“Sometimes in our lives, we all have pain… we all have sorrow… but if we are wise, we know that there’s always tomorrow… lean on me, when you’re not strong… and I’ll be your friend… I’ll help you carry on… for it won’t be long… ‘til I’m gonna need somebody to lean on…”
A rather obvious choice for this installment as we honor Bill Withers – a great singer and perhaps even a better songwriter – who died recently at age 81. The combination of a simplistic melody (key of C major) and powerful words makes a perfect song for the age of COVID-19. We’re a little further on in the cycle, but there’s still a long way to go.
Three weeks ago, I used the Serenity Prayer as the backdrop for my thoughts. It’s perhaps even more important now as our lives continue to markedly change. In Ohio, the population has done an excellent job following the directives of Governor DeWine. He and a handful of other governors (Washington, California, New York, New Jersey) have taken the science seriously from the beginning. As a result, Ohio has far fewer Coronavirus cases and fatalities. We’re sheltering in place, working from home (those of us who still have jobs), and keeping proper social distancing. How long we’ll be doing these things is a matter of speculation. But I have no doubt that some behavioral patterns will permanently change when we’re through the tunnel.
One example is that I’ll be spending less physical time in the office. I’m comfortable working from home (as long as our four dogs aren’t barking). Technology allows us to communicate with our team on a daily basis. We have a set Microsoft Teams call at 9:30 AM every weekday to discuss what we need to be working on that day. Following that chat, we’re either on our own or collaborating remotely to get things accomplished. There are some inefficiencies (we have to use more complex applications than Zoom because of privacy issues), but we’re muddling through them. Will we continue to rely on remote work when the proverbial coast is clear? I’m not sure, but it’s not a bad bet that we will.
The simple exercise of being with other people will take significant adjustment. Sheltering in place, like anything we do, becomes a habit after a few weeks. How long will it take folks to get comfortable being in a crowd again? When will I get on a plane to see out-of-town clients? Will I ever be at ease attending a major sporting event? The thought of watching Buckeye football with 110,000 of my closest friends is currently anathema.
The Federal government was late to the recognition of the seriousness of COVID-19. The United States is still woefully lagging in testing for the virus. Medical supplies for first responders and health care workers have been spotty. There are daily disagreements between the White House and the doctors on their Coronavirus task force. States and cities have been left largely to fend for themselves. It’s where we now stand, and I don’t see things changing any time soon. The sad fact of the matter is that we’re not much further along in the fight to eradicate Coronavirus than we were in February. I’m confident that science will eventually win, but how long it will take to do so is anybody’s guess. The worldwide economy, with a few exceptions, has ceased. Unemployment will possibly reach levels not seen since the Great Depression. Programs to get money in the hands of folks that need it most are slowly ramping up, but not smoothly working yet. Fortunately, the Federal Reserve has opened its checkbook and seemingly will do all that’s necessary to keep things afloat.
Everybody wants to get back to work. Everybody wants the economy to rebound as quickly as prudently possible. I understand this imprimatur, but am leery of its execution. Just because a restaurant or shopping mall re-opens doesn’t mean that people are going to immediately patronize them. I honestly feel that folks are underestimating the psychological damage that will result from this crisis. Anxiety levels are quite high (as they should be) as we fear for our health and well-being. Economic hardship only adds to the scenario. The ethos of angst can’t go away with the snap of a finger or a government directive. It’s simply going to take time to arrive at any semblance of “normal” as we knew it.
Since the primary purpose of these letters is to comment on the markets, I’ll share a few thoughts. The last couple months have given us the most rapid bear market in history (per CNBC1). The major averages plummeted around 35% at their nadir, but had a double digit percentage recovery last week. Volatility, while lessening a bit, is still roughly four times the level that it was in January. Swings of 3-7% in equities are near daily occurrences. To try to anticipate what will happen in the short-term is folly.
This quarter’s earnings season begins this week. I’m guessing that reports will be almost uniformly negative with future guidance omitted. Even with the Fed being so accommodative, the earnings backdrop won’t be a plus for bulls. My feeling is that things will continue to be very choppy until we receive some positive science news on COVID-19. Wall Street has already punted on 2020, and is looking to 2021. Because of the psychological issues mentioned above, I don’t think that the hoped-for V-shaped recovery is possible. A U-shape might happen, or even an L. Believe me, I’d love to be wrong about this.
Perhaps we overshot to the downside… I simply don’t know. The chartist in me says that a retest of the lows would be healthy for the market. I’d prefer not to go there emotionally, but there’s no way to tell yet. Investing in the current market is extremely difficult because of the volatility. Algorithms are running the show and are wholly dependent on minute-by-minute news flow. We have always been long-term in our framework, and will continue to be.
I’m optimistic for the long-term. America has weathered significant storms before. We will make great strides as a country because of COVID-19, not in spite of it. Crises tend to spur innovation. They also tend to promote a sense of unity and overall respect. I can profoundly feel a new sense of caring and cooperation. I am hopeful that these sentiments will linger long after the Coronavirus is gone.
In the meantime, take Bill Withers’ lyrics to heart. Don’t be afraid to lean on someone (from a proper social distance, of course). Try to control only what you can control on a day-to-day basis. Continue to make the best out of this difficult situation. Most importantly, stay safe and healthy.
Feel free to let me know your thoughts. RC, Christie, Ruth, and I have been working on a couple new initiatives which you’ll be seeing in the next couple weeks. They will have nothing to do with investments… just a tease for now… take care.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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