that and on the US data.
Also keeping an eye on China and South Korea as they try to go back to normal. Will the virus let them?
My working theory: that the virus will peak in the US around mid-April, give or take a week.
Again, we’ll see. That’s based on timelines told me by various specialists but nobody really knows.
B) The stimulus:
Regardless of the actual details, the stimulus, the Fed cuts, other actions the Fed is taking, other ancillary stimuli in the economy (e.g. low oil prices), will have an ENORMOUS effect on the economy.
Or, at least, an economy that is back to work.
We live in a $15 trillion dollar economy.
My guess is the stimulus is altogether going to add up to 6-10 TRILLION dollars.
Add in the fact that every single dollar tends to flow through the economy more than once (i.e. I use a dollar to buy a newspaper, the newspaper guy uses that dollar to buy a coffee — then $1 just added $2 to the economy) then the stimulus could be multiples larger.
That’s actually scary in the long run (again, the topic of another post in the future).
But short-term, assuming other things have some normalcy, this is A LOT OF stimuli.
Everyone is going to feel the effects of this. It’s as if money will feel like it’s dropping from trees.
We have never been through a stimulus like this (uncertainty).
Not even close (2009 was less than half what I think will happen here). But I do know the effect on the stock market will be enormous.
C) The lockdown.
If the lockdown lasts another few months, the economy is fundamentally different.
I don’t know how different (uncertainty) but different enough that I have no clue now what it would look like – only that it will be very bad.
That said, I am optimistic. I don’t think this lockdown is going to last that long.
At some point, the l leaders of both parties are going to have to acknowledge that the deaths and suffering from not loosening up a little will be much more than any worst-case scenario of Coronavirus.
The reason for the lockdown is to “flatten the curve”.
That doesn’t mean fewer deaths. It means, slower deaths so that the hospitals do not get overwhelmed.
Even if my scenario above (about the timeline of the virus) is wrong, we do know that companies are donating millions of masks, equipment, ventilators, etc to the healthcare system.
Cruises and convention centers are turning into hospitals. Many things are happening to achieve the goals of flattening the curve.
If we are truly sticking to those goals, then stopping the lockdown does not have to do with avoiding the spread of the virus but has to do with not overwhelming the healthcare system.
This means the lockdown could start being un-locked as early as next week or week after.
My hope is by April 6 it is mostly unlocked to avoid a tipping point scenario (uncertainty).
Here’s what I would do if I were making these decisions. You have to be very analytical in moments like this because no matter how you cut it there is a tragedy.
A) wait for stimulus bill to get passed (no sense unlocking if I don’t have the tools to kickstart the economy that has stalled in the middle of a highway)
B) Quarantine: positives + family + close contacts (and even people with symptoms).
C) Quarantine the most suscenptible (elderly and those with pre-existing conditions)
D) Aggressively test (this is starting to happen)
E) Give Cloraquine to every patient or person with symptoms and waive all malpractice and ignore the FDA.
I can’t say Cloraquine works but it seems to be the drug everyone is mentioning and testing and taken with a doctor’s approval means avoiding the risk of bad effects.
If there are other drugs, then keep testing them. Test everything. Ignore the FDA.
F) Open all businesses (except, at first, large gatherings)
G) Week 1, everyone under 45 can go to work, Week 2, Everyone under 65 can go to work
H) Pay sick leave for everyone quarantined or not at work.
I) Public places like restaurants must be at max 50% capacity until better data on the virus to keep some distance between customers.
J) Incentivize people to go out.
For the first two months, maybe three, post quarantine, every expense at a street-facing store or restaurant can be written off against taxes.
1) Isn’t this risking lives?
Unclear. Again, the goal of social distancing is to flatten the curve so the healthcare system can handle it.
If it turns out cases go up and start to overwhelm the system, then this would have to be re-thought.
Also, people can still quarantine themselves until data is better. Always give that option.
2) Is this favoring BIG MONEY over deaths from the virus?
No, if there are 30 million people unemployed (as is expected if lockdown goes on too long), then there will be considerably more death and suffering.
Main Street is at risk here. Not Wall Street.
In the Great Depression, there were 23 suicides per 100,000 people. This situation would be worse.
Also, we need to start medically treating many of the people who have chronic diseases who have slowed down treatments.
This will be critical soon.
Unfortunately, these decisions have to be balanced. If I was on my deathbed right now from Coronavirus I would say the exact same thing.
(social isolation doesn’t have to be a bad thing. For a while at least!)
So… we wait.
Don’t forget that this is the first time in the history of the human species that we’ve all been united under one goal, one purpose.
To be alive now is painful, exciting, anxiety-ridden, sad, stressful. We are all going through it.
There’s also a lot of hysteria.
But don’t let their hysteria turn into your history.
This is what will define our generation(s) as the “greatest”. Nothing like this has happened in the past 200,000 years of our species.
I don’t want to say “enjoy it”.
But I do want to say: be the hero of your story.
This virus seems to be enhancing what is already inside each person. Jerks are turning into bigger jerks. Compassionate people are becoming even more compassionate.
This is one of the few times you get to really decide in a very difficult time, who you really are. Hopefully, we all make the right decision.
This article was a submission by James Altucher.