It’s been one hell of a week. You’ve probably been noticing a few small changes around this little blue ball we call the Earth. Lots of people are getting sick. The stock market is going nuts. Schools are canceled in the entire state of Washington, events and public gatherings are now canceled. Everyone who can is working from home.
Hourly workers are already starting to see pink slips, as many small businesses close. Many restaurants have already closed. Even my local public library is closed for a month.
The world has changed rather profoundly in the span of only two weeks.
Who’s to say how long these changes will last? Perhaps once the virus has run it’s course, large public gatherings will be anathema. Maybe no-one will eat out at restaurants anymore. Will working from home become the “new normal”? Maybe the world will permanently shun cruise ships going forward…. and toilet paper becomes the new currency…
All toilet jokes aside, it’s been nearly impossible to find toilet paper this week. It’s sold-out almost everywhere. When Costco gets toilet paper in stock, they sell out in matter of hours.
And the lines… Oh My God the lines! Check out this ridiculous line I snapped a picture of at my local Costco on Thursday….
That’s literally two lines of people that stretches from the front of the store all the way to the back of the store. Besides food, most people had filled their shopping carts with their limit of bottled water and toilet paper.
On top of all that, schools are now closed for the next six weeks here in Washington state. Which means the Daddy Daycare Death Star is now fully operational here in the Tako household.
I’m trying my very best to keep the kids occupied and still learning something, despite the quarantine.
The Sanity Test
Are these behavioral changes going to become permanent? Will our grand kids one day shake their heads in disgust because we’re the generation that stockpiles mountains of toilet roll, and has entire rooms dedicated to storing Top Ramen “just in case”?
Instead of worrying myself over all the potentially bad things that could happen, I’ve decided to treat this event like a kind of strange sanity test.
With no behavioral precedents in place, humans have free rein to behave in all sorts of odd ways until things get “figured out”.
People are already acting in ways that I would have considered crazy only a couple of weeks ago. Like all the people buying 5 years worth of toilet paper at Costco. The behavioral “norms” we’ve come to expect have been thrown completely out the window!
My goal is to stay sane and make as many rational decisions as I can over the next couple of months. I do NOT want to engage in any economic behavior that I’ll regret 6 months later (like buying enough rice to feed an army).
The winners of this little sanity test are going to come out healthy and ahead financially because they’ll have managed to act rationally in a irrational world.
We’ll see if I pass the test…
Is The World Ending?
No, the world isn’t ending! It’s just taking a little break from “normal” for awhile. That said, this virus and all the economic problems created by it, are far from over. According to epidemiological experts, COVID-19 has months left to go before the number of cases peaks around the world.
Logically we can infer that the drastic public health measures taken in recent days (lock downs, school closures, etc) will remain in place until the infected case numbers begin to drop.
When the virus finally slows, public gatherings will be allowed again, people will begin to travel, they’ll eat out at restaurants again, schools will re-open, and so forth.
Only then will the wheels of commerce truly begin to turn again. Until that day, the economy is going to be a very dire situation. When Q1 corporate earnings get reported in a month or two, the numbers are going to look bad. Really bad.
Should I Invest Now?
With the stock market down some 23+% from 2020’s February high point, many people are wondering if now is a good time to invest.
My advice is to kick back and relax — There will likely be tons of bad financial news ahead, and the earnings numbers from your favorite stock are bound to look absolutely terrible this quarter.
This is why I’m in no hurry to buy stocks with my excess cash.
Trailing 12-month (TTM) profitability numbers are NOT going to be a good indicator of current profitability during this “lockdown” period, and they most certainly will NOT be a good indicator of future earnings either.
I believe this is why capital markets are reacting with such incredible volatility in recent days. Nobody knows what’s going to happen. Uncertainty about the future is extremely high.
Volatility will likely remain elevated until the economic picture gets a little clearer. Again, it’s probably going to be a couple of months before all of this gets sorted. Prepare for a wild ride.
Will The Bubble Permanently Burst?
When it comes to investing in today’s troubled markets, there seems to be two camps of people — The “sell it all to preserve capital!” camp and the “buy this incredible dip!” camp. Which do you belong to?
For me, I’m not a fan of either camp. I think these two philosophical buckets ignore the giant pink elephant in the room — What if stocks are going to trade permanently lower, like some kind of Japanese Lost Decade?
Japan’s stock market was once the envy of the investing world — hitting all-time highs in the early 90’s. Growth prospects were once incredible. Most experts agree this happened due to excessive lending practices, which fueled a market bubble.
Now, two decades after the bubble, Japanese stocks still trade far below their all-time highs, and prospects for corporate Japan are still dismal at best.
To be fair, this is only one potential economic possibility. There are many others to think about…
What if certain sectors permanently slump in a response to the virus-shock? Like the travel industry. Or the restaurant industry. These industries are under severe economic pressure right now, and the new behavior the virus is causing could create permanent changes. We just don’t know.
I’ve been warning about such possibilities for years, but you know … people never listen. They look at the recent past and try to extrapolate what the future looks like. This kind of “predicting the future” works until it doesn’t anymore.
Human behavior is almost certainly going to change from this coronavirus lock-down time period — just like it did after many other life changing events in human history. The Great Depression is one such example.
If you talk to anyone who lived through the Great Depression you’ll begin to understand how these events can create long-term and lasting changes to human behavior. Those who lived through the depression era, went from boom-time-big-spenders to frugal-to-a-fault hardened survivors. They made due with whatever resources they could scrounge up.
The only certainty over the next few months is going to be a morbid one — A lot of people are going to get sick, and many will die. But, there will eventually be a light at the end of the tunnel… with a future that is going to look a bit different.
Be sure to pack your 10 cases of toilet paper for the journey.