It is difficult to write a financial blog when the death count from Corvid -19 keeps going up every day. However, the big question is when we will get back to normal? I think you have to look back in history at the Spanish flu of 1918 for some clues.
Policies used to reduce the spread of Corvid -19 are similar to what was done to reduce the spread of the Spanish flu. Unfortunately, isolation, quarantine of infected people, use of disinfectants and limitations of public gatherings were applied unevenly. (Sounds familiar?) Back then, the Spanish flu came in waves and infected 500 million people, about a third of the world’s population. It lasted from Jan 2018 until Dec 1920 and somewhere around 50 million people died.
I fear that world leaders are more worried about keeping their jobs then doing their jobs. Their slow reaction of issuing stay at home orders for non-essential workers will prolong the spread of the Corvid-19. In my humble opinion, a V-shape recovery is overly optimistic.
The roll out of government programs to get money into the hands of individuals, small business and bailouts of large corporation will take a long time to be effective.
- Many government websites are crashing from the number of requests for aid.
- Many small businesses will go bankrupt before the relief funds arrive.
- The aid to businesses are in the form of loans which add extra operating costs, this will hider rehiring employees.
- The United States had 16.5 million unemployment applications over the past three weeks which is just a small sampling of what is to come.
- This is a world recession so leisure and travel will be impacted for a long time. Plus business travel, conventions and hotel stays will be limited.
The best case scenario would be a slow and cautious U shape economic recovery. What is needed is accurate testing of people who would be allowed to go back to work. Also, a quick development of a vaccine and an effective treatment for people who are infected with the virus.
The worse case scenario would be an L or W shape economic recovery. Rushing to reopen the whole economy could cause a second wave of the Covid-19 outbreak, killing thousands of more people and shutting down businesses all over again.
I am not investing based on stock market experts who tend to be overly optimistic. I am listening to the doctors who specialize on disease control. Their timeline of a vaccine is 12 to 18 months away. Therefore this recession will probably last around 18 to 24 months. The chart below illustrates that happen to the S&P 500 during the last recession of 2008-09:
This chart illustrates the past two years of the S&P:
I am not an expert on charts but I think that there is a good chance that what we are seeing is a bear market rally. There is more bad news coming that hasn’t been priced into stock prices. I would suggest that you play it safe and sell into stock market rallies and hold on to your cash.
Save lives and stay at home. The life you save may be your own!