In changing times like these, we have to decide whether we move in fear or hope.
I choose hope.
I have hope because disasters, like Covid-19, unleash human reserves to improvise, unite, and resolve. Disasters can bring pockets of purpose and joy amid loss and pain.
Small businesses, like ours, are dealing with loss of revenue, change in process, and heavy investment losses. But, as Finny Kuruvilla, Chief Investment Officer at Eventide says, “This disaster opens a new phase of investing.” With a changed world, new ideas disrupt the old landscape. Commerce will continue full force, just in new areas.
And it will be better; people and companies will want to become part of society’s solution, not part of its problem.
This disaster lays bare the fallacy that profits are the only things that matter in business. Investments will flow to companies that work for the multiple stakeholders beyond only their shareholders.
How fast can recovery and this new phase of investing come? Look at Germany after WWII. It was much worse off than our experiences today. It lay in ruins with many of its workforce killed or crippled in the war. Its currency didn’t have value and people didn’t have enough to eat.
So they changed. The government and business found new ways of working together. In three or four years the general well-being reached pre-war levels and sprang forward from there. Our story can be similar in trajectory.
You may be asking: So where is the bottom? When will the pain end? Why don’t we do something? It feels like we should be doing something.
We should start by understanding that Pleasant Wealth must help you look ahead in hope.
You can be a good business owner through this stress point. By holding on now, you will participate in the potentially dramatic recovery ahead.
As you receive your statements in a few days, it may invoke a fight (anger) or flight (fear) instinct. You may be panicking – afraid that other people are scared, will spend less, and create a total crash.
You may have a gut level reaction: it is different this time. But it isn’t different this time.
We are going through the standard stages of a panic/recession/depression, just faster. Any moves driven by a fight or flight instinct will be wrong and lead to self-harm. John Templeton (of Franklin Templeton) famously said “A bear market is where stocks return to their rightful owners.” YOU are the rightful owner.
Here are some facts to help all of us:
- Markets zig and zag. The week of March 22 was the best in the S&P since 1938, rising almost 11%. But the quarter ending March 31 was its worst first quarter ever, dropping 19.5% Last week it dropped 2%. The VIX (Volatility Index) has dropped from a high of around 80 about March 20 down to around 45 as of this writing. It represents more than a 45% reduction in fear around market pricing.
- Bond indicators are currently saying we will not retest the lows of around March 20. However, we know we could still retest the lows.
- Unemployment problems are huge but are already priced into the markets.
- And the Fed (according to James Bullard of the St. Louis Fed) is apparently willing to drive a temporary 50% (50%!) drop in economic activity, and be losing up to 47 million jobs, to save lives. They are building a massive financial bridge to keep the economy alive without actual activity, to get to the other side of Covid-19. The Fed used a bazooka 12 years ago. Now it’s a nuclear warhead.
- Any further gut-wrenching market drops will likely be due specifically to Covid-19 news. Because the virus is expected to peak between April 15 and April 30, we could be jolted by things that have never happened before during our lifetimes. Even mine as a 65-year-old.
And then, one day out of the blue, an announcement is made that we have a safe and effective remedy that defangs the fear of Covid-19. At that point the panic and volatility may be over. The economy will be revived from its induced coma. Rightful owners will own equities. Those equities will be the winners in an improved world. Life continues in its many currents and cross currents.
Hope still springs eternal.
Want to continue the conversation? Give us a call: 330-893-0113.
Sources:
CBOE Volatility Index. (n.d.). Retrieved April 4, 2020, from https://www.marketwatch.com/investing/index/vix
Federal Reserve Bank of St. Louis. (2020, March 26). Expected U.S. Macroeconomic Performance during the Pandemic Adjustment Period. Retrieved April 4, 2020, from https://www.stlouisfed.org/on-the-economy/2020/march/bullard-expected-us-macroeconomic-performance-pandemic-adjustment-period
YunLi626. (2020, April 4). Bank of America says the lows for stock prices and corporate bonds are in. Retrieved April 4, 2020, from https://www.cnbc.com/2020/04/04/bank-of-america-says-the-lows-for-stock-prices-and-corporate-bonds-are-in.html
