March 19, 2020
The above title may be a bit melodramatic because we all are on the front line of this one, but what we really have in mind is the investment front line, i.e., watching that computer screen all day and listening to the accompanying chatter. In no particular order, here are a few tidbits:
The Far East
This is where COVID-19 began, of course, and there is a natural tendency to look at the Far East for indications of how it might play out. One very encouraging sign: The Asian stock markets, so far and on most days, have been holding up better than Europe and the U.S. Not a lot of data points, to be sure, but others and we have noted the pattern. If the virus itself moved from west to east, maybe the human and economic recovery will as well. Another encouraging sign: This morning, the Hormel CEO told CNBC that he had talked to his (China) team and that they are pretty much back to normal. Yet another: Starbucks has re-opened in Wuhan, COVID-19’s Ground Zero.
Stocks and Bonds
As you might imagine, investment strategists of all stripes have been weighing in on COVID-19 and its impact on the economy and capital markets. Frankly, we’reless interested in specific recommendations than we are in grand themes. Along those lines, one strategist recently re-channeled the Warren Buffett quote that we cited in last week’s Perspective: “If you wait for the robins, spring will be over.”In the current version, the strategist reminds us that the stock market will find a bottom long before the worldwide economy re-gains its footing. Many precedents for that. He goes on to say that the trade at this point, like all others, is to rebalance by trimming what has outperformed and building back up what has not. Caution warranted as always, but something worth keeping in mind.
One final note in the world of stocks and bonds versus the real world. In the midstof all of this, someone who definitely tilts toward optimism said, “In the real world, things generally fluctuate between ‘pretty good’ and ‘not so hot.’ But, in the world of investing, perception often swings from ‘flawless’ to ‘hopeless.’”
The Other Side
It’s not too soon to start thinking about the other side, according to Andy Kesslerin a recent WSJ column. He set things up by saying that eras change, sometimes overnight, and then listed a few thoughts on those “things.” For example, hebelieves that the march toward clean and renewable energy has been set back a decade or more. Maybe, if you believe that current, historically low oil prices will not recover as the worldwide economy re-gains its footing. Next, he asks the question: Is this the end of running off to college campuses for tens of thousands of dollars per year? Probably a stretch, but we long have believed that the ever- higher-cost, four-year campus experience was facing an increasing number ofheadwinds. We’ll see. And finally, Kessler believes that the era of Chinesemanufacturing dominance is coming to an end. Hard to argue against that one. Of course, a lot of manufacturing still will be done in China, but the Chinese, in all likelihood, never again will be so dominant. The supply chains of the future probably will be far more diversified. The trade/tariff issues of recent years got this ball rolling, and COVID-19 probably will cause it to pick up speed.
Bottom line: There is no shortage of commentators or commentary in the time of COVID- 19. When it comes to stocks and bonds, though, please keep in mind the quote about‘flawless’ and ‘hopeless.’ This too will pass.