It’s always darkest just before the dawn.
It may not feel like it but we are already through the most dangerous time.
What do I mean by that?
We are certainly not through the health impact of COVID-19. Nor are we through the economic aftershocks which are coming down the road towards us. These will take months (maybe years) to play out.
It may be that we are already through the worst of the market falls but we should not count on that. Prices can always fall further. But I think we’ll look back on this as a squiggle on an upward chart.
This is like wartime but with one important difference from World War II. The difference is that we already know who is going to win the war between people and COVID-19. It will be the virus that gets wiped out. We will take more casualties and that’s a tragedy but victory is inevitable.
I’m confident we’re already past the time of maximum danger in the developed world. That’s because i) we know what’s coming and ii) because of the response by scientists and policymakers around the world. Right now, there is an unprecedented degree of information-sharing and research effort being undertaken at speed comparable with the Manhattan project which developed the nuclear bomb that finished World War II.
This is an unfashionable view in a world where clowns on the internet (and in the media generally) complain so loudly. Who knew there were so many amateur epidemiologists and public health experts out there?? These are often the same clowns panic-buying bog roll for a disease that doesn’t give you the shits.
From where I’m standing in the UK, it looks like the grown-ups are in charge. Think about it: the entire legal and economic framework has been temporarily suspended at a stroke. As it should be in a genuine emergency. No one in the UK will be evicted for not paying their rent or mortgage. Everyone will have enough to eat (let’s be honest, most people could do with losing some weight…me included).
There will have to be an economy-wide “standstill agreement” (a term from my time working in restructuring where all the stakeholders pause and agree not to trigger bankruptcy). Governments will rip up the rulebook of economic and monetary orthodoxy and do whatever it takes. As they should. I suspect that a “helicopter drop” of money is coming for the many people that have been / will be laid off.
But it’s better not to have to rely on the kindness of strangers. We should work on the assumption that we will not be bailed out.
Right now, cash is king. Cash is like the oil in your engine. Without some cash, your finances seize up just as a car engine seizes up without any oil.
Companies and people don’t go bust because of lack of profits or lack of income, they go bust when they don’t have enough cash to pay their bills. Margin of safety is everything at a time like this. You get greater safety margin with a low burn rate (i.e. low spending) and by having a cash emergency fund.
All those media articles on FIRE that took the angle of oooh, isn’t it risky!? have now been shown to be utter horseshit. Real risk does not come from a 4% withdrawal rate. Real risk comes from living paycheck to paycheck and not having a cash emergency fund. Real risk comes from failing to dig a well before you are thirsty.
This is about cashflow, not asset allocation. I’m not saying you should sell risk assets now to move to cash. Once you get past a certain point, more oil does not make the engine run smoother or faster. Do not sell in panic.
From an investment perspective, there are no assets that are 100% safe…but then there never were. The beauty of equities is that their risks are obvious. Many people say you can’t go wrong with bricks and mortar but how safe are rental properties when the tenants can’t pay and you can’t evict them? Bitcoin has been trashed. Even gold fell last week.
I fully expect P2P Lending to get massacred along with high-yield bonds and other forms of sub-prime lending. When the economy turns down and unemployment turns up, credit losses don’t go up by 10%, they go up by 10x or 100x.
Government bonds and cash are OK today but threatened by inflation over the medium and long term by the sheer scale of the helicopter money drops that may be coming.
Now is a good time to be $/£/€ cost-averaging, dripping money into a global equities tracker fund on a regular basis. Lower prices are good news for savers.
Now is also a good time to be working, engaged in an activity that helps the economy and helps other people. Being busy at a time like this can be a blessing for your mental health. And its good to have money coming in to drip-feed into assets whilst they’re on sale…this won’t last forever.
I’m actually pretty busy right now: I have a flexible consulting role advising a company and my financial coaching (over Skype / Zoom) is keeping me busy. This is a time of change and dislocation but there are always opportunities out there.
During this period of remote working, many office rituals and tasks will be revealed to be nonsense. In contrast, people with real jobs (including but not limited to plumbers, electricians, scientists, doctors, nurses, police, food factory workers, shelf-stackers, warehouse workers, lorry drivers, farmers etc etc) will come out of this looking good (and, let’s hope, with a renewed sense of purpose).
For some people, this will be a great time to slow down and re-assess priorities away from the busyness and distractions of normal daily life. This is a good time to read great books, do some strategic thinking and make new plans. We should not just endure volatility in life, we should look for opportunities to benefit from it. Make lemonade from the lemon.
The spenders and those in recovery from consumerism can treat this as a minimum cost staycation. Shopping as a hobby was always for losers. Now is a good time to try what I call “Monk Mode” and get used to not spending money on shopping, eating out, cinema, pay TV and other passive entertainment.
Instead, I suggest doing something useful and that means getting away from doom-laden internet discussions. And away from The News as
distorted presented by the mainstream media, which is biased AF. It’s a greater threat to your health than the Coronavirus.
The best thing you can do for your health and your immune system is to reduce stress and get great sleep. Cut out alcohol if it disturbs your sleep. Eat clean. Go for walks. Get out into nature and get as much sunshine and fresh air as possible. Maybe take some vitamin C & D supplements (can’t hurt, might help). Apply own oxygen mask before helping others.
And remember, victory is inevitable.
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