Beyond The Headlines

Are we there yet?

April 20, 2020 | Diandra Ramsammy
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I remember taking long road trips with my parents as a kid. We would pack our small Fiat, and head out. Once we visited the lake country in the northwest corner of Poland, and another time it was the beautiful coast of the Baltic Sea. My favorite destination was the charming, often snow-covered Tatra mountains in the south. And like any other kid, the longer the drive, the more often I’d ask — Are we there yet?

Feels familiar, doesn’t it? Our experience of the last month and a half has felt like a long road trip, a detour from the road we thought we are on to a road we had to actually take. We all had an agenda for this year, I certainly did, but this year had an agenda for us.  Megan and I traded a few trips we planned for a lot of time at home, catching up on reading as well as bringing the world to our table by learning new recipes. My usual hours spent behind a desk have turned into a migration pattern: from the dining table to the couch to the living room floor, with my laptop in tow.

Are we there yet, though? We all want to know when we can resume our daily routines – go back to our offices and gyms, our favorite restaurants and coffee shops. When will we see friends and family in person, instead of on computer screens?  At the moment, opinions on the topic range from weeks to as long as 18 months.

We also want to know when our economy will get back on track. When will stores and many businesses reopen? When can they start rehiring? Finally, in the investment world, we want to know if the worst is behind us and our stocks can breathe again.

This pause in economic activity feels like an airplane stalling. This is a maneuver when the pilot intentionally slows the aircraft and, points the nose high enough to make the plane start falling from the sky. Just like a plane, the economy needs to remain in motion to stay up in the air. Stalling an airplane is my least favorite maneuver, but it’s a required part of the training. I’m not a fan of it, and my stomach definitely doesn’t like it either. Stalling economy gave many of us all a similar sensation.

When it comes to the economy, all the restrictions in movement, and social activities have made it harder to spend money. No one is shopping or dining out or going to the movies. Worse, for a large segment of the population it’s now also harder to earn money. The pain is not distributed equally, but large swathes of the economy are clearly “stalled” at the moment. The silver lining here lies in the fact that we know exactly what caused the stall – self-imposed economic shutdown. We also know what will undo the stall – letting the economy rev up, and resume flight! And finally, we’re all aware that completely lifting restrictions too early could cause more harm than good.

The stock market tends to respond in advance of events. When an economic slowdown is expected, the market drops precipitously. When better days are expected, it usually rallies long before actual economic improvement can be seen. We’ve seen two market extremes lately, a swift sell-off followed by a speedy rally. But we may not be out of the woods just yet.

With poor earnings visibility many companies have suspended their earnings guidance, while others are hinting at much weaker results. Still other companies have yet to report their results and give us a sneak peek of the extent of the slowdown. As patient value buyers, we have been taking advantage of the market drop adding a good number of new holdings, yet we have been acting slowly. Bear markets are a great buying opportunity, but caution is required.

We know well what caused our current economic trouble and stock market turmoil. We also know what will help undo it.  In the meantime, let’s make the best use of this time both by learning new recipes at home, and buying up some great businesses in the stock market, when appropriate opportunities arise.

Bogumil Baranowski

Published:  4/20/2020


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