I started writing this on Monday, 3/16/2020. As previous posts ( and those forthcoming) suggest, there are speculative statements being made here. I am not an economist, and I’m not a licensed finance professional. I am, again, trying to relay information that seems highly important. It’s your choice with how you’d like to act or not act.
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Imagine, you were in a car accident. One severe enough that required surgery. You come out of the surgery, and the doctors tell you: “We had to do a lot of work. You almost lost your leg. There’s still a risk that it could happen. You are are going to be immobilized for a long time. You will experience atrophy of your muscles. Your tendons will weaker. Your cardiovascular system won’t be as robust. Your bones will weaker from lack of standing. You can, and will recover, but it’s going to take a long time, and there will be parts of your body that will never be the same. I don’t want to sugarcoat it.” It’s not pretty. It’s not uplifting. I know. It is reality, and ( I’m speaking for me personally) it makes sense to have someone that will tell you what it could likely be.
That car crash survivor is the World’s economy. For many of us in the US, today was the first real weekday with many of our businesses shut down. It became clear, late last week, that the impact felt by businesses all over the US was going to be devastating. Let me say that again…devastating.
Two-Thirds of the US economy is consumer spending. It’s ground to a halt.
Late last week as SARS CoV 2 was spreading , and COVID-19 was becoming more lethal, it became clear that there would be extreme restrictions placed on how humans would be able to interact. The restrictions have escalated far more quickly, and intensely, than most of us had anticipated.
As of the close of the US market today 3/16, the Dow Jones Industrial Average lost 2,997 points and was down 13% overall (single day). The Dow was down about 31%, and the S&P 500 Index down 29% from recent high records. Imagine, in a month, a dollar now being worth 70 cents. Imagine a $1M, now being worth $700k. Imagine, 30% of your retirement fund being wiped out, suddenly. Imagine, you were planning on retiring at the end of March 2020.
As the reality continues to set-in on the impact of this disease in the US, I want to remind everyone that there are countries that are in worse shape in their management of the disease, and will be in even worse shape when it comes to their economic health. As I write this, Spain and Italy are effectively shut down, allowing their people to only go out for “essentials.” The US is moving to this with gyms, bars, restaurants, movie theaters, closed all events that would have more than 50 people, shut down. Before these drastic measures were taken, there had already been mass cancellations of gigantic, multi day events like SXSW, the Arnold Sports Festival, and more concerts than anyone could imagine.
This is going to hurt, and it’s going to hurt bad. Humans are solely responsible for the value of money. We have to have it moving, and moving rapidly. Part of the valuation that we place on money, is that we can project a future value of that money, and build that into our buying decisions. For the foreseeable future, that is uncertain. The uncertainty of how long this will go on is also causing the collapse. Even with interest rates being cut to near zero, and the promise of funds and relief, it won’t matter if that money has nowhere to go; because we, the quarantined or homebound cannot or will not spend. Some of us holding on to money that would normally circulate for fear of how long this will last.
I’m going to give some examples that I hope will illustrate how connected we are economically, and how large this is going to be.
I am quick to say, this is not uplifting. It’s an exercise in “catastrophizing”, a psychological term for thinking that leads to thinking and connecting “the worst-case scenario.” I am pointing out that there is a strong likelihood that these scenarios will continue, as they have already happened.
- Large event cancellations cause promoters and venues to not get paid.
- Those venues are then unable to pay the event workers, who will also not get tips.
- The volunteers who serve concessions at those events will not be able to get funds fofr their boyscout troop, cheerleading squad, band, or dance team.
- Event workers will be unable to pay their rent, and their landlords will suffer.
- The landlords will be unable to pay their banks, which will cause defaults on commercial properties.
- Those commercial properties won’t be able to pay their maintenance workers and cleaning crews. Those people will be unable to find work elsewhere, as they will all be in the same boat.
- Gyms will not have patrons, and they will start defaulting on the loans for the equipment and building. They will be unable to pay their workers, who won’t be able to pay their utilities.
- Hair stylists, even if they stay open, will be far slower as patrons stay away. They will not be able to make ends meet.
- Car lots will experience slow downs as people stay off of their lots, being afraid to be in public. Their salesmen, who work on commission only, will have nothing coming in.
- New home construction orders will stop, and the contractor crews that they employ will first be cut, and then some disbanded entirely as this goes on.
- Churches, whose memberships have been dwindling and aging, rely on the offerings that come in each week, For those that aren’t set up to receive money online, and for those elderly parishioners who don’t know how to give online, it could be the final nail in the coffin.
- Churches and non-profits will receive less donations as people are unwilling to leave their homes; leaving some of the most vulnerable, even more so.
- For the brewery that was just opening in the last two weeks, relying heavily on taproom sales for cashflow for everything from payroll, to paying off equipment, and ingredients have stopped.
- The orders for malt, hops, barley, have slowed to a crawl. Those farmers having orders being cancelled.
- Music artists who rely on tips ( think Nashville) to stay afloat while chasing their dreams, now have no way of getting income. Even if they wanted to be a waiter or waitress, there are no restaurants or bars to work in.
- Folks bonuses and sales commissions for everything from life insurance sales to computers have stopped. They will be unable to make their car payments soon.
- Popcorn sales to movie theaters will stop. The people that produce that popcorn from farmers to office workers have uncertainty in their income. Because of that, they will not update their homes, or buy new homes.
- New home sales will stop, Realtors who have enjoyed boom times over the last two years have now had the brakes slammed on them. Title offices will cancel closings . Home inspectors will lose work and income.
- Coffee roasters will have their orders cancelled, and the truckers who are in charge of moving those goods will have their orders cancelled.
- The truckers, who move 70% of all of the goods in the US, will be sidelined, not making any money with zero load activity.
Is it starting to make sense? That was literally a micro-fraction of the US economy. A sliver. There will not be a single business, non-profit, or government that will not be hit. Now… think about this.. That is JUST the US. France, Spain, Itay, Iran, … China.. All the world has their money and economy stopped, and we don’t know for how long.
So, at this point, you might be thinking..”Well, this sucks. What can I do about it?”
MORE TO COME. In the meantime, KEEP YOUR NERVE. While the above information isn’t positive, nothing…and I mean NOTHING lasts FOREVER. Tough situations have a way of bringing out the BEST in humans, and there will be opportunity.
Andrew L Hamilton 