It’s Time To Go Home

March 21, 2020

In reality, I am already home, but it has been a bit of a whirlwind over the past two weeks.   As I write this, I hope that all of your family and friends are doing well.   Please remember, ISOLATION IS THE ONLY KNOWN WAY TO STOP THE SPREAD OF THIS VIRUS and it will pass in time.   (More on this below)

The obvious social and financial repercussions are well underway, and that has caused a lot of stress for Jinhee in her corporate life.   For that reason I decided to fly home last weekend and hang out and (hopefully) remind her that this too shall pass.  Then things got interesting.  I decided to stay (instead of fly back to the boat on Tuesday), then the announcement of the border closing occurred Tuesday night, and so I got the first flight I could on Wednesday to close up the boat and get the car home.

I arrived home yesterday for dinner and what a trip . . .  Let me back up and cover a few things that have been on my mind.  I will start with the personal, then move to the virus and finally move on to financial markets because I picked up a lot of readers with my financial post from March 1.

On my trip back to the boat I was greeted by a very kind and friendly flight crew on my Air Canada Rouge flight.   There were six passengers, five cabin crew and two pilots.   The cabin crew put us in business class (really, they just didn’t want to walk very far.   Kidding; they were great!).  The flight back was packed/overbooked according to the gate agents in Toronto.

When I arrived at Orlando, the airport was empty, and the parking lot (long term, off airport) was half empty and I asked the bus driver if this was normal.   She informed me that it was the first time she had seen it this empty.   Travel is clearly winding down quickly!

When I arrived at the boat, things appeared more normal.   There was plenty of activity, but this really is just a mirage.  The marina office itself is now closed, the very robust farmers/craft market has been shut down and traffic was somewhat lower.

I put in one last bike ride in warm weather, tied up, put away and otherwise got the boat in order and closed it down for a long nap.   After leaving keys with my dock neighbour, I jumped in the car and began the long drive home.   Leaving at 5pm (Thursday), particularly after a four hour bike ride, is never a great idea, but the border was to shut at end of day Friday, so off I went.

The roads were quite empty and there were a LOT of Ontario and Quebec plates heading North, along with plenty of others in RVs heading north, back to their home states.   Unfortunately there were a few very bad accidents on the road way as well.   A bit distressing to see that, but there are always accidents, we just don’t normally see them.    I wish I could tell everyone to be rational, but this is my only platform for assuring people that this too shall pass.   I slept a few times at roadside stops and the weather was generally excellent making it a very easy trip.  (That ‘blizzard’ that hit the mid-west came through West Virginia and Southern Pennsylvania as heavy, heavy rain which was actually concerning for about an hour, but it cleared up once through the mountains.)

In the end, I made it to Hamilton just before dinner to deliver my rusted bike to Juan Farias (Bike Pro Service) for a refresh.  I made it home for dinner with Jinhee who is just as stressed out as anyone trying to keep a major corporation running during this mess.

On the advice of professionals everywhere, I will self-isolate for 14 days now to make sure that I am not part of the problem.  ISOLATION IS THE ONLY KNOWN WAY TO STOP THE SPREAD OF THIS VIRUS.

I don’t want to say too much about the virus, but I read news all day, every day.  I look up facts and figures and I evaluate, from a scientific and business perspective what things mean.

I recently annoyed, or perhaps offended some of my family members who suggested praying to stop the virus.   First off, no offense.  I am well aware that you believe praying will help and if you do, then please feel free to use this outlet to manage your personal emotions, the needs of your soul and to otherwise improve what will undoubtedly be a difficult time in the coming weeks and perhaps months.

At the same time, it is important to recognize that what many, for centuries, have explained away using the language of belief, have now been explained by science.   Not everything of course, and perhaps we never will have an explanation for everything . . . BUT we have learned more about viruses in the past 40 years than we have learned about prayer in the past 4,000.   Since this one, single virus was discovered, there have been thousands of scientific papers prepared studying it, analyzing it and documenting it.  The science is good.

ISOLATION IS THE ONLY KNOWN WAY TO STOP THE SPREAD OF THIS VIRUS

Other methods are being analyzed and under development.  Scientists around the world are attempting to stop the death toll.  It’s hard work and it is based on a massive understanding of viruses built up from years and years of science in Physics (Electron microscopes), Chemistry (organic reactions) and Biology (so many areas here).   Every day, their understanding of the disease grows because of science.  Electron Microscopes, virus cultures, animal models, super computers, these are the tools of modern virology, indeed biology, and they are working overtime.

The virus will stop when it can’t find a viable host.   It’s that simple.

Here are some of the best Virus sites for those who are interested in factual, meaningful information (rather than sensationalist media):

The best site I have found so far to overview data about the disease is called ‘Our World in Data’ and they do much more than Coronavirus updates, but their data is updated daily, is not political and has excellent explanations for many meaningful concepts.   Check it out by clicking this sentence.

I also use the World Health Organization’s site (but the one above uses data from the WHO as well).  Check out the WHO website by clicking this sentence.

Finally, the US Centres for Disease Control and Prevention is probably the best run organization in the world for monitoring diseases.  Check out the CDC website by clicking this sentence.

Moving on to markets, family and friends have asked a number of questions and I could fill a book, so if you have specific questions, please ask, but here is the overview which will hopefully cover most of your situations:

1. The market is now down about 30%, wiping out almost four years of gains, and everything since Donald Trump took office in January 2017.  (Sorry that was political commentary!)  With so many moving parts, it is difficult to know if that is enough.  Using common metrics, for example a price/earnings ratio, is difficult.  We are about to see massive changes in all the components which make up this ratio (prices are down, but earnings will collapse too, but by an unknown amount).  Similarly Debt to Equity, or Price to Sales or Operating Income . . . you get the picture, the changes to the underlying data will be massive, unprecedented and I wouldn’t suggest guessing unless you are a professional analyst.
2. It is difficult to know when markets will bottom and you may be thinking, ‘why don’t I jump back in’, and while I don’t want to give out any generic investment advice, you might want to work on some ‘what if’ scenarios.
   1. What if it isn’t the bottom?   – This is a knee jerk reaction to a very dire situation, but the real impacts will take months to be understood.   They may not be as dire as we think, but they may also be worse.   (This is not an answer, it’s a what-if).    If you want to get back in, dollar cost average over a long period.
   2. What if I need money? – The whole point of my post on March 1 was to make sure that you have access to capital to buy food and pay your bills.   If you are comfortable with that, then taking some risk with excess capital may make sense for your situation.  Understand that governments, companies and individuals all over the world spent the last week trying to access money under panic conditions.   Do what you can to avoid being in this situation personally.
   3. What if the market bounces back quickly? – We have become accustomed to ‘v’ bottoms in the markets.   Unfortunately, they are not as common as what you might think.   In the 1929 market, the market bounced from the early tumble but then went down even more later. It crushed people’s souls in the end and the pain lasted until 1934.  In the 2007-2009 crisis, of course the pain lasted for over three years.   We are in week four of what will likely be a multi-month and perhaps a multi-year event.   Even if you miss a bit of upside, there is no rush.  Normal will not be back soon.
3. The best time to sell investments is when times are really good.   Generally speaking, the worst time to sell is when things are really bad.   My first rule is to make sure that you have money set aside to handle a long drawn out downturn.  If you have done that, then selling now is probably not a good choice.   I can’t tell you when the bottom will be reached.  Perhaps it was this week.   Perhaps it will be June.   But between here and whenever that bottom is reached, the market may go up and down by 10 or 20%, maybe even more.  If you are not a trader, your best bet is to invest in high quality companies (or funds/ETFs that invest in high quality companies) and let time do it’s job.   These things work out over time.
4. What’s next?  There is such a disdain for social programs in some modern societies and yet our governments have made companies the largest benefactors of social programs.   The amount of tax dollars (and other special considerations) offered to corporations is off the charts.   This week alone, the US government has made almost $2 Trillion (that’s with a T) of money available to individuals and businesses to stem the tide of this crisis.   It won’t be enough.   Many companies will undergo massive change in key areas (revenue, profits, margins, operating costs, debt, taxes) that analyzing them will be nearly impossible and some will not survive.  Many companies, particularly retailers, oil companies, some manufacturers were already on the brink of financial disaster before this happened.   The inevitable changes this will bring will make their businesses financially unreasonable.    Being an investor just got substantially more difficult, so focus on your family, your hobbies and let the dust settle.

Finally, I am going to provide a little more description to the ‘Where are we Now’ chart of investor emotions.  It has been a very interesting week and it is a chart that I have been using for two decades to guide my market timing (a foolish endeavor to be sure, until you get it right, then it seems okay.).

Pay close attention to the different areas here.  I will provide some insight because we are seeing many of these components hit, but I think we are still in the fear stage.   Therefore it is too early to be an investor.

• Denial – We have heard President Trump and other despots deny that this disease is a meaningful issue, while the ‘average’ financial pundits are saying that things will bounce back quickly.   They are behind the curve, but they will take a long time to make it to a true washout status of markets.
• Fear – financial markets and debt markets are in fear mode.   Over the past two weeks debt markets began freezing up and all of those announcements of bailout programs are an attempt to return them to normal functioning.   It is also an attempt to prevent you from feeling the fear.   You didn’t realize that those who control your financial world just stopped being able to operate last week.   That is the purpose of the bailouts, to prevent the fear reaching you.   It’s working so far, but I am not optimistic it will last, be prepared to take care of yourself.
• Desperation – There are some signs of desperation among individuals (toilet paper, hand sanitizer … really this is not important, we focus on the silliest things) and some corporations (travel, retail, small business).   Airlines, cruise lines, hotels, restaurants and retailers will start declaring bankruptcy over the next few months.   They are acting desperately (asking for bailouts) now to avoid or delay that outcome.
• Panic – Funny enough, governments and people shopping for toilet paper are the only places I see any real sign of panic.   Okay this has been a steep drop in asset prices, and it was very unusual, but there was no actual panic yet.    Perhaps it can be avoided, but certainly panic should be expected.   Incidentally, I would predict the panic to be on a very personal level when it hits.   Suicides, appeals for medical assistance, food shortages and issues like that.   That is the type of panic to look for, not a financial panic (after the initial 30% drop in markets, further down moves will seem much smaller.)
• Capitulation – Despite little ‘panic’, there was capitulation selling in Oil on Monday, Copper on Thursday and Wednesday’s general market action looked a lot like capitulation as well.   A move like this has NEVER happened this fast, or for this reason, and so I don’t think we have actually had capitulation yet.   I would still urge patience or, if you want to take advantage, use dollar cost averaging and spread it out over 6-12 months.
• Despondency – No signs of this yet.   The impacts haven’t yet hit home.
• Depression – Again, no signs yet.   People are still eating and driving and living as normal.   That will change in the next month as the cash flow stops.  Be very patient.
• Hope – Again, there are many who are using the ‘hope’ approach to making people feel better, and I think that is a wonderful effort, but it is misplaced.  It is too early for hope.  It is time to be realists about what is happening here and prepare for the coming difficulties.   All will be fine, but not by being blind to what needs to happen now and there is much work ahead.

That’s it for a while.   Be well and please consider dramatically reducing your movements.   That will give the scientists time to find ways to minimize the impact of this virus.  Remember:

ISOLATION IS THE ONLY KNOWN WAY TO STOP THE SPREAD OF THIS VIRUS