This Too Shall Pass…
To say data is flooding into our lives at a record pace of late would be a significant understatement.
And while I usually don’t listen to 99% of it, recent events have driven me to monitor the noise a bit more closely to better understand the mind-sets in place and the emotional feedback-loops.
This is important in order to keep readers and clients aware of the long-term structure in place and so that folks stay aligned to their goals even as the world appears to be going haywire at times.
Perhaps of greatest importance is to remember that every panic/catastrophe/crisis in the past has had one thing in common that was only proven over the course of time: That this too shall pass.
The great minds, the great people, the great and often unspoken magic of people working together to overcome has always solved the problems we’ve faced.
Now, I know these words will seem difficult beneath the glare of emotion and panic.
But when viewed in the rear-view mirror as we continue to travel down the road they’ll seem as relevant and important as they were during every other crisis we’ve made it through.
Recognising the ultra-heightened emotional state of the consensus – and standing as far back from it as possible is a good way to start gaining perspective.
The current perception is that the US economy - in a mere 3.5 weeks - has gone from peak performance, wide-spread benefits, record income, record assets, record unemployment, record low jobless activity and green lights almost across the board to "the world as we know it is over."
But let’s think back to about five years ago when the chief engineers at Intel were asked how they could give someone a sense of what "Moore's Law" means in our life.
Now, Moore’s Law states that the number of transistors on a microchip doubles every two years, while the cost of creating a computer is halved.
In other words, we can expect the speed and capability of our computers to increase every couple of years, and we will pay less for them.
Moore's Law also asserts that this growth is exponential.
Intel’s chief engineers used a 1971 VW Beetle car as an example of Moore’s Law. They suggested that if the VW had seen the same impact as computing has, today it would:
- Travel at 300,000 MPH
- Get 2,000,000 miles to the gallon, and
- Cost 2 cents to buy.
That’s the incredible and yet unseen power working behind us and in every sector of the world from motor vehicles to medicine.
The economic data is not yet showing the avalanche of bad news being reported.
Of course, some of that will change over time as more and more shutdowns come into play.
The latest data:
The data above on retail has some interest aspects to it.
The prior data was revised higher by 0.3% and we lost 0.5% this for February 2020.
It will clearly be worse in March.
But the point here is that when compared to the previous two months of "expectation", when combined, the next effect is a negative move of 0.4%.
Now, here’s the latest on industrial production:
Under the same perspective as before, note these elements in production: Industrial production was higher than expected with two of the weeks above feeling the initial effects of the virus panic.
So, what can we expect in the future here in this area?
- Looking back say a year from now, I feel we can fully expect that we will be set to witness a massive inflow of manufacturing bases returning to the US...forging an even stronger foundation for the US and her citizens for events like this in the future.
- Combine this with the most brilliant minds on the planet fully ensconced in our tech world here - and you get a massive wave of change and rehab to our world during this setback - again, setting the stage for a significant improvement in the manner in which we will all see recovery from this threat.
Panic Still Underway
All of this, of course, has not yet stopped the level of panic; some of which in and of itself is now becoming completely self-fulfilling.
Take the impact of the panic for cash on Bond ETF's and Bond Funds. Pricing has become erratic, locking up many issues with no trade. This is only leading to more news coverage which then leads to more demand for cash which then leads to more mispricing.
The latest VIX chart shows we have, from a closing perspective, set all-time highs.
This is not the same chart as the "VIX Futures." This is the Index itself:
There has never been anything that has caused the reactions we’ve seen in the last three weeks.
Now, let’s keep in mind how the normal flu season which unfolds in America each year is a far larger event than Corona has yet proven to be as noted below in the graphic below:
The intention is not to be disrespectful of those who have suffered in so many ways from the recent virus, but I feel we do need to remain confident that this panic will turn out like all other panics.
It has a lifespan and it will end.
Time will repair and pull back the fears.
The US Federal Reserve
Back in 2008/09 the US Fed and Government action did not immediately stop the panic.
And this time is likely no different.
The Fed is also communicating to back-stop money market accounts again as they did during the 2008/09 crisis.
Then as now, this is being driven by massive requests for cash money flooding the system.
As such, we can expect the following additional injections coming through in time:
- Rescue funds for back-stopping airlines, cruises and travel elements given it is government action causing the all-stop.
- Tax cuts (payroll) and Tax filing delays.
- More Fed support to keep capital moving throughout the system.
- And hopefully they finally put the uptick rule back in which will greatly quell the speed of change during market hours.
The above will only make sense to readers after the adrenaline and cortisol levels fall as this panic subsides later.
What history tells us going back to at least 1950 is that we should buy low and sell high.
Don’t do the opposite.