Source: Yahoo Finance

Here we go again. Not the markets, the markets will go up and down and the economy will continue to shift and evolve and produce news surprises. What I’m talking about is the bombastic financial press like in the headline above. While everyone has their eyes glued to screens waiting to see details of the next financial massacre, this is actually the time when I advise people to tune out the news.

I took this same approach not long after Trump was elected and we were constantly bombarded with daily Trump updates. Regardless of how you feel about the man, given all the saturation of coverage, I had enough. I started to ween myself off political news. I kept abreast of large geopolitical events but tuned out stories of what the President tweeted about, what people were saying his latest outrage was and the constant obsession with getting him out of office by many in the media. The result? I was able to predict things and see things much more clearly, from the passing of tax cuts to impeachment, it was easy to predict. Many of us who get caught up in the day to day social media and news cycle are too close, we can’t see the forrest through the trees. Some people are just lurching from one outrage to another and not stopping to ask, do I really need to be upset all the time? Maybe the news cycle is affecting how I feel about life on a daily basis?

In the same way that not reading the daily political news gave me a clearer view of where things would be headed, not reading every horror stories in the financial press will help you get a clearer view of the markets. If you take this approach and don’t freak out, you can actually see that the potential long term effects of both the Coronavirus and the measures being put in place to limit its transmission, may produce a number of important changes long term that investors can take advantage of.

Where Markets Are Now

First, it helps to put the current correction in perspective. Since the peak on February 19, the market has fallen by 18.9%. A market enters near territory when it falls by 20% or more.

Source: Reuter’s

That chart looks scary, however unless you just got into the market in January of this year, this really isn’t a disaster. The markets has been climbing for some time and when we put today’s levels into perspective of the last 10 years, it doesn’t look as scary.

Source: Federal Reserve

News outlets are not likely to show you that chart though because it’s not as dramatic (well it is dramatic to the upside, but that doesn’t fit the crisis narrative). What if we took an even further step back and looked at how the S&P performed over the past 25 years?

Source: Yahoo Finance

Even those on the verge or retirement may be looking at a period of 10-15 years or more in retirement which will require at least some of the upside in equities to keep up with the cost of living. This is just further motivation to take a long term view of equities.

If we were to look at some other long term measures, the story starts to become more compelling. As treasury bonds collectively hit an all time low in terms of yields, the spread of the S&P dividend yield to 10 year treasuries hit an all time high yesterday. Investors need to be in the stock market for the income at these levels.

Source: Bloomberg

Although no one cared, the jobs report that the US added 273,000 jobs in February highlighted that the economy was rolling before the virus scare hit. If the market falls a little more it would fall through its 10 year forward P/E average.

Source: Bloomberg

When you put the latest market movements in this context, you may start thinking a different way such as, maybe it would be a good opportunity if it fell a little more?

Coronavirus: Deal With It

The markets are falling right now because they are dealing with a big uptick in uncertainty linked to Coronavirus. The price war between oil producers will affect oil producing countries but is more of a side show which just sounds good to editors who want to couple it with the other angst.

Once the virus spread to Italy, it was likely that a democratic country where individual rights are more cherished, would find it much more difficult to be able to enact the type of quarantine that authoritarian China did. Additionally, and unfortunately for the state of the world, it was just politically easier to limit and single out Chinese coming into the US as opposed to Western Europeans. Once the virus got a foothold there, it was only a matter of time before it would spread to the US due to such close travel and business links between the two continents as well as less prejudice for its travelers.

That being said, rather than freaking out about the spread, governments and private companies are slowly waking up to the fact that many people are going to have to change their routines and their daily lives in the next year to lessen the spread of the virus. This will produce big shifts in the economy, and will end up making some businesses winners and some losers.

Winners and Losers

The first tangible shift which may have been long overdue, is a dramatic societal wide acceptance of working from home, or working from anywhere for that matter. This will take some time to adjust. Even for myself, I have not fully adjusted to working from home since I live in a studio and as many people know, working next to the place that you sleep is not ideal. However, I will likely adapt and find ways to be more productive from home.

I think others will experience adjustments like this too. Initially there may be a dip in productivity as more settle into home work. As time passes though and people adjust, what we may find is that productivity bounces back to previous levels and managers start to realize that not only do they not need to have all their employees in every day, but they can dramatically cut costs by significantly reducing the commercial real estate that they use up.

For example, a consultancy or financial services company may need to have its employees meet to strategize from time to time, but imagine the extreme example of a team of ten people only booking a meeting space from time to time instead of having desks grouped in the same location. The team would only come to an office when it had an all hands on deck meeting in person. Instead of having desks, the employer could just issue debit cards which can be used exclusively at work spaces around the city. This would solve part of the problem of being less productive at home, allowing people to leave to be more focused or work in smaller groups and give them the option to be able to work at one of the hundreds of work spaces popping up around cities all over the country which are much closer to where they live.

If people started to adjust to schedules like these, it would start to change in big ways the need for transportation to get to and from work as well as the commercial real estate business. Congestion would ease dramatically in big cities around rush hour, making them a bit more pleasant and livable in addition to reducing emissions. Less people who need to be in commercial district offices could dramatically reduce the space companies need to operate at expensive locations. In fact, the real long term legacy we may see from the Coronavirus may be that commercial real estate starts to see a prolonged downturn not disimular to the one that box retail and department stores are going through now.

Those stores, such as Macy’s, Barney’s and Forever 21 saw foot traffic dwindle as consumers shifted to online shopping which provides competitive pricing with the convenience of having good delivered to your doorstep.

Being home all this time and being leery of others touching your food could also produce an uptick in demand for fresh food which can be made at home. Its not improbable that spending time with families and being forced to make food at home could produce a renaissance in traditional homemaking rituals. It could spur people to once again prioritize time with their families to eat dinner together, something that may have been lost in many modern households where everyone is burdened by a hectic schedule. On the flip side, this would also affect restaurants and those who deliver food which is a huge industry that caters to the frenetic schedules of many who can’t find time to cook in their current routine.

In the short term, those companies which rely on the travel industry will suffer for sure. I doubt the shift in consumer tastes away from material goods and more towards experiences and travel is going to change in the short term so many of these companies will likely see a strong bounce back as the virus recedes in a year or until a vaccine is developed. Hotels, airlines and resorts will face some tough times for a short term period this year but may bounce back strongly when things are safer and people are ready to break out of their confinement.

Conclusion: Stay Positive

We have been here before. Cars will still drive, trains will still run, the majority of people will still go to work. Don’t let the hype distract you from the positives around us and the opportunities at hand.

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