”Everyone agrees...that these are classic symptoms of a monetary squeeze.”
”Industrial Disease” as performed by Dire Straits
Writing about the global pandemic is problematic because anything penned can quickly become obsolete. Please read this knowing that many things will have changed between this writing and you reading it today.
This downturn is similar to 2008 in that all economies were impacted then and we are already likely in a global recession now. However, the pandemic is dissimilar from 2008 in that one had far more economic tea leaves to read leading up the financial crisis. With our current situation, there was little warning and mixed messages concerning the seriousness of the virus. Another dissimilarity is that if countries work diligently to minimize the spread of the virus, healthier economies and markets could potentially return sooner and provide a U-shaped recovery.
In the near term, unemployment will soar. If there is an extended credit crunch and asset prices nosedive further, our situation could grow exponentially worse. But the government will likely act as a lender of last resort.
No one has a crystal ball. Anyone who tells you they know what’s going to happen should be given a wide berth.
Uncertainty, causing fear, has reigned, and uncertainty roils markets. Precipitous swings and heightened volatility will likely continue until we reach a tipping point in providing tests and corralling the spread of the virus. Unfortunately, while under development, a vaccine is currently unavailable, and critical shortages abound in medical equipment and hospital beds.
Few American businesses are immune. Airlines, retail, restaurants and the hospitality industry are especially vulnerable, as are businesses where people closely interact. Global supply chains have been interrupted and many products, especially those manufactured in China, are now difficult to obtain. When it’s difficult to access food and other staples, uncertainty can become fear. And fear leads to panic.
Panic will not help in managing our assets and making sound financial decisions, though. We will eventually get through this, although it may take a while.
Some investors will sell securities and harbor cash for a time, while keeping other securities that they expect to hold up more effectively through the pandemic. Others will go completely to cash and look for an advantageous opportunity to reinvest. Some, already holding cash, will look to purchase good companies at a discounted price. Many will sell no securities and ride out the recession, hoping for markets to rebound quickly. Every investor’s situation is unique. There is no cure-all answer for what to do with your portfolio during a crisis.
Eventually, whether it’s a matter of weeks or months, the economy will recover. Once the virus is contained around the world, or when a vaccine is seen on the immediate horizon, markets will be off to the races. America has survived and thrived through many challenges. While it’s tough to be optimistic when the news seems to get worse by the day, I’m positive we will see a light at the end of this tunnel.