It is no secret that the life we are going through now is nothing like we have experienced before. The isolation from society is simply not what anyone has been prepared for. But added to that is the stress of the stock market crashing taking out ~30% of accrued wealth in a space of a month.The panic of the daily drops in the stock market coupled with the spreading of the pandemic added by the isolation in a society where friends and relatives who we relied on for help and assistance, have suddenly become inaccessible, has unleashed a storm of stress in our brains.
The real question is when schools, restaurants, businesses, movie theaters, golf courses, gyms and everything else around us are closed, why is the stock market still open? Day after day, the selling continues and people’s net worth is falling rapidly as the S&P drops precipitously from a record high in Feb to one of the biggest drops in history a month later. And, there could be more to come in the weeks ahead that may wipe out all the multitude of years of savings.
This is when we ask “Can we have an adult in the room at the helm?”.
Future Wealth’s View
When the damage the coronavirus inflicts on the U.S. jobs market becomes clearer, it could be unlike anything the country has ever seen. Upcoming weekly jobless due to be released next week claims will shatter the standards set even during the worst points of the financial crisis and the early-1980s recession. Unemployment, which was hovering around 3% is expected to spike to 10% within one month and when all is said and done, could be closer to 20% by June-July, something unthinkable for a jobs market that had been on fire as recently as February.
The only recourse is that the Fed has to begin buying big time to prop up the economy. On Thursday, the Fed announced that they will be buying $150 billion in securities on top of the $125 billion earlier this week and $500 billion to date. We think the number should be north of $3 trillion to have any impact. $3 trillion being the amount the Fed had to purchase during the 2008 crisis.
Our view, at Future Wealth, is that we think people are underestimating the impact of this crisis and that there seems to be a sense that after a 30% drop in the S&P, things will somehow get better. Of course, a decade from now, we may all look back and lie blatantly – saying things like “I knew it was going to be ugly, I cashed out before the sh*t hit the fan..” etc. The problem is that hindsight bias keeps us from learning from past mistakes. Therein, lies our fallacy. But, the drop in net worth and the losses don’t lie. They are real and will likely take a decade to recover. And that, is the truth.