Remember all those surveys that came out back when things were normal? You know, the ones that concluded that about half the population in the most prosperous country in the history of mankind doesn’t have $400, $1000, or some other nowhere near adequate amount of savings for an emergency? Those were scary enough then. But today we’re living in a brand new reality where all bets are off. Assuming we survive this as a country, which is far from certain in my view, we the people will have an unprecedented and horrific new threat to always have to be prepared for from here on out. The greatest danger facing us today isn’t a physical virus; it is weaponized insanity being wielded against us by our own government. If there had been any shred of trust left in that institution, it is certainly gone now. So today, the only post I can think to write that would be remotely relevant is one about some of my observations related to this real life nightmare we’re going to be unable to wake up from for some time to come.
Survival has just become the one and only priority. Thousands dying from a flu like virus will probably be merciful when compared to millions facing economic ruin and even possibly starving. I wish I could say I’m being hyperbolic, but that almost isn’t even possible anymore. If you were living paycheck to paycheck (and remember, roughly half the country was) and the government one day decided that although you were willing and able to work, you would no longer be allowed to, the shit would hit the fan very quickly. Remember, paycheck to paycheck literally means that if you don’t work, your basic bills don’t get paid. That includes everything down to food and shelter. And you can’t very well count on help from Washington. After making the snap decision to take away millions of people’s incomes, they are now squabbling over the details of eventually sending people some pittance that may get the average household through a week or two. Of course, there is a good chance they will tax it back in the end anyway. And meanwhile, the bills are due and that food habit isn’t going away.
That is the exact situation tens of millions of people are in, with tens of millions more about to join them. I’m sad to say it but at this point, if you have some excess cash available and are wondering what to do with it now that your savings account pays zero, ammunition is one of the most important investments you can be making. When people get desperate, things get ugly. And I wouldn’t count on a rapid police response at a time like this. Hell, you couldn’t even count on that when things were normal. I recommend putting some of your cash into something that quite possibly might save your life.
What about the market? I sincerely hope you listened to me or one of the other finance people in your life and dramatically reduced or eliminated your equity exposure some time before the last few weeks. If you didn’t, your only real hope now is to stay the course. Assuming we go back to something resembling normal at some point, you may eventually recover. I wish I could say something more reassuring, but we’re literally in a scenario where the only plausible solution, aside from cutting our losses and abandoning the economic suicide plan immediately, is for an already bankrupt federal government to crank the printing presses up to eleven and start spewing out checks to keep people alive. The country’s survival is far from guaranteed and even if it does happen, all bets are off in terms of what life will look like going forward.
If you are out of equities, congratulations on having at least one silver lining. However, I’m not sure what to tell you now. While all of my retirement money is in either cash or cash equivalents and every major index is down over 30%, I’m not necessarily about to push any of my chips back into play. On Sunday, the FED announced that in lieu of making even some astronomical specific commitment, they’re already down to the “whatever it takes” route. In other words, they have absolutely no clue what to do at this point, but they know that whatever they end up having to, it’s going to have neither upper limit, nor historical precedent. And the market’s response? A bounce in futures but a roughly 3% drop in all major indexes the next day. Even an unlimited commitment of free and easy cash wasn’t enough to do any more than momentarily slow the bleeding. We are likely to see a bounce whenever the federal government quits bickering and starts sending out lifeline money, but that could easily be neutralized by earnings reports, some of which are coming this week, and are obviously going to be atrocious.
The conventional wisdom would tell you that everything is on sale right now and it’s time to buy. But the conventional wisdom doesn’t come from a world where the most powerful country in history just committed economic suicide over a trumped up flu virus. And I’m not sure it’s relevant now that we’re living in that world. Here is the problem. On sale from what? If we survive this, the old economic normal is gone. At a minimum, we’re looking at thousands of bankruptcies, both personal and business. There is a ton of economic production that isn’t just going to turn back on as if controlled by a light switch and a ton of financial pain that will take time to filter through the system. Either a liquidity crisis or runaway inflation is also all but certain. I’d say the total market valuations we had been at a month ago are out of the question for a few years at the absolute minimum.
And even after the economy has had enough time to recover, who is going to forget this? Our government has voluntarily created an economic doomsday scenario that has already made 2008 look like a blip on the radar and is likely to do the same to 1929 before all is said and done. At one time, there were multiple generations of people who were frugal to a degree that only made sense because they had lived through the Great Depression. And many of them were that way for the remainder of their lives. A 30k DOW requires people to spend money like it’s their job to get rid of it as fast as possible. It also requires a high degree of business investment. How courageous is any business owner going to be with the knowledge that the government could effectively declare bankruptcy on their behalf at any moment?
I think the only way to conceptualize this is to try to imagine a different world. For example, if we survive this and don’t subsequently make a massive effort to start manufacturing in this country again, we’ve learned absolutely nothing from this experience. And I highly doubt we will go back to a world where people eat half their meals at restaurants or blow a hundred bucks on a casual night out. The retail and entertainment sectors will still exist, but at nowhere near the scale they did. Hopefully many of the people who previously worked in those industries will go into either newly created manufacturing jobs or the trades, where they were already sorely needed. Either would be a better alternative to a job that pays essentially minimum wage and doesn’t offer consistent hours.
And if we survive as a country, we’re going to have a desperate need for those people. Our infrastructure is crumbling and has been for years. It seems to me that overhauling it would be a great way to recover economically and improve life for everyone in the process. Mind you this won’t be cheap. Nothing will be now that we’ve destroyed the economy that made this country what it is. But if one good thing comes out of this, I’m hoping it will be that we as a society learn the difference between cheap and a good value. Maybe instead of the Kardashians making a billion dollars and pro athletes constantly bitching that their ten million dollar salaries aren’t enough now that someone else is making eleven, we could pay decent wages to people who do something other than sit in front of computers. Maybe they could make us some decent stuff that we don’t have to throw away and replace all the time.
Imagine if we rebuilt our country, our economy, and our middle class, all at once. If that were to happen, I could see this whole thing having been a huge blessing in disguise. Don’t get me wrong, economic suicide is not something we should have ever considered and every politician that had a say in it should be voted out yesterday. In fact, I think now would be a great time for across the board term limits and some other badly needed reforms. Anyway, the new world, whatever it looks like, will be a much more sober, grounded one. We definitely aren’t going back to where we were for a generation or two at minimum. But I don’t see that as a negative. Maybe it’s an opportunity for us to go back to focusing on the important things. Maybe it will even reunite a badly divided country. Who knows? We can’t always control our circumstances in life. Sometimes, the best we can do is to create strength out of struggles – even if those struggles are self inflicted wounds. I hope and pray that something good comes out of this. But for right now, buckle up. This is not going to be an easy time for anyone.