Coronavirus - Financial, Health and Other impacts II

[copyright1997reloaded]

OK, a bit cynical, but does anyone here remember 9/11?

After the attack on 9/11, the NYSE was closed until Monday 9/17, the longest closure since 1933. Part of the reason the market was closed was due to the conditions in lower Manhattan, but part was also because or a fear of panic selling. [Full disclosure, I was a couple blocks away when the first tower fell.]

When the market opened on 9/17, the DJIA (Dow Jones Industrial Average) fell 684 points (7.1%) and at the end of the week was down 1370 points (11.6%). Interestingly enough, this weeks loss is 12.36%. Similar to then, things like Hotels and other travel stocks were hit particularly hard.

The good news: One month later the market had recouped the post 9/11 losses and moved upward into the spring of 2002.

The bad news: By mid/late 2001 the economy was already struggling. Profits had already peaked mid 2000, the market was feeling the ongoing dot com bust, and in 2002 the SP 500 had a 23% loss.

The good news: By 2003 things were on the upswing and the SP 500 advanced by 26.4%.

Maybe things will be similar here. First the big sell off, followed by a v shaped recovery (in terms of stock prices), followed by a down-turn as realization sets in regarding the intermediate term effects, followed eventually by upward movement as economic growth regains its footing. Honestly, I have no idea when we start the V move up. Maybe Monday, or we need one more big washout first.

My "strategy" has been to sell (sales on 2/4, 2/21, 2/26) along with a bit of end of 2019 selling (college funds). Did a little nibbling on 2/27, 2/28. Another indicator of a possible bottom will be when the market ignores negative news flow. If we do start a real rally, anything I purchase will be on a short leash as eventually I believe we will need to retest the low (assuming we ever stop going down ).

 

[Brat]

My issue is how to value an equity? I will wait at least 90 days for the dust to settle and this contagion to run its course before I buy much.

 

[Lsbcal]

OK, a bit cynical, but does anyone here remember 9/11?

After the attack on 9/11, the NYSE was closed until Monday 9/17, the longest closure since 1933. Part of the reason the market was closed was due to the conditions in lower Manhattan, but part was also because or a fear of panic selling. [Full disclosure, I was a couple blocks away when the first tower fell.]

When the market opened on 9/17, the DJIA (Dow Jones Industrial Average) fell 684 points (7.1%) and at the end of the week was down 1370 points (11.6%). Interestingly enough, this weeks loss is 12.36%. Similar to then, things like Hotels and other travel stocks were hit particularly hard.

The good news: One month later the market had recouped the post 9/11 losses and moved upward into the spring of 2002.

The bad news: By mid/late 2001 the economy was already struggling. Profits had already peaked mid 2000, the market was feeling the ongoing dot com bust, and in 2002 the SP 500 had a 23% loss.
...

I like the good news (in red). Good point.

I would add that a recession had started in March 2001 (as per NBER) so that pop back occurred within a recessionary period. I don't know when NBER actually declared that start date though. You can more clearly see the situation by looking at the Leading Index data from the Fed here: https://fred.stlouisfed.org/series/USSLIND

Are we in a recession now? I don't think so, not yet. The Leading Index series is stable and high.

 

[SeattleRocks]

Doing OK

I'm a very conservative "won the game, why play" investor, so I got lucky as I moved 60% of my post-tax portfolio to CDs way back when the CDs were 3.3% to 3.75% and did a proper ladder with heavy weighting to 5 year CDs.

I put the other 40% in Vanguard index funds in a 50/50 with an emphasis on S&P500 on the stock side and the rest in tax free muni's.

Once I saw the virus scale past SARs, I sold all of my stock holdings and moved them to bonds just because I didn't want to see a blood bath. That saved me as I didn't get hit with any of the market downfall.

And I got SO lucky that I recently FIREd and just moved my 401K to my IRA and had a large sum sitting in cash in Vanguard with the intent to move it to my Wellesley fund but didn't get around to it as this market downturn hit. So I can buy lower now with those funds.

My plan is I am going to wait this out and see how far this market falls. I have a couple of very good sized CDs maturing in April/May timeframe and once I see it stabilizing (Dow 21,000? 20,000?) I am going to start dollar cost averaging into the market in large chunks and go 100% into the market with all my post-tax money that isn't committed to CDs.

I know, you cant time the market. I get it. But I will feel very very good to get in at something like 20,000 if it hits that low then 29,000. And even if the market keeps falling, like I said, I will dollar cost average into it so hopefully catch some of those lows as well. I just have a very bad feeling about this virus causing havoc to earnings and supply chain that it will take a lot of time to recover from it. The Fed only has so much they can cut/stimulate.

But I have to tell you, I am extremely thankful for my 3.75% CDs I picked up.

 

[aja8888]

I'm a very conservative "won the game, why play" investor, so I got lucky as I moved 60% of my post-tax portfolio to CDs way back when the CDs were 3.3% to 3.75% and did a proper ladder with heavy weighting to 5 year CDs.

I put the other 40% in Vanguard index funds in a 50/50 with an emphasis on S&P500 on the stock side and the rest in tax free muni's.

Once I saw the virus scale past SARs, I sold all of my stock holdings and moved them to bonds just because I didn't want to see a blood bath. That saved me as I didn't get hit with any of the market downfall.

And I got SO lucky that I recently FIREd and just moved my 401K to my IRA and had a large sum sitting in cash in Vanguard with the intent to move it to my Wellesley fund but didn't get around to it as this market downturn hit. So I can buy lower now with those funds.

My plan is I am going to wait this out and see how far this market falls. I have a couple of very good sized CDs maturing in April/May timeframe and once I see it stabilizing (Dow 21,000? 20,000?) I am going to start dollar cost averaging into the market in large chunks and go 100% into the market with all my post-tax money that isn't committed to CDs.

I know, you cant time the market. I get it. But I will feel very very good to get in at something like 20,000 if it hits that low then 29,000. And even if the market keeps falling, like I said, I will dollar cost average into it so hopefully catch some of those lows as well. I just have a very bad feeling about this virus causing havoc to earnings and supply chain that it will take a lot of time to recover from it. The Fed only has so much they can cut/stimulate.

But I have to tell you, I am extremely thankful for my 3.75% CDs I picked up.

While I am not as timely as you with the move to cash products, I was 29% equities going in to this mess. I sold a bit of them early last week, and now at 21%, about 1/3 of the 21% is select preferred stocks which have not fallen very much.

I'm comfortable sitting here and riding out the bad news. Maybe things will improve and the markets will correct by the summer.

My only fear at 76 years old is that I don't get the virus. I would probably fare OK as,I am pretty healthy, but if DW @ 75 years old got it, it would be a much bigger problem due to her weakened state from severe COPD, heart issues, etc, and being on 11 meds.

 

[ER Eddie]

Good luck to everybody!

This week will be interesting.

 

[Independent]

The economic impact depends on the medical facts, which we don't know.

There were 3,700 people on the Diamond Princess. About 700 became ill, 7 died, and 36 are still hospitalized. I see two scenarios:

A: Everyone on the ship was exposed to the virus before they locked down. The great majority fought it off with no serious medical consequences. Most of the hospitalized will recover. Most deaths will be among people who were high risk.

The final hospitalization rate will be around 1% of the population, death rate about 2-3 deaths per thousand.

B: Most people on the ship were not exposed. They locked it down before the virus had spread everywhere. Almost everyone who was exposed became ill. There are still multiple deaths coming from the hospitalized people.

The final hospitalization rate will be about 5% of the exposed population. Deaths will be 2% of the exposed population.


Scenario A is a recession that doesn't last too long. Travel and consumer confidence go down. Work days are lost directly to the virus and caring for sick relatives. But, we're back to "normal" within a year.

Scenario B is much more severe. Everyone knows multiple people who have been hospitalized. There aren't enough beds. Everyone knows one or two people who died. Consumer confidence craters, nobody wants to make long term plans. There are pockets where businesses have too many people off work at the same time and have to close temporarily.

That's a very serious recession to me.

 

[Fermion]

That is not really how things work. There is always scenario C where the government jumps in and showers down money, tricking investors who thought there would be an extended recession.

 

[brewer12345]

That is not really how things work. There is always scenario C where the government jumps in and showers down money, tricking investors who thought there would be an extended recession.

I am not sure how some incremental interest rates cuts will fend off a pandemic-driven global recession.

 

[audreyh1]

The economic impact depends on the medical facts, which we don't know.

There were 3,700 people on the Diamond Princess. About 700 became ill, 7 died, and 36 are still hospitalized. I see two scenarios:

A: Everyone on the ship was exposed to the virus before they locked down. The great majority fought it off with no serious medical consequences. Most of the hospitalized will recover. Most deaths will be among people who were high risk.

The final hospitalization rate will be around 1% of the population, death rate about 2-3 deaths per thousand.

B: Most people on the ship were not exposed. They locked it down before the virus had spread everywhere. Almost everyone who was exposed became ill. There are still multiple deaths coming from the hospitalized people.

The final hospitalization rate will be about 5% of the exposed population. Deaths will be 2% of the exposed population.


Scenario A is a recession that doesn't last too long. Travel and consumer confidence go down. Work days are lost directly to the virus and caring for sick relatives. But, we're back to "normal" within a year.

Scenario B is much more severe. Everyone knows multiple people who have been hospitalized. There aren't enough beds. Everyone knows one or two people who died. Consumer confidence craters, nobody wants to make long term plans. There are pockets where businesses have too many people off work at the same time and have to close temporarily.

That's a very serious recession to me.

Scenario C - there was no effective isolation or “lock down”. People continued to be exposed because the crew was not isolated, prepared the food and came by cabins to bring stuff.

 

[Fermion]

I am not sure how some incremental interest rates cuts will fend off a pandemic-driven global recession.

It all depends on how lethal this is, how long it persists, etc.

If it kills off a few thousand people and peters out for awhile, the government can helicopter in a few thousand bucketloads of Benjamins and make things appear all better.

I am not saying one cannot make short term money on puts and such, I did and there still may be opportunity but the prices are spendy on options right now.

Long term, you can't fight the Fed. They have really good printers.

 

[brewer12345]

In the short term I think there are going to be a lot of new confirmed cases in the US as more testing finally gets done. Parents will then demand that schools be closed, employees are not going to want to be in crowded workplaces, and travel will grind to a halt. Rate cuts will really make a difference in that scenario?

 

[copyright1997reloaded]

Scenario I - A world-wide coordinated fiscal and monetary easing (aka money falling from the sky) causes asset prices to be sustained. Because of an impact to production, inflation surges. Inflation in the United States goes even higher as companies race to offset cheap Chinese production.

In Scenario I, those who are all/mostly cash are the most impacted as their savings erode due to inflation. Those who are in TIPS and precious metals or who control inputs are least impacted/best off.

I'm not saying this will happen, just that it is a scenario that I worry about. I've got about 10% of my net worth in TIPS/inflation adjusted bonds/precious metals (mostly inflation adjusted bonds), but the rest isn't and my pension isn't. So 10% isn't nearly enough if scenario I happens in force.

 

[DCdave]

I went to a very conservative AA about four months ago waiting for a correction to create buying opportunities. I think we just saw one. ?. Time to ease back into a more aggressive AA? That's the big money question.

The S&P is only down 3% from four months ago so I’m not sure that it is now a huge buying opportunity on a relative price basis.

 

[DCdave]

My gut feel is that this is only going to get worse in the short to medium term (next 2-6 months). I don't expect the markets to rally back to where they were anytime soon. Long term, probably yes.

Long term, although there are no guarantees, the market has ALWAYS (100% of the time) rallied back to previous highs.

 

[luckydude]

In the short term I think there are going to be a lot of new confirmed cases in the US as more testing finally gets done. Parents will then demand that schools be closed, employees are not going to want to be in crowded workplaces, and travel will grind to a halt. Rate cuts will really make a difference in that scenario?

A lot of people would be hurting financially if schools were closed and parents were forced to stay home to watch their kids or because their employers (e.g. restaurants, theaters, malls, etc.) won't need their services due to lack of consumer demand. Knowledge workers might be able to work remotely, but the service sector would be severely impacted. The resulting decrease in consumer spending (either due to lack of will or lack of paycheck) would ripple through the economy, and depending on the length of the outbreak, there would likely be a recession. A rate cut won't make a much of a difference in that scenario because there just won't be much consumer demands for goods and services regardless of how "cheap" the money gets.

Lucky Dude

 

[Bongleur]

Long term, although there are no guarantees, the market has ALWAYS (100% of the time) rallied back to previous highs.

Except that on this board, sequence of returns is critical to everyone. The market can stay irrational until after we are dead of old age

 

[Bongleur]

Knowledge workers might be able to work remotely, but the service sector would be severely impacted.

What is the ratio of knowledge to service workers? The knowledge workers get paid by both categories; but if it reduces to knowledge workers buying from other knowledge workers, that's kind of a zero sum game. There won't be any net profitable work for the knowledge workers to do.

 

[BeachOrCity]

That is not really how things work. There is always scenario C where the government jumps in and showers down money, tricking investors who thought there would be an extended recession.

My instincts tell me liquidity won’t solve this. What parent will take their kid to a “free”baseball game in April if the virus is spreading rapidly. Money becomes useless if people are that scared.

Are you buying more spy puts on the likely dead cat bounce today (Monday)?

 

[BeachOrCity]

Scenario C - there was no effective isolation or “lock down”. People continued to be exposed because the crew was not isolated, prepared the food and came by cabins to bring stuff.

I actually do think the diamond princess effective rates for number who tested positive, number who got sick and number who died are worth looking at.
They are not perfect by any means. But they do give an idea of how virulent this thing is when people are trying hard not to get infected and if they do have access to good medical care.
Multiply princess cruise numbers by global populations and it gets scary in terms of total numbers needing medical care.

While I think this will ultimately pass, economically I think it will get worse short and steep, then recover quickly.

 

[NW-Bound]

I have been watching the news to see how China is bringing its manufacturing plants back on line. The fear of not meeting the order from the Communist Party leaders to restart factories despite the lack of workers, many of whom are still in quarantine, has led to another farce as told in a Bloomberg article.

This phenomenon is playing out in Zhejiang province, an industrial hub on the east coast, in the form of electricity usage. At least three cities there have given local factories targets to hit for power consumption because they’re using the data to show a resurgence in production, according to people familiar with the matter. That’s prompted some businesses to run machinery even as their plants remain empty, the people said.

On Saturday, a newspaper in one of Zhejiang’s cities appeared to take aim at the practice. The Taizhou Daily published a front-page commentary criticizing local officials for narrowly focusing on power usage, arguing that hitting the targets won’t ensure economic growth. By Sunday, a link to the article on the paper’s website was no longer working...

The official Xinhua News Agency last week published a story about production resuming in Guangdong, China’s largest provincial economy, using power consumption as the main evidence to show how quickly things were getting back to normal.

The article adds that factory managers turn on all machinery to draw power, including air conditioners in the winter, in order to meet the quota of power consumption.

I saw an article saying China's economy will lose 3% in the first quarter of 2020. Given that there are 13 weeks in a quarter, 3% is not even the loss of 1/2 week of work. We know that many factories even outside of Wuhan had problems restarting not long ago. I am no economist, so wonder how they lost only 1/2 week of work. I guess the workers will have to work a lot harder in the month of March to catch up.

 

[GenXguy]

I actually do think the diamond princess effective rates for number who tested positive, number who got sick and number who died are worth looking at.
They are not perfect by any means. But they do give an idea of how virulent this thing is when people are trying hard not to get infected and if they do have access to good medical care.
Multiply princess cruise numbers by global populations and it gets scary in terms of total numbers needing medical care.

While I think this will ultimately pass, economically I think it will get worse short and steep, then recover quickly.

When I checked a couple days ago, there were 6 deaths and 10 recoveries. I thought that was pretty concerning, and now there are 7 deaths, and still 10 recoveries.

I appreciate the optimism, but economists say this could kick us into a recession with a long recovery ahead. The fed doesn't have a lot of power to do much about it. I welcome a quick recovery, but it seems unlikely. So, I'm not buying stocks now or otherwise rebalancing, yet.

 

[Dtail]

Scenario I - A world-wide coordinated fiscal and monetary easing (aka money falling from the sky) causes asset prices to be sustained. Because of an impact to production, inflation surges. Inflation in the United States goes even higher as companies race to offset cheap Chinese production.

In Scenario I, those who are all/mostly cash are the most impacted as their savings erode due to inflation. Those who are in TIPS and precious metals or who control inputs are least impacted/best off.

I'm not saying this will happen, just that it is a scenario that I worry about. I've got about 10% of my net worth in TIPS/inflation adjusted bonds/precious metals (mostly inflation adjusted bonds), but the rest isn't and my pension isn't. So 10% isn't nearly enough if scenario I happens in force.

Can't those in cash switch to probably expected higher CD rates?
I have a 5 year CD Ladder for my parents and just broke 1 matured CD as the MM rates is close enough to the 5 year rate (Fidelity).

 

[atmsmshr]

Long term, although there are no guarantees, the market has ALWAYS (100% of the time) rallied back to previous highs.

Except for the German market last century. Twice. And the Italian market once. And the Japanese market twice last century. And the Nikkei still has not recovered to its previous high 30 years ago.

There are others.

 

[Independent]

Scenario C - there was no effective isolation or “lock down”. People continued to be exposed because the crew was not isolated, prepared the food and came by cabins to bring stuff.

For financial predictions, that's the same as A. Everyone was exposed, but
80% fought off the virus with no particular symptoms. Modest recession lasting most of 2020.