The clouds hanging above our country are dark right now. COVID-19 is a true black swan event: something massive and destructive that seemingly came out of nowhere. Even I’ve experienced difficulty in seeing a way forward in the coronavirus (COVID-19) crisis without more financial hardship and economic decline — a way without further calamity.
But I’ve had an epiphany in recent days. There is an antidote to the fear that grips our nation: certainty. The more certain we can be about precisely what’s happening with the pandemic, the better decisions we will make.
With America facing adversity after 11 cushy years in a bull market, our national spirit is waking up. We’re starting to exhibit a unity that empowers us to run toward a problem head-on. We all know deep down the COVID-19 pandemic won’t destroy our economy or defeat us. As Americans, we fight our way back, no matter the enemy.
New York Gov. Andrew Cuomo said this week that fear of the virus is more contagious than the virus itself. He’s right. What we need right now is some ammunition to combat our fear. It’s coming, in the form of COVID-19 testing. Companies such as Roche and Thermo Fisher are aiming to produce millions of test kits per week.
We should, in the next 30 days, have a statistically significant number of tests completed. To date, testing has primarily focused on the sick, creating a skew in the mortality rate. With more testing, I think we’ll see the mortality rate decrease dramatically. We will know a lot more about our microscopic enemy and thus regain some certainty.
That certainty, my friends, is the answer to our fear and the beginning of a solution. My team has started to call things like this “baby white swans,” aka good news to combat a sea of fear and uncertainty.
Here are four baby white swans to help you climb out of fear and adopt the right mindset.
1. Opportunity: Stocks are on sale right now — in a way we have not seen for decades. But many of us are so caught up in fear and hysteria that we’re missing a potential substantial opportunity.
People have said the following things to me in recent weeks: “Wes, it’s going to zero!” “It’s never been this bad or even close.” “Everyone in America is going to go out of business.”
Well, we’ve been here before, and not so long ago.
Think back to the 2008-09 Great Recession and mortgage meltdown. At that time, the economic wreckage was enormously different from anything we’d seen before. The markets fell more than 55% from October 2007 until the nadir in March 2009.
In 2001, stock prices were obliterated in the wake of the Sept. 11 attacks, which seemed like the beginning of WWIII. The market shut down for a couple of days.
Remember Black Monday in October 1987? Stock percentages (which are more indicative of upheaval than points) fell to a historic low that still holds the modern-day record. Many investors believed we were going into another Great Depression. But we rebounded.
We’ve seen ugly bears like this time and again. We’ve faced new and seemingly unsolvable problems. Every one of these crises appeared to be unprecedented while we were experiencing it, just like the dark clouds of today.
2. Finding income: Investors often gripe that it’s hard to find decent income, aka cash flow. CD yields are low and headed lower, and some U.S. government bonds have started to show negative interest rates. The income opportunity of today may be in strong U.S. companies that pay cash dividends. Presently, the vast majority of companies in the S&P 500 pay more income than 10-year U.S. Treasury bonds.
We often wish that we had bought stocks at rock-bottom prices. Right now, I see some of the most solid energy names yielding over 8% and down over 50% in price. Global food, beverage, home improvement, and health care companies are down almost 40%. Remember, when we look in the rearview mirror, we’ll say, I can’t believe I bought that company and got a 5%, 6% or 8% yield at that price!
3. Massive Federal Reserve intervention: The best way to get through a financial crisis, like this aggressive stock market sell-off, is to know that you have “dry powder” in your portfolio, meaning cash, bonds, or safety assets. Think of that dry powder not simply as a percentage of your overall holdings, but in terms of time: “X” months’ worth of spending money. Do you have six months, one year, or six years of dry powder that you can use, so you don’t have to tap the stock side of your portfolio until we are through this crisis?
The Federal Reserve’s latest move this past Monday will help keep our dry powder — dry. The Fed announced it would buy an unlimited amount of bonds as needed to stabilize credit markets. This move is an incredibly important development.
Money markets, Treasury bonds, mortgage-backed securities and even high-quality corporate and municipal bonds are all the bedrock of our financial system. If it’s shaky, then the entire system is unstable. So, this latest move by the Fed is a welcomed development. It’s meant to shore up our whole economic system and boost confidence in financial markets.
The Hulk just showed up at the Federal Reserve. Now we’re just waiting for the rest of the Avengers.
4. The private sector pharmaceutical response is real: In addition to companies such as Roche and Thermo Fisher ratcheting up production of COVID-19 tests, Regeneron’s CEO Len Schleifer recently shared progress on a possible COVID treatment. Their approach is based on the company’s successful response to combating the deadly Ebola virus outbreak last summer. If all goes well, this therapeutic could be available as early as this summer.
Hydroxychloroquine, which has been around since the 1940s, may be a treatment solution. Kevzara is being tested. Moderna Therapeutics is also working on virus testing – Phase III could be ready this fall for health care workers and first responders, and in the summer/fall of 2021 for the masses.
All of these developments should inspire hope. Unfortunately, the world and many of its leaders remain in a hysterical state.
There are three distinct phases to this crisis:
1. Underreaction, which clearly happened when we first learned of the virus.
2. Overreaction, the phase where “fear of the virus is more contagious than the virus itself.”
3. Rationalism, which can’t arrive soon enough.
Folks, we’re currently stuck in the second phase — a state of seemingly mass hysteria.
A recent article from Axios, a reputable (though left-leaning) publication, said that before this thing is through, we will experience 20% unemployment, 1.2 million deaths and long-term economic damage. With articles like this appearing in everyone’s newsfeed, it’s no wonder people are so alarmed.
I have a much different take on the toll from COVID-19 and where we go from here.
There’s no minimizing the health threat posed by the pandemic. Yes, we are in a well-intentioned economic shutdown. It’s a fact of life — for now. I don’t believe the shutdown will last so long that it does irreparable harm to the economy. And over the next 30 days or so, we have a $2 trillion fiscal stimulus package coming our way.
That stimulus, combined with expanded COVID-19 testing, will give us more clarity and certainty about where we stand and the way forward. Baby, white, swans.
Once we’ve tamped down the fear, we’re left with a strong desire to get back to work. Americans don’t want a handout; we want to wash our hands and start working again. We’re champing at the bit. It may take some time to get back to business as usual, but commerce will begin again in a significant way.
It’s the choice of the American people to save this economy. And we’ll fight this battle head-on. We’ll get our economic freight train back up and running the American way.
Certainty is the answer.
We will have much more certainty in the next four to six weeks. It will come from more information and objective facts, rather than conjecture. Understanding our reality will prompt America to get back to work, which will stoke the fires of recovery in the stock market.