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Morningstar: Coronavirus Update: Long-Term Economic Impact Forecast to Be Less Than 2008 Recession
I think you were right when you quoted Heraclitus.
If he was alive today he might have said no one has stepped in this cow flop before.
However. I find this claim from M* to be . . . fraught:
About 70% of GDP is from businesses that are exempt from orders, and about half of the businesses that aren’t exempt can continue with remote operations.
I was under the impression that 70% of GDP depends on consumer spending. And I think it's fair to say a good part of that spending depends on credit.
yes, the consumer spending thing is going to be brutal for many of the obvious venues, restaurants, dentists, summer camps and the like, orthopedists and dermatologists and similar, and on and on and on.
So no one knows how it will play out; some informed guesses are smarter surely than others.
In 02 I was laid off as a manager from a successfully but then suddenly failing SW startup of many years, and talked right away w an old tech writer friend from an earlier gig who said I think this is going to be a long haul for you (he was employed), and I said, hmm, huh, oh, well.
And so it turned out. I had good contracting work for several years, or good enough, but it was 3y of moderate misery and anxiety, 05, before I got a staff job again, in the same editorial area, though this time DoD proposal work.
My adult kids now, it is interesting, and fearful. The one who works at a mid-high level for a huge family-owned business centered on international travel and education is still employed but fears for the future, not surprisingly, as the company's business and model are stalling. Her husband, who works for a local construction PM consulting firm, still has work, onsite at local university, which is closed but proceeding w repairs and rebuilds and such, even some new construction planning. My other child is a new consultant at the biggest of management consulting firms, and so far he plenty of work, but there are freezes all round. Finally his wife is a part-time pedi (school) nurse, now repurposed to public-health nurse, so gets to talk to, you know, parents whose kids are CV-positive and ill-ish, but who themselves are asymptomatic --- but test positive, and had been out and about at grocery and pharmacy for the past month. What lies ahead for her is unknown, though perhaps this will prove a lasting slight career shift from pedi to public if schools do not reopen for a year-plus.
And these are all highly fortunate and privileged and count-our-blessings situations. Imagine those for whom little of this applies.
Since income is spending and vice-versa, it will be a long trauma as that cycle grinds down.
I think the answer to "So who's right?" is it depends.
Here in mid April, there is still no widespread testing available in the U.S. Aggressive widespread testing (for the virus itself as well as for antibodies) & contact tracing/surveillance would not only start to give control of containing the infection but would also go a long way in boosting confidence in the business world with some semblance on how to proceed going forward. It would definitely be the most cost effective way to do so & with the most surgical precision. And even though this is not a panacea (with false negative viral tests, the unknown at what level of antibody titers actually confer immunity, best treatment options, etc.), at least it's an effective start & a plan of action & can start to address specific issues as they come up. It seems like a logical first step.
Instead this is the white house plans for reopening: "The plan lays out three phases: Preparing the nation to reopen with a national communication campaign and community readiness assessment until May 1. Then, the effort through May 15 would involve ramping up manufacturing of testing kits and personal protective equipment and increasing emergency funding. Then staged reopenings would begin, depending on local conditions."
No body knows but it will likely be variable accross the country but that may not help the stock market. Chipote in say Texas may be up and running long before NYC, but to buy CMG now you either have to be willing to absorb more pain as there is another leg downward ( say 20 to 40% ) or willing to wait until ( if ) there is an effective vaccine.
All of the other posts comparing this to other recessions miss one point. Here sales plummeted before earnings and have to come back before earnings stabilize.
The virus is in charge, no economics or the Fed.
Every other bear market has had a large dead cat bounce even when following an economic problem that people have experience with. No one has any experience with this but given the % of US economy dependent on face to face commerce and the number of people with no savings ( have you seen the lines at food banks already?) it will be a long long time before restaurants, airlines, cruise ships, car dealers and most stores are back to profitability
Speaking of FEMA. WA state had the earliest case of COVID19 and should be among the first to try to exit the lockdown. If exiting requires testing for people who are hot and people who are immune, we have a slight problem in my area. It seems FEMA is diverting test equipment to the bridge to nowhere or places unknown. The suspicion is that they are buying with taxpayer dollars, transferring to private industry to maximize the profit for the private on the taxpayer equipment. https://www.cascadiaweekly.com/cw/currents/feds_divert_medical_supplies_from_peacehealth This article has some of FEMA's response: https://www.bellinghamherald.com/news/coronavirus/article241884351.html
This, of course, is unrelated to the Fed's dislike for Governor Inslee or such things.
I'm not saying I've done this, though I now think I should, but I think the right answer to this unpredictable situation is to acknowledge it's unpredictable and focus on what you can control. What that means financially is to think about one's spending and budget and specific risk tolerance. How much do you spend every month? That you can control to a degree. How much of an emergency fund do you have cash wise and how many months of your current spending will it pay for? If you normally have three months of cash as I've seen advised, I would increase that perhaps significantly. If you normally spend $X per month, maybe you should spend $Y less until the dust settles. Think about your job too. How secure is it in this environment? If it's secure and you think you have enough cash already, maybe now's the time to buy stocks because you feel you can withstand a downturn. If it's not secure, do the opposite, sell stocks and raise more cash. These are controllable elements of one's finances that go beyond the outcome of this unpredictable event. From an institutional level, also, if I were a money manager, I would probably hire a retired epidemiologist as a consultant to help model out the scenarios. The institutional investor, by mandate, may have no choice but to invest in stocks. If epidemiology is not in the manager's purview, and for most it isn't, outside help becomes important.
I think whatever happens if you spend enough time looking at the numbers and have enough people ( ie institutions) you can do a better job than a passive index.
Some states have never sheltered at home and their rates of infection are public knowledge. Others will come out first and infection rates hospitalization etc can be watched. Digging down with enough expertise you can identify investments that have more or less exposure to these areas, especially bonds. Some of this is baked into prices but not all.
Fauci mentioned remdesivir in early march and it was well known it worked for SARS patients.
The nursing home mortality is a public figure. Some homes are badly affected others much less so.
The pandemic will not affect every state. local and business equally. The job of a smart investor, especially institutional investor is to be able to tell the difference.
That is one thing very wrong with mutual funds. Sticking to your mandate because you think your clients expect you too will cost your dearly. For example I sold FPACX because they have jumped in with both feet and I think this has a lot longer to go.
As another example, I assume FPNIX is smart enough to know many of their securities backed by auto loans may be in for a long hard slog and some go belly up.
I think this is all so unpredictable that no one, including most portfolio mangers, has any idea of what to do.
For now I am sticking with radical uncertainty as a good answer.
The stock market currently appears to be acting mostly as a sentiment driven voting machine. By the time a couple of "post pandemic onset" earnings seasons have come and gone (absent the appearance of a silver bullet before then) it may be able to start acting as a weighing machine again. I currently plan straddle the fence in the meantime.
Comments
If he was alive today he might have said no one has stepped in this cow flop before.
However. I find this claim from M* to be . . . fraught: I was under the impression that 70% of GDP depends on consumer spending. And I think it's fair to say a good part of that spending depends on credit.
So no one knows how it will play out; some informed guesses are smarter surely than others.
In 02 I was laid off as a manager from a successfully but then suddenly failing SW startup of many years, and talked right away w an old tech writer friend from an earlier gig who said I think this is going to be a long haul for you (he was employed), and I said, hmm, huh, oh, well.
And so it turned out. I had good contracting work for several years, or good enough, but it was 3y of moderate misery and anxiety, 05, before I got a staff job again, in the same editorial area, though this time DoD proposal work.
My adult kids now, it is interesting, and fearful.
The one who works at a mid-high level for a huge family-owned business centered on international travel and education is still employed but fears for the future, not surprisingly, as the company's business and model are stalling.
Her husband, who works for a local construction PM consulting firm, still has work, onsite at local university, which is closed but proceeding w repairs and rebuilds and such, even some new construction planning.
My other child is a new consultant at the biggest of management consulting firms, and so far he plenty of work, but there are freezes all round.
Finally his wife is a part-time pedi (school) nurse, now repurposed to public-health nurse, so gets to talk to, you know, parents whose kids are CV-positive and ill-ish, but who themselves are asymptomatic --- but test positive, and had been out and about at grocery and pharmacy for the past month. What lies ahead for her is unknown, though perhaps this will prove a lasting slight career shift from pedi to public if schools do not reopen for a year-plus.
And these are all highly fortunate and privileged and count-our-blessings situations. Imagine those for whom little of this applies.
Since income is spending and vice-versa, it will be a long trauma as that cycle grinds down.
Here in mid April, there is still no widespread testing available in the U.S.
Aggressive widespread testing (for the virus itself as well as for antibodies) & contact tracing/surveillance would not only start to give control of containing the infection but would also go a long way in boosting confidence in the business world with some semblance on how to proceed going forward. It would definitely be the most cost effective way to do so & with the most surgical precision. And even though this is not a panacea (with false negative viral tests, the unknown at what level of antibody titers actually confer immunity, best treatment options, etc.), at least it's an effective start & a plan of action & can start to address specific issues as they come up. It seems like a logical first step.
Instead this is the white house plans for reopening:
"The plan lays out three phases: Preparing the nation to reopen with a national communication campaign and community readiness assessment until May 1. Then, the effort through May 15 would involve ramping up manufacturing of testing kits and personal protective equipment and increasing emergency funding. Then staged reopenings would begin, depending on local conditions."
https://www.washingtonpost.com/health/2020/04/14/cdc-fema-have-created-plan-reopen-america-heres-what-it-says/
It's a long way between now & May 15.
"prepare for the best & hope for the best" is probably not the answer.
All of the other posts comparing this to other recessions miss one point. Here sales plummeted before earnings and have to come back before earnings stabilize.
The virus is in charge, no economics or the Fed.
Every other bear market has had a large dead cat bounce even when following an economic problem that people have experience with. No one has any experience with this but given the % of US economy dependent on face to face commerce and the number of people with no savings ( have you seen the lines at food banks already?) it will be a long long time before restaurants, airlines, cruise ships, car dealers and most stores are back to profitability
WA state had the earliest case of COVID19 and should be among the first to try to exit the lockdown. If exiting requires testing for people who are hot and people who are immune, we have a slight problem in my area. It seems FEMA is diverting test equipment to the bridge to nowhere or places unknown. The suspicion is that they are buying with taxpayer dollars, transferring to private industry to maximize the profit for the private on the taxpayer equipment.
https://www.cascadiaweekly.com/cw/currents/feds_divert_medical_supplies_from_peacehealth
This article has some of FEMA's response:
https://www.bellinghamherald.com/news/coronavirus/article241884351.html
This, of course, is unrelated to the Fed's dislike for Governor Inslee or such things.
Correct.
https://www.politico.com/news/2020/04/15/coronavirus-hot-spots-farm-belt-189272
Some states have never sheltered at home and their rates of infection are public knowledge. Others will come out first and infection rates hospitalization etc can be watched. Digging down with enough expertise you can identify investments that have more or less exposure to these areas, especially bonds. Some of this is baked into prices but not all.
Fauci mentioned remdesivir in early march and it was well known it worked for SARS patients.
The nursing home mortality is a public figure. Some homes are badly affected others much less so.
The pandemic will not affect every state. local and business equally. The job of a smart investor, especially institutional investor is to be able to tell the difference.
That is one thing very wrong with mutual funds. Sticking to your mandate because you think your clients expect you too will cost your dearly. For example I sold FPACX because they have jumped in with both feet and I think this has a lot longer to go.
As another example, I assume FPNIX is smart enough to know many of their securities backed by auto loans may be in for a long hard slog and some go belly up.
I think this is all so unpredictable that no one, including most portfolio mangers, has any idea of what to do.
For now I am sticking with radical uncertainty as a good answer.
The stock market currently appears to be acting mostly as a sentiment driven voting machine. By the time a couple of "post pandemic onset" earnings seasons have come and gone (absent the appearance of a silver bullet before then) it may be able to start acting as a weighing machine again. I currently plan straddle the fence in the meantime.