Maybe it takes a darned recession to beat this thing. Maybe it even needs a bear market, which is what happened with the averages Wednesday as the Dow Jones average dove into -- and the and the rest of the indexes aren't that far behind.
The coronavirus is the ultimate exogenous event. It is a biological crisis that -- while it hasn't killed many yet, also hasn't even infected many yet -- is wreaking havoc all over the country.
Think of the stages.
At first many thought it couldn't happen here.
Then they thought that we could keep it out by stopping the Chinese travelers at our borders.
Then they thought we could contain it even if it got here.
Then they thought that it was no big deal. So few had it. So few were and are dying from it. The president seemed incredulous himself.
And then it seemed that everything fell apart. We started getting reports of people being stricken who hadn't visited China. We discovered the term "community spread." We heard about the outbreak in the state of Washington. The Rockland County, New York, outbreak with a National Guard encirclement. The Boston Biogen (BIIB) fiasco.
It dawned on us that novel didn't mean new, it meant there's no immunity to it. No vaccine. No Tamiflu. We are all babes in the woods against this unseen nightmare. Novel? It's a Stephen King novel, alright. Now we're cancelling schools, including colleges. We're looking for the masks, the test kits, anything that can protect us.
So now what, with the market in tatters, with fear everywhere as we pursue bottles of Purell and alcohol and toilet paper -- wherever we can find them -- and we carry wipes and gloves and we've got the masks, what happens next?
There are two ways for me to play this. I can pile on and tell people that it's over, get out now, if you need money, skedaddle. That the bear is back, the bull is dead, and you are going to lose so much money that you have to sell.
Or, I can offer a more constructive view, a view of what can go right.
Let's pursue.
First, I have been bearish for what seems like ages. I have been warning about the coronavirus and what it could do from the moment I heard of this thing. I went to the Super Bowl and came home before I could even see it, so I could play a tape the next morning of one of my favorite investors, David Tepper, the owner of the Carolina Panthers, saying that the world has changed. I have said, for example, over and over again, that I hated the oil stocks, the worst of all stocks, with the exception of the cruise ships. I urged you to sell them.
But now everyone I know, everywhere I go, people have given up.
So, given that I am bearish, let me tack the other way for a change. Let me tell you what would make me more positive.
What can go right?.
One caveat, despite the insistence of endless managers that the Fed can help, I really don't care about what the Fed does, because at this point it doesn't even matter. If the fed wants to do something it should go buy mortgage bonds, because the 30-year mortgage rates stopped going down, despite the plummeting treasury yields. At this point, I am not even sure it matters what the president does, if the only things he can get done are a payroll tax cut, which doesn't do much if you don't have a job, and some loans to tide the sick over, even as I like that.
What can go right?
First, we need to curb the spread of illness. We need to make it so we are South Korea or China and not Italy. We have to calmly start separating ourselves, stop gathering, stop going to wherever we congregate. We have to slow this darned thing down.
Look, it's going to hit everyone. We are going to have to take a recession to beat this. Many are going to be hurt financially. But the health care system will not be overwhelmed, because we won't have everyone sick at once, which is what will happen if we keep acting as if all is normal. It isn't. We know from the Spanish flu that when you congregate more people get sick, many more. Work remotely. Stop getting together. Stay home for heaven's sake. It won't kill you. It might save you.
Two, have faith in our scientists. They will solve this. Dr. Tony Fauci, who made great contributions reducing the AIDS crisis, has given us the straight dope the whole way. He has never said this thing is under control. He is hopeful we will have a vaccine for next year, because they do take a long time to develop. In the interim, maybe we come up with some antivirals that make it so victims don't have to stay in the hospital too long and risk getting even sicker. Let's get that Manhattan Project going where the government offers one hundred million dollars to anyone who comes up with a cure. Again, we can solve this. In the meantime, flood the local community health organizations with the billions and billions of dollars they need. Unlimited; think Marshall Plan. Think Malcolm X: By whatever means necessary.
Third, maybe we will get a break from the weather. We don't know what this novel virus will do when it gets warm -- I am conscious that is still striking people in warmer climates. If we slow the spread, flatten the curve, so to speak, maybe we can get there without big losses.
Fourth, get something major from the federal government. Not a payroll tax cut, which benefits the rich inordinately because they have jobs. Perhaps give each person $1,500. Or maybe give a partial forgiveness for trillions in student loans. No one is thinking about that and it could really be a wake up call, especially for a whole generation of people beleaguered by these loans. How about a sovereign fund to buy the companies bankrupted by this act of the devil for cents on the dollar to backstop industry? At this point, you have to think of anything and everything in the tool kit and outside of it, too.
Fifth, maybe we get some breaks in business news. What are the breaks? How about Boeing (BA) getting approval to fly the 737 MAX. That could be huge; how many hoops do they have to go through? How about the stocks of a lot of companies yielding 4% to 5% and finding bottoms, because they can pay those dividends. Remember, this is a biological crisis that's morphing into a financial crisis. Not the latter.
Look, I remain convinced that this market will not stop declining until we hit the lows we hit the last time we thought were going to go into a recession, December of 2018. Those are still a ways down. We need to see the S&P down to 2350; it's at 2,748. The Dow went to 21,600; it's at 23,638. Many stocks will bottom before those levels. Many won't. If you need money for the next year or two and you have an idea how much that is, wait for the bounce and sell some to get to that peace-of-mind level. Otherwise, if you have a lot of cash, you should be picking at the drugs, the utilities and some of the highest growth techies that don't need a strong economy.
Otherwise, if you can, stay at home, wash your hands, get your supplies. If you have to go out, wash your hands some more. But let's stagger this thing out, and bet our scientists come up with something and if we curb the spread, we won't all get sick at once. It's the best we can do.
