March 10, 2020 | The Right Thing

First, a reminder.

• This is a financial blog. Well, okay, it’s also a canine blog with special emphasis on marital relationships, hormonal urges and why real men change their oil.
• But finances, the economy, real estate, tax avoidance and portfolios – that’s the main menu. So stick with it.
• Yesterday my sterilized, nitrite-coated delete finger was busy. Comments about pandemic disaster, Italian horrors, bodies by the millions and the coming collapse of our health care system were nuked. Along the way I was accused of being arrogant, uncaring, callous, flip and imperious. It was touching. Thank you.
• You’re free to panic and drool all you want. Just not here. If we’re all going to get sneezy and wheezy for a while, so be it. Life will continue.
• So, if you’re a snowflake or someone who was busy growing zits when 2008 happened, or Y2K, Nine Eleven, SARS, Desert Storm or any of the other crap which has befallen folks in the last few decades, calm down. Learn from experience. Everybody thinks it’s different this time, until it isn’t anymore. And in a few months it won’t be.

Now, time for a daily update on news you can actually use.

On Monday Mr. Market priced in a possible global recession, cascading corporate profits and a growthless 2020. So he took back a third of the gains that had been made during 2019. Not so bad. It sure wasn’t 2008, when all-in equity investors lost 55% of their wealth.

Get a grip. This is not the same crisis as a dozen years ago. Back then credit was freezing, the US housing market’s ocean of bad debt was sinking banks and systemic financial failure was inches away. Today the financial system is far more solid, bankers have pumped-up reserves and protections are in place to repel a repetition. Moreover, central banks now work in concert, monetary policy is coordinated and the international response you will see over the coming weeks will prove it.

Yup, the global supply chain has been busted. Temporarily. The travel business is decimated. Retail will suffer, along with hotels, eateries, sports and more. But the virus is a different threat. It’s not attacking the system, but demand. As it recedes over the months to come, that demand will be restored. It will surge. Like I said, life will go on.

Stocks have priced in this disruption, along with the mean little Putin-inspired oil war. But both are temporary in nature. Pandemics never last. Nor do wars. History will eventually tell us, but Monday March 9th might have been the bottom for the share values of a bunch of decent companies.

Having said that, there’s no benefit to panicking or going to cash. The drop happened. Too late to sell. Besides, you’ll just miss the rebound, whenever it occurs. Is it time to buy? Maybe. Takes guts and a long-term view. Volatility is still huge. More shocks could be coming. The best strategy, bar none, is to do nothing. If you have a nicely balanced portfolio, ignore it. Remember that during the credit crisis when equity investors needed seven years to recover, folks with balanced assets lost less, recovered in one year and averaged +5% between 2008 and 2010.

So on Monday the market capitulated. On Tuesday the Dow added a thousand points and even oil-crushed Bay Street was ahead about 350. Central banks around the world will crash rates, inject stimulus and start buying up assets, from bonds to corporate equity. In Washington and Ottawa there’ll be massive fiscal stimulus. Tax cuts. Ditto from London, Tokyo, Berlin and beyond. President Xi just showed up in Wuhan, signalling that the Chinese pandemic is coming to a conclusion. And while there are countless cases of the virus to be endured in North American this spring, there will also be an endgame. It’ll be life, not death.

Panic is pointless. Paralyzing. If it leads you to take rash actions like vaporizing your retirement strategy, it’s also destructive. Panic solves nothing. Nor does coming to this blog to unload your insecurities, fear and trembles.

“This is no time for your normally appreciated wit,” Janice wrote me yesterday. “We need you to get on the bandwagon and show some understanding of the seriousness of this dire situation, and also show some compassion & empathy. Money & investing is not on the priority list for most in such dire circumstances. There will not be a short term turnaround. The economic & supply chain disruptions are just starting. This is real, and the widespread implications are unfathomable. It is f’ing serious and deserves a f’ing serious response! Do the right thing – please.”

I just did. And here comes the finger.

Garth Turner March 10th, 2020

Posted In: The Greater Fool

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