As I walked through a virtually empty Grand Central Station on my way to the office, this morning felt like a turning point in the story of coronavirus. For many of us, an appreciation for the seriousness of this threat and what must be done has perhaps sunk in.
Like me and my family, you might have watched the President’s speech last night. While the White House has come around to appreciating some of the economic threats, Congress, local governments and private companies have begun to mobilize on the healthcare front. By now you probably also have been reading about the suspension of various sporting events, classroom cancellations, quarantines and private companies allowing large swaths of employees to work from home. What does it mean when everything stops, even for a relatively short while?
First, are we overreacting? After all, only 40 people have died from Covid-19 so far. That’s around how many people die each year in this country from Rabies. According to scientists and medical professionals, we are not over-reacting. As Dr. Anthony Fauci pointed out on Capitol Hill yesterday, while the flu kills 0.1% of people who get it, coronavirus seems to have a mortality rate of perhaps ~3%. For our older population the risk is much higher. It is also highly communicable. If we as a country do not take the drastic measures that are currently being rolled out locally, the consequences could get much worse.
In China, the coronavirus caseload reached many tens of thousands and deaths into the thousands before quarantine and social distancing were implemented. In the US, we are where China was back in January – just starting to grasp the risk and in the early stages of contemplating drastic quarantine measures. There are only 1,300 cases in the US so far but in all likelihood, this number is an undercount based on lack of testing and the time it takes for symptoms to present. Covid-19 infections will likely reach the tens of thousands in the coming weeks as the virus spreads in the US.
Right now, the most important thing is to slow the spread of this virus and the only effective way to do that is social distancing. Not only will this reduce the rate of infection, it will give our health care system and scientific community time to prepare and cope. Like vaccinations, the more people that take care, the more quickly we will purge this virus from our society.
Social distancing however means that life will feel very different for the next few weeks. Many of us will be working from home, avoiding gatherings and social occasions. Life will be dull and we will be watching a lot of Netflix and dusting off old books we’ve been meaning to read. We might be glued to the news for a while but that will get repetitive as well.
We have to take this seriously however, lay low for a bit, and be smart.
We now know from scientific research that our social connections are important to our health. People who socialize more get sick less and recover faster. Distancing will reduce our socialization which will be a negative consequence of this virus battle. My suggestion is stay in contact with friends and family as much as possible during this time of temporary social distancing. Call people, get back on Facebook and better yet, use Skype and Facetime to connect.
Personally, I love to socialize. I will go stir-crazy for a bit. As soon as this is over however, with the warmth of spring on my face, I will run outside, get a drink at my local bar, come back to my favorite restaurant, go see a show, sit across the table from friends who happen to be clients and clients who I consider family.
In the meantime, what does it mean to the economy when everything shuts down? Well, it’s not good!
We are a consumer society and companies in nearly all industries will suffer lost revenue while the economy is on pause and people stay home. Corporate earnings for Q1 and probably Q2 could be negative. Two consecutive quarters of negative growth is the technical definition of recession. Luckily the American economy is coming into this crisis on a particularly strong footing with low unemployment and strong savings. However, government support will be needed to provide companies temporary financial relief and flexibility. Small companies will have a harder time especially in the hospitality industries. Independent workers and many others who live paycheck to paycheck will take the hardest hit. The revenue they will lose from cancelled jobs will not be replaced. Washington may have to take steps to support these folks. When this passes and you know a photographer, Uber driver, waiter or babysitter, give them some work and an extra tip.
The stock market as a reflection of economic activity and corporate health will suffer for a little while.
Things will continue to be rocky as markets anticipate lower earnings in the short term. Your portfolio is made up of companies like Apple, Microsoft and Walmart. The shares of these companies will fluctuate in the next few weeks and this will be reflected in your portfolio statement. However, these companies will not go out of business because you and I will continue to use and buy their products.
Once this does pass, incredible pent up demand will flood back into the economy as people starved for entertainment and personal needs resume their normal lives. Things will eventually get back to normal.
Right now this all feels unprecedented and scary. History however has proven over and over the resilience of our society and our country. A hundred years ago, we witnessed the first global war, a terrible depression and the Spanish Flu pandemic that might have been responsible for 50 million deaths. A prognosticator would have been very gloomy. Yet the 1920’s turned out to be roaring, permanently transforming the US economy into a global powerhouse.
We at Longwave have seen crisis before. We have seen that the risks from panic are much greater than the risks from staying the course. In China, it took about a month for drastic measures to halt the spread of coronavirus. We are only now beginning to take these measures. If we see the situation stabilizing, we could see the markets rebound as quickly as they dropped. We are not there yet and the duration of this bear market will depend on how long it will take to get things under control.
As planners, we at Longwave see market declines, whatever their cause, as a natural part of investing. When we create financial plans for our clients, we incorporate the certainty of recessions into our retirement projections. If you were on track before coronavirus, in all likelihood you will be on track after coronavirus, whether you are retiring this year or in 40 years.
As this plays out over the next month or so, we will continue to work to keep you informed, provide perspective and answer any questions you may have.
‘Herd immunity’ is a term in epidemiology for when widespread vaccination protects society as a whole from disease. Social distancing seems to be the path to eradicate this threat. Your health is paramount right now. Staying safe is the best thing you can do for yourself, your family, your neighborhood and indeed your portfolio.