Today stocks and equities are set for a wild ride, after US President Donald Trump took to the podium to announce that there are “tragic days ahead” this month as the virus continues to spread through communities. There is a serious risk that between 100,000 and 240,000 American lives will be lost to this pandemic.
Of course first and foremost here is the health, well-being and safety of the public and we must all be vigilant to follow the correct social distancing measures at this time and to continue to self-isolate. That’s paramount above all else.
Much less widely reported on, though, are the stories of the economic effects that are starting to reverberate throughout the system. The US economy, and indeed all of the world’s main economies are enormous and complex machines that are simply incapable of stopping on a dime. As a result these are truly unprecedented times: never has the economy simply ceased to function before – ever.
The Day the Earth Stood Still
This is reminiscent of the 1952 H.G. Wells classic: the Day the Earth Stood Still. You may know the story. An alien flying saucer lands in DC and out steps a man and a robot, bent on a mission to address the world and its leadership. But as event after event stops them from doing so, before they can the alien visitor is gunned down by a hostile government and sent back to where he came from.
Fast forward to 2020 and we’ve got a two-stage threat – the coronavirus itself, which is a health crisis; and the economic and political war that is resulting from having to shut down the vast majority of the world’s largest economies en-masse. In order to tackle these threats it is going to take political, social and economic unity, at precisely a time when nerves and tensions are most frayed.
What the Experts Say
I wanted to share the views of a small cadre of economists and investors who I believe are worth following and listening to as we navigate through these difficult times. They are all active on social media and the news, with regular columns and posts about current affairs.
Here are the messages worth watching especially over the next 6-8 weeks:
|Jeremy Siegel – 31st March Article “There are four steps that will lead to an economic and market recovery — and “we’re only going to have a market recovery if we have an economic recovery,” according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor”||1) Fiscal and monetary support – we can tick that box!|
2) Flattening the curve – slow down the spread of the virus and ensure that hospitals don’t get over-run
3) Produce vaccines and therapeutics to treat the virus – JNJ has been testing a vaccine, but the problem is it wont be available until early 2021
4) To collect Covid-19 virus data, diagnose and test people for the virus widely and to find antibodies that enable people to get back to work quicker
|If all of these methods are in place, we can start getting people back to work within 2 months.|
|Robert Shiller – The Two Pandemics, on Project Syndicate “Predicting the stock market at a time like this is hard. To do so well, we would have to predict the direct effects on the economy of the COVID-19 pandemic, as well as all the real and psychological effects of the pandemic of financial anxiety. The two are different, but inseparable”||1) It is not good news when you face two pandemics at the same time. One can feed the other.The recession and impact of this virus is truly global, affecting all countries at once|
2) A contagion of financial anxiety is fuelled, in part, by people noticing others’ emotional reaction to price declines
3) Observing successive decreases in stock prices creates a powerful feeling of regret for those who have not sold, together with a fear that one might sell at the bottom. This regret and fear prime people’s interest in both pandemic narratives. Where the market goes from there depends on their nature and evolution.
|Instead of a tragic world war, this time the US is preoccupied with its own political polarization, and there are many angry narratives about the federal government’s mishandling of the crisis. Robert Shiller’s implication here is simple: we need to overcome these angry narratives, and have a joint belief that we can truly beat the virus, in order to recover from this crisis.|
|Jeff Gundlach – CNBC Interview with DoubleLine Capital CEO. “The market has really made it back to a resistance zone and the market continues to act somewhat dysfunctionally in my opinion,” Gundlach said. “Take out the low of March and then we’ll get a more enduring low.”||1) Some on Wall Street are calling for a “V” shaped recovery in the U.S. economy — a sharp drop in GDP in the second quarter and a swift snapback in the third quarter.|
2) Gundlach believes those estimates are “highly, highly optimistic,” adding GDP forecasts that don’t show negative growth for this year are “outrageously improbable.
3) Gundlach believes that there’s a 90% chance the US enters a recession before the end of the year
|In essence the GDP and corporate earnings growth forecasts for 2020 (Q3 and Q4) are far too high and will need to be adjusted down over the coming months. As a result, the prices of assets and equities across the board will come down with those adjustments.|
|Mohamed El-Erian – Market Assessment. ““If you feel it’s the all clear, go out and buy the index … I don’t think we’re there yet,” the chief economic advisor at Allianz said on “Squawk Box.”||1) Investors should be buying individual stocks, and not indexes because there is more coronavirus-driven volatility ahead.|
2) El-Erian said investors should sell companies that could go bankrupt and buy those with “rock-solid balance sheets.” He felt the time of “selling everything” passed a few weeks ago but the “all clear” moment is not here yet. It is now a moment for being selective both in what investors buy and sell, he said.
3) “Those people who entered this defensively and have a massive appetite for volatility, there is starting to be real pockets of value, and they should be looking at that.”
|Now is the time to be very selective about what you invest in and to consider avoiding Indexes until more of the volatility has subsided. That being said there are pockets of value in cash rich and relatively unlevered businesses.|
Frugal Investors Conclusions
The key thing here is to know who to follow and what types of news are available to give you unbiased, expert views on economics and the economy.
This is something that you can do from home and you don’t have to be a financial expert. What’s happening in your home country? How are the financial markets doing? By understanding what experts like Shiller, Siegel, Gundlach and El-Erian are suggesting you can approximate when we’re close to reaching the bottom during this cycle.
It is possible to time the stock market and pick an appropriate moment to invest aggressively. Let’s do this together!
About the Author: David began Frugal Investors in order to help others learn about smarter money management – today. He has spent nine years working as a senior process improvement professional and has extensive experience helping FTSE 100 and Fortune 500 businesses to improve their efficiency, quality and speed of delivery.
Over that same timeframe he has built up a £1mn+ portfolio of stocks and bonds through self-directed investment. Follow David as he uses thorough, detailed investment research aimed towards accruing £2,000,000 in investable assets within the next ten years.