If the Coronavirus expands substantially, it will represent a game changer as far as I am concerned.
Right now there is still considerable uncertainty as to the threat but we seem to hear more alarming news daily about its spread. If it is contained at an early stage, then it shouldn’t cause much permanent damage to the U.S. and world economy, but if not, then there will be a loss of existing supply chains, customer and business engagement through personal contact, shrinkage of earnings and altering in how business is conducted. That is a major game-changer and should be considered along with your long term investment strategy.
If there is an unthinkable spread that cannot be contained before widespread damage, most of our investment planning would be voided and outmoded and would need to be changed. However, what would the changes be? Cash would be the main ingredient in commerce. Stock values would likely plummet, and bond yields could actually become negative with the safety of principal more important than interest payments. We would be living off of the principal.
All of this is hard to imagine but can be a possibility. So let’s consider it. If cash is what will govern our activities, will there be a banking system to operate through? Likely not since any system, even in today’s would of robotics and artificial intelligence, would need people and the people would not be there to work the system. So when I say cash, I mean cold cash, currency and possibly gold or other commodities. However, there might not be the products to buy, since people will need to make, deliver and sell those products, and the people will be locked up in their houses and/or little farms. However, the water supply, heating and fuel, and garbage removal systems might not be operating. And it can be even worse.
As far as investing, nothing would work or help you. We can actually be back to a caveman or cavewoman mentality with the survival of the strongest the only model to follow. It would be bad.
So let’s get back to reality. An alternative reality would be a four to six-month slowdown in commerce and life as we know it followed by a restarting up of a business as usual model. Stocks that had dropped and negative interest rates would recover – perhaps slowly, but they would recover, and ten years from now they should be on the track that you supposed it would be on before the furor started. So, for now, hold your course, but be alert to the potential for major changes. I also refer you to my previous blog post.
These represent my personal imaginations and in no way reflect any views of my partners, colleagues or firm. It has been presented to respond to some hysterical calls I have received from clients, friends, and associates. Meanwhile, have a nice day!
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