We just finished the worst quarter in the history of the Stock Market, down 20% in three months. Our newsletter doesn’t need to remind you of this since this is the 2nd headline behind any COVID-19 information besides the running ticker of Total Cases and Deaths, both Globally and US-Based. We try and look for the positives and the main one we can garner from this is the economic cycle has most probably been reset. We had been predicting a Recession between Q1 – Q3 2021 depending on who won the Presidential Election in November 2020. This has thrown an entire toolbox of wrenches at that prediction since the next 6 – 9 months will show deep recession economic numbers. Coming out of this situation will come significant investments by the government into Infrastructure (which is many years, possibly decades overdue) and major corporations. Meaning, the “surge” of these investments and backfilling entertainment, shopping and travel will seem like a boom in 2021.
First things first. We need to see the number of new cases decline and trend down. Second, we need a vaccine to give everyone a sense of comfort going out in public places and being in crowds. Hunker down folks. Make sure you exercise and eat right! Be smart and be safe.
The hospitality industry has been decimated and is only going to get worse. How long do you think it will take for someone to feel comfortable booking and getting on a Cruise Ship? How about going to a crowded movie theater? It will take time. Hotels, Airlines and Car Rental companies will take about a year to recover or longer. Right now, we don’t see them as investible.
Also, energy companies, specifically in the Oil production and distribution are getting crushed. A barrel of Oil hit $20.13 on March 31st. The majority of the Oil production and distribution companies in the United States have a cost of $50 – $60 per barrel to drill and produce. Look for bankruptcies and significant M&A activity over the next 12 months in this industry. Right now, despite the frothy dividends, we believe they will be cut sooner than later, this sector is uninvestible.
Select Utilities and Technology Sectors are investible along with select Healthcare companies. We all need water and a company to take our garbage. If you are working at home, think about the technology you are using to help you be successful and collaborate with your co-workers and secure your networks. How about the Healthcare companies that are supplying the Protective Equipment to the doctors, nurses and first responders who are exhausted and overworked. Also, the healthcare companies that are manufacturing and distributing prescription meds. During these times, many people will need additional meds to keep them sane and calm.
Don’t chase the BioTech companies. Meaning, many are coming out and saying that they could be in clinical trials by September and release their COVID-19 vaccine by Q1 or Q2 2021. Folks, this is ALL SPECULATION. Many of them saw their stock jump after the announcement and then pullback. Who knows where the truth lies in this those announcements, but most of those companies are uninvestible at this time. It is probably smarter to look for an ETF in that space and own a basket of those companies because you don’t know who will be the winner or winners.
In Summary
As I always say at the end of my conversations, ” Be Safe and Healthy”. You must be smart about living your life right now and for your friends and loved ones. Follow the basic rules of Social Distancing and the “Stay at Home” mandates. Rather it be a few months, then be sick and have side effects for many years. Its a small price to pay.
Just in Case!!!
1918 Spanish Flu (Video Documentary)
Other noteworthy items:
Passengers on Airlines are significantly down. One year ago there was an average of 2,510,294 airline passengers flying in a one-day period. March 30th there was 180,002 in a one-day period.
