Since my last blog which clearly stated that “Trump is Madoff and We are All His Clients” just a week ago, the economy and stock market prospects have fallen off a cliff.
I have been looking for a more delicate way to express my thoughts about what businesses and investors and everyone else should do going forward because I am a confirmed optimist by nature. But there is a huge problem today that makes it complicated.
We are being led by a president who has spent his entire life lying to and cheating people for his own personal gain. He has proven himself to be an egomaniac and a serial pathological liar and a bigot and a vengeful person who has spent the last three years systematically destroying most of the safety net and medical preparedness departments of government (just read Beth Cameron’s article) and diverted those resources to building his fantasy “Wall” on our southern border and providing more and more benefits to the wealthiest Americans and the companies they run.
The second piece of the catastrophe has been brought about by the spread of the coronavirus which Trump downplayed as a “hoax” and blamed Democrats and the media and now the Chinese for creating.
Trump is not to blame for the coronavirus. He IS to blame for the extent to which valuable time and resources were wasted for precious weeks while he and his enablers lived in denial and contradicted the few experts he has allowed to remain in his government. Then he flipped on a dime and then claiming to be out in front of the pandemic from day one as he lied about the availability of tests and gave himself a grade of a perfect “10” on his own performance and denied any feelings of personal responsibility for his false and self-serving lies and policies.
But most of all he is to blame for simply being a selfish and greedy liar and egomaniacal asshole. He displays it during the daily briefings where he whines about how he is not being given enough praise by the media and others and how he has personally lost “billions” for agreeing to be our president and by bragging about one-off calls he gets from corporate CEOs offering to help with this or that instead of doing his job and feeling real empathy for the tens of millions of Americans who are losing their jobs and all of their savings while HE is the one in charge.
But none of that is news to anyone. Most of us already know it and his cult-like supporters deny that it is even true.
What IS news is that the stock market has fallen off a cliff and millions of Americans are losing their jobs and their life savings every day while our president surrounds himself with adoring advisers and tell Americans what a wonderful job he is doing.
That is a sign that we are not close to finding a bottom to this investment and economic death spiral no matter what the Liar in Chief and his enablers tell us.
Getting back to what used to be my day job of telling people how to invest their money, I would recommend that people get rid of their index funds and broad based exposure to the stock market and focus on those few but promising windows of opportunity that continue to make sense in this new world.
Sell or avoid the stocks of once-iconic companies that are now doing zero business and may well go broke and will depend on government handouts to stay alive. Look instead to the stocks of companies that will thrive in the new stay-at-home and focus on distant socializing and the online way of doing business that will be with us long after this crisis ends.
Stay away from any company that is seeing its product lines or stores or market completely shut down and its revenues go to zero even as its overhead and debt service continues.
For example, it is hard to see how investment in restaurants or cruise lines, or airlines, or movie theaters, or their suppliers makes sense at a time when business is not just down but has completely disappeared. In addition, our president and other politicians are now claiming that no one has to pay their bills or their taxes or rent or student loans any more.
That is a very compassionate approach and perhaps the right approach from a humanitarian point of view but it is a recipe for investment disaster for the owners of the businesses and real estate who revenues could plunge to zero overnight.
At some point and from some level the economy and the stock market will come back. They always have and always will. Although sometimes it takes a very long time. The Dow first reached the 1,000 level in 1966 but it wasn’t until 1981 that it regained that level after a 15 year bear market.
But even when the overall market eventually recovers, it is getting harder to see how hundreds of today’s companies and millions of workers survive this. The economy always has its ups and downs and during the bad times stocks go down and people get laid off. But this time it is different. For a growing list of companies, revenues have gone to ZERO and their places of business are closed indefinitely. No restaurant or movie theater or theme park or airline can survive for long with zero revenues.
And if the government bails companies out with money that it doesn’t have, (because Trump cut taxes on the rich and chose to run a trillion dollar deficit during STRONG economic times–but I digress) it would be irresponsible of them to do so without taking complete ownership of the company and leaving existing shareholders holding worthless stock certificates.
Boeing was an iconic American company before we learned that they delivered planes that they knew had major flaws that resulted in the deaths of hundreds of innocent passengers and employees. But they are our country’s largest exporter and smart people realize that the company cannot be allowed to fail for strategic and security and economic reasons.
Boeing’s executives have asked the government for $60 billion to get through this mess. But at yesterday’s closing price of $95 a share, the entire company is valued at just over $50 billion. So even if a person believes that Boeing needs to be saved, it is impossible and irresponsible to present a scenario where the American taxpayers and the U.S. government don’t walk away with a huge chunk of ownership of Boeing and existing shareholders are seriously diluted.
And if people are allowed–for good reasons–to stop paying their taxes or rent or other bills until things get better, how does this not wipe out the equity that has been built up across a broad range of investments?
The inevitable economic recovery will take place when things start getting better. And the stock market will turn up months before that happens. But logic would dictate that many of the companies and industries we have long regarded as “safe” and iconic will not be around to participate. New companies will have taken their place or the government will own the old companies that it took off life support.
Among those new winners could be health care and technology companies and those which are benefiting from our increased dependence on video conferencing and home entertainment and the “cloud” which are trends that may well persist long after the current crisis is over. And grocery stores and online entertainment sites and online retailers.
So invest in THEM but not in index funds that include a bunch of companies that won’t EVER come back.
We have recovered from exogenous events like 9/11 and the Financial Crisis of 2008–the greatest self-inflicted national catastrophe since the Dust Bowl–and the popping of the Tech Bubble and the 1987 computer trading crash.
In each case optimistic investors lost a ton of money for a while but here we are today in much better financial shape than we would have been if we had lost the faith and bailed out of the stock market when things looked the worst. I get it.
But facts and economics always prevail in the end. And as an optimist I am reaching to find a reason other than historical assurances about why investments in companies that are being hardest hit and will be devastated by this crisis should not just be dumped.
I have been very wrong before and I hope I am wrong now.
All comments and advice are appreciated.