Recovery and Attitude

The S&P 500 fell about 35% from its late February high to its late March low. Since hitting the low, it has gone back up by 25% but is still 17% below the February high. Question: Are you encouraged by the partial rebound and hopeful for more in the future? Or are you still upset that the market and your net worth sold off and won’t be happy again until it recoups its losses? Similarly, new unemployment filings are at record highs. If and when this trend reverses itself and companies start to hire again, will you be hopeful when the trend is upward or unhappy until the unemployment rate reaches its previous lows?


I believe most people fall in the category of being hopeful if the trendline is upward, even if things in the recent past weren’t so good. People don’t like the sense of continuing to fall, but they are ok once they have fallen and the situation stabilizes when they head back up again. They don’t have to reclaim the previous heights as long as they are moving in the right direction from their own perspective. If my belief is true, then optimism should return more quickly than expected and perhaps as quickly as the Coronavirus led to the shutdown of the economy. Once a few jobs reappear and maybe a few restaurants reopen, even perhaps on a limited scale with restrictions in place, I believe we will collectively be hopeful about the future even if it is perhaps not as good as it looked even 60 days ago. I realize I am venturing into the realm of Behavioral Economics in which I have no training other than personal experience and a couple of books I have read. Yet, I am an optimist, and so I am hopeful that others will share my optimism.


With respect to investing, the trick will be not to get too far over your skis and be too optimistic. Make sure you temper the level of optimism you might have with a sense of reality. In other words, go ahead and buy, but try to make sure the price you pay is reasonable. Use my advice or that of another trusted financial planner or investment manager to judge if you are jumping in too deep too soon. Conversely, if you are more of a Debbie Downer, run your thoughts by your advisor to see if perhaps you are too gloomy or if your gloom is justified and fits with your investment goals. As a whole, the stock market looks more to the future and future earnings potential than it does to the past. Use this Coronavirus situation to think about if you also look toward the future.


How much risk are American citizens willing to accept in order to go back to work again and to re-start the economy? This question will be debated a lot over the next days and weeks and will determine what our economy will look like.

Americans and Risk

Americans have historically been risk-takers. Think about the early settlers. 45% of the Mayflower Pilgrims died during their first winter in Massachusetts. Only 60 of 500 Jamestown colonists survived the winter of 1609-1610. Then think about those who ventured westward to settle the continent. Survival was anything but guaranteed. While we are probably less likely to undertake these levels of risks, we recall this part of our country’s history and understand that risk is part of life. Nothing ventured, nothing gained.


Fast forward to today and the Coronavirus epidemic and related economic shutdown. The difference between the Early Settlers and today is that, while you might not believe or even care that you might get sick, you might infect someone else who does care, so these are not apples-to-apples comparisons. However, let’s do the exercise anyhow. How do you feel about reopening the economy? The completely risk-averse position is not to want to leave your house until there is a vaccine. The risk-accepting position is to go back to the way things were 60 days ago, with no restrictions – no “social distancing”, no facemasks, no required testing. Most people are probably somewhere in between. The exact point of where in between will be the result of the ensuing debate.


I think most citizens will accept more risk than the government and most political leaders will allow. Over time, our citizens have been regulated and lawsuited into accepting less and less risk. Safety has taken precedence over accomplishments. My concern is that this trend will accelerate with respect to this pending economic reopening. It would be nice to have a vaccine in place and know a lot more about the behavior and traits of Coronavirus before reopening the economy, but the unemployment rate is exploding and the task is urgent. We also don’t necessarily have to establish all of the rules on Day 1 prior to reopening. As the rules have changed as the Coronavirus threat has worsened, so too can the rules change as the threat lessens. Also, let’s not forget that the purpose of “flatten the curve” was to keep the healthcare system from being overrun, not to prevent everyone from being infected. Don’t move the goalposts on us. The curve seems to be flattening. Moreover, non-Coronavirus medical usage is down, so parts of the healthcare system have a lot of capacity. If the curve is flattening and remains so, then let’s get on with life. If most citizens agree with this thinking, then the future will include economic growth, and people can cautiously step out into the working and investing minefields again.

Battle To Reopen

I believe the battle to reopen the economy that we will all see and hear discussed during the next several weeks is going to be among the biggest, most high stakes political battles in recent memory. While it will be partisan, there are reasons for hope. Governors, in particular, should be very motivated to get their states back to work. The Media, particularly the national media, are perhaps more motivated to keep the current shutdown in place. It will be up to the American people to sift through all of this information and arrive at a consensus as to what is the best way and under what parameters the economy should reopen for business.


The current shutdown, however temporary and however devastating for those who have lost their jobs, is Nirvana for two groups: those who are advocates of greater central planning in our economy, and the media. For advocates of central planning, you have the bulk of the US economy shut down by Federal and State order. It’s not Communist China or North Korea-level control, but it’s more central control than we have ever seen here in the US. Citizens, afraid for their own health, are willing to go along with the government mandates for the time being. How long will they put up with it? As long as those in charge of the shutdown can keep the citizenry convinced that there is more danger in going out and going to work than there is in staying home.

As for the media, since everyone is staying at home working or not, what else are they doing? Watching the news. Viewership of all levels of broadcast news media is way up. The news media is central to daily life in the US more now than it has been in many years, particularly since the dawn of the internet age. For the media, keeping the economic shutdown in place is good for their viewership and good for their business. Why should the media be motivated to put forward stories that might cause the shutdown to relax or the make viewers more confident that they won’t get sick if they return to work and other semi-normal activities? The answer is that ad revenue could decline if advertisers remain closed, but I’m guessing that process would take a long time to play itself out.

Back To Work

That business owners (including owners of publicly-traded stock) want the shutdown restrictions to end and to get back to work goes without saying. People would rather get back to work than collect unemployment. People sometimes want to go out to eat in some capacity rather than eat at home every day. People need social interaction with other people.

Also, think about this: States can’t print money. The Federal government of course wants to continue to collect income taxes, but if tax revenues slow, the Federal government can make up for its shortfall by printing more money, which means borrowing more from the public including the rest of the world at historically low interest rates. The CARES Act shows that the US Government, including the Treasury Department and the Federal Reserve Bank, is not afraid to force the printing presses to work triple shifts.

States, however, can’t make up for budget shortfalls by printing money. States need tax revenues. Many states have balanced budget provisions in their state constitutions, and so tax revenue shortfalls necessitate cuts in state outlays. States, and the governors of those states, Democrat and Republican alike, should be motivated to get people earning taxable income sooner than later.

Who Turns On The Switch?

On Monday 4/13, a new potential front arose regarding whether it is the Federals or the States who have the authority to make the call to open up again. President Trump says it is the Federal Government’s role to do so, but the states mostly beg to disagree. There is hypocrisy on both sides of this battle. President Trump says it is his call to reopen the economy but he previously and repeatedly left the “closing” decision up to the governors. Many of those who now think each state should have the right to make its own decision previously argued that President Trump was wrong not to close the entire country down or to have uniform stay at home policies throughout each state for fear of spreading the virus into previously less-infected states. So it looks like we will see a battle even for who gets to turn on the switch.


I am optimistic that there are enough states, governors, and US citizens of any ilk that the back-to-work signal will be given in due course. Most people are sufficiently afraid of getting sick that they won’t take undue chances. How to address mass transit in big cities will be a tough challenge. If you have ridden the NYC subway system, you know at least that it is not conducive to social distancing. Perhaps employers in NYC will have to continue to allow work-from-home to continue. I believe state and local governments are much better equipped to sort this all out, just as I believe state and local governments are better equipped to make most decisions that impact their own states, cities, and counties. If I have to guess, we will go back to work in a limited capacity sometime during early May – Monday, May 11 is a good bet. Restaurants will be allowed to open with limited seating for a period of time. Same with retail stores – grocery stores are already doing this. Entertainment and sports venues are going to be difficult to reopen to paying fans. All sports leagues need to move forward with plans that involve playing for broadcast only with no (or very few) fans present. We will have to live and work under these parameters probably for the next 12 months, as more and more people acquire immunity and perhaps as a vaccine gets closer. Wish us all luck!

Living With Uncertainty

With respect to businesses large and small, one of the biggest issues if not the biggest issue is that we don’t know when the economy or at least large segments of the economy can be opened up again. If we knew that business could start up again on May 1 or May 15, then people and businesses could lay low during the shutdown and make it through to the other side. However, we are not being told anything like that. The end of the shutdown remains open-ended, and we are getting told things can start up again anywhere from Easter (President Trump, later modified) to 18 months from now (Ari Emanuel, an Obama advisor). That’s a large time frame to have to plan for.


Uncertainty drives people and businesses to idleness. They don’t know where to go or what to do so they don’t do anything. Tension builds. Even people and companies that ordinarily take leadership roles can’t do so now because of the government-mandated shutdown. The only thing that is certain is that we are shut down now and likely will be for at least a few more weeks. Yet, the stock market is showing signs of life, especially during the past couple of weeks. Why is that? Stock investors are looking at daily Covid-19 infection data from around the world and trying to discern the rate of infections. The jump in stock prices has reflected that we are “beating the curve”, meaning the number of infections and deaths have been well below what was originally projected, and even the revised projections. The shutdown and other measures have worked thus far, but an abrupt return to normalcy means infections will spike again. The uncertainty is what the governments’ (plural) policy will be as to how and when the economy will be opened up again.


Uncertainty has been a part of the human fabric forever. Google “living with uncertainty” and see how many links pop up. I believe that the current generation is less able to deal with uncertainty than earlier generations. As forecasting and forecasting tools have improved, the current generation has become accustomed to a more certain level of belief as to what might happen in the future. Yet, Black Swan events such as Covid-19 still happen, and these wreak havoc with the forecasting models. As difficult as it is for many people, we need to accept that there is a level of uncertainty out there that we cannot enumerate or control, get comfortable with that, and go on with our lives. Better to move forward in more uncertain circumstances than to be rendered idle and unable to act because we don’t know when or how we can have a life again. With respect to our government, especially national and state governments, people and businesses really need a time framework as to when we think we can reopen the economy in whatever capacity. The current open-ended situation must end sooner rather than later.

Oil, Toilet Paper and Inventory

Are we seeing the end of “Just In Time” inventory management? Or is the Coronavirus shutdown just a temporary glitch that will get ironed out and right-sided soon? What people do going forward with toilet paper may shed some light on these questions.

Just In Time

It is in the best interest of companies not to carry a lot of inventory in their warehouses and on their balance sheets. Inventory costs money to purchase and to store. The quicker companies can throughput their inventory and sell it, the more likely they can “cash flow” their operating expenses, and the less likely companies will need to draw on banks or other outside financing sources to purchase needed inventory. Nirvana for a company is to be paid for a sale of a product on or before the date that the company needs to pay its own suppliers for that product.

It has taken decades to hone the process and has been worked on by some of the best and brightest minds in business, but the world economy, particularly the US economy, prior to the Coronavirus shutdown was getting closer to the ideal of Just In Time inventory. And it has done so in the course of offshoring a good part of the manufacturing sector to places like China and other Asian countries. Corporate inventory management is the best it has ever been – or at least it was the best ever prior to last month. With much of the world now shut down and with the virus having originated in manufacturing centers in China, inventory management is bound to be affected.

Two Examples

I offer two examples of products whose inventory management has been disrupted on a large scale in the last month or so. One is due to a sharp decrease in demand and the other is due to a sharp increase in demand.

Oil: The first example is oil. As a result of Coronavirus (decrease in demand) and also due to a dispute seemingly between Saudi Arabia and Russia (increase in supply), the price of a barrel of oil fell from the $60 range in early January 2020 to $20 recently, although new developments may help. As a result, oil storage tanks and tanker ships are full of oil that is not much in demand. Now, to be fair, inventory management in the oil industry has never been a smooth process and there have always been supply and demand issues to smooth out. Nevertheless, this is a big shock in the oil industry that will likely result in some poorly-financed players going out of business permanently.

Toilet Paper: The renowned toilet paper shortage has been a humorous thread on social media. However, the shortage is an example of Just In Time inventory management gone awry. Think about your own personal experience. Prior to a month ago, did you just keep enough toilet paper in your house to make it until the next time you planned to go to the grocery store? And did you ever think that when you went to the store that there wouldn’t be toilet paper available? When people, fearing the Coronavirus worst, started stocking up on toilet paper, the Kimberly Clarks of the world who make the toilet paper and who rely on Just In Time management themselves, were not able to keep up with the surge in demand. As of this writing, some stores still are not stocked with toilet paper and other paper products.

So I ask you, once the present crisis is over, do you think you will go back to your own Just In Time toilet paper management, or do you think you will remain skeptical of the system’s ability to supply the stores with what you need and therefore stock up more than you used to? And, if you do plan to stock up more yourself, how long do you think you will continue to do that? Now, let’s transpose that thinking to companies whose supplies of needed goods have been severely disrupted by this crisis. How do you think they will react? If they react as you might with respect to your own toilet paper, that means they will need to spend more money on inventory to stock up, and that means their profit margins may go down. Moreover, as you have seen with toilet paper, you might see other products in short supply because companies will need to alter their thinking with respect to inventory and supply chain management. For example, we may see this in the auto industry soon, especially if we see a relatively quick turnaround in the economy because all of the Big 3 have suspended production of new autos so that they can produce other products such as ventilators that are more needed today.


Just In Time inventory management works very well for companies during more stable times but does not work as well when there are supply or demand shocks in certain products or with the general economy. I believe it will take many months or years to smooth out the glitches we are seeing and will see in the near future with respect to inventory management. All of this points to a bumpy recovery that is not consistent with the hoped-for V-shaped recovery. I don’t think the stock market is going straight back up; it will take months and likely years to get back to where we were just a short time ago.

RecoVery or RecoUery?

Economists are debating now whether, once we get to the other side, the recovery will be V-shaped or U-shaped. I admire Brian Wesbury of First Trust Advisors from Chicago. In this video presentation, Brian explains how he sees the difference as being a function of how long the enforced economic shutdown persists. A longer period of shutdown = a longer period of recovery = more likely a U-shaped recovery. Brian states most smaller businesses have about 28 days of cash on hand, and if the shutdown lasts longer than that it will force more and more businesses to close down. Brian believes the shutdown will begin to be lifted sometime in late April, and so the graph of the recovery will be somewhere between a V and a U. A V…U, maybe. I disagree with Brian somewhat.


Smaller companies just don’t have the access to equity or debt financing that larger companies do. This is true throughout the spectrum of private and publicly-traded companies. The increase in regulation, including but not limited to Sarbanes-Oxley and regulations such as those that have increased capital requirements among banks, favor big companies getting bigger and keeping potential competitive upstart companies from ever getting funded. With respect to smaller private companies, your restaurants, hair salons, yoga studios and the like, many of them battle with cash flow even during good times, and they are not equipped to last through a long shutdown. We are already 3 weeks into this imposed shutdown and nobody is saying it is going to end any time soon. The end of April is probably a best-case scenario right now. Businesses in some areas of the country that are less affected by Coronavirus may be able to open sooner than others, but that is a different argument. Brian Wesbury’s 28 days of cash is a macro argument, and I would bet there are a lot more small businesses that are below the median on that than are above the median. Look for a lot of your favorite restaurants not to reopen, especially if we go into May with the shutdown.

Turn On the Lights

Secondly, once the All Clear siren sounds, it won’t be easy just to turn on the lights and start up again. If a company has furloughed workers, they need to be rehired, and maybe those workers can now find a better gig somewhere else, so it won’t be easy for employers just to send a few text messages and expect their old staff to reappear. If they are being nice and abiding by some state mandates, landlords are foregoing rent during this shutdown, or at least waiving late fees. Once the all-clear is sounded, these landlords will want to be paid something before these businesses are able to start up again. Supply chains are being disrupted and they won’t be restarted immediately especially if your company is reliant on supplies from China other parts of Asia – cargo ships are big and move slowly. Just In Time inventory management was the name of the game prior to this shutdown, and it will take quite a bit of time to sync all of the factors together so that inventories work the way they used to. Just as baseball players need Spring Training to get back in shape, so too will this economy need a period of time to train for it to get back into shape.

The Great Recession

According to Yahoo finance, it took about 5.5 years for the S&P 500 to regain its highs after it hit its pre-Recession high in late-2007. There were a lot of fits and starts along the way. The Great Recession was different in that it involved a bubble in the real estate and mortgage markets that needed time to work itself through. However, my point is that large corrections such as that we are in now take time to resolve. I don’t think that this time it will take 5.5 years but I am not as optimistic as Brian Wesbury that the recovery will be V-shaped.


As an investor and looking at this as an opportunity to “buy low”, fret not. You will have more opportunities to buy low. I am not saying we will re-test the low that we hit on March 23, although that is possible. I am saying you have not missed your opportunity to buy low, and you will continue to have opportunities to do so for the next several months, in my opinion. This shutdown will continue to have economic ramifications for several months even after the Coronavirus threat is deemed to be minimized. Rather than a V or a U, I look for the graph of the recovery to look something like a W or a cup with a handle (look it up). Rather than 5.5 years, I believe it will take 2 to 3 years to retake the highs in the S&P 500 that we reached in late February, which is only 5-6 weeks ago, which is breathtaking in the rapidity in the fall that we have had since. For me, it points to having a long-term investing strategy and sticking to it, especially if you are not about to lose your job or otherwise need the money invested in your savings and retirement accounts.

Platykurtic for Coronavirus, Leptokurtic for Trading

The strategy for Coronavirus is to “flatten the curve” by shutting down large segments of the economy, Social Distancing, and other measures. “Flatten the curve” means to lengthen the period of time of peak infection so as not to overrun our health care system and thereby reduce the number of deaths. Another name for a flatter curve (i.e., flatter than a normal distribution bell curve) is a Platykurtic curve. Think of a platypus with its flat face.

What we have in the stock market is kind of what we would potentially have in the medical system if we didn’t take these measures such as Social Distancing. There has been so much trading volume and so little liquidity available in the trading markets that we have a very steep distribution of depth of market. The high trading volume is flooding the market with orders and the market is having to adjust wildly and quickly to adapt and accommodate all of the buy and sell orders. This is why we are getting 1, 2 and even 3 thousand point swings in the Dow on a daily basis, and why a swing less than 1,000 points in the Dow one way or another now seems like a relatively calm day. Another word for a steep curve is Leptokurtic.

Stock Market volatility is steeper (Leptokurtic), and the goal for Coronavirus is flatter (Platykurtic)

Causes of Leptokurtosis in the Stock Market

Sometimes the cure is worse than the disease. We had the “Great Recession” of 2008-2009, and the banking system bore a lot of the blame. In order to “cure” the abuses of these banks, and as part of the US Government bailout of several commercial and investment banks, through Dodd-Frank and the Volcker Rule, the US Government henceforward prevented banks from trading on their own account. At the same time, the Government increased banks’ capital requirements (i.e., the ratio of equity capital to total bank assets). The net result of these reforms was that it removed the greatest source of liquidity to the trading market. What replaced these big banks as sources of liquidity? Over time, hedge funds, high-frequency trading firms, and ultimately computer-based trading algorithms stepped into the void. Nice opportunity for these firms, but they have nowhere near the capital base that the Goldman Sachs’s, the JP Morgans and the Citigroup’s have. The trading markets became thinner and steeper, more reactive than proactive, and several orders of magnitude more volatile. The cure that banking regulators came up with may have prevented the last meltdown from happening again, but it created the situation that we have now. How much longer will ordinary investors, including those of us who have our retirement savings invested in market index funds, put up with this extreme level of volatility?

How to “Flatten the Trading Curve”

As Governments are trying to “Flatten the Curve” with respect to Coronavirus, the US Government, particularly the Federal Reserve, should try to “Flatten the Curve” with respect to stock trading. One way would be to keep the current high or even raise bank capital requirements while at the same time allow big banks back into the proprietary trading business. This would avail a whole bunch of new equity capital to backstop trading. Perhaps in time all of this new capital would crowd out the computer algorithms, or at least minimize their profitability so that these market swings are minimized. I advocate this deregulatory approach rather than more regulations on trading. Perhaps there are other ideas out there but I would only advocate those that allow the markets to do their job and not to burden traders with more regulations.


Platykurtic and Leptokurtic are great SAT words, which is ironic because according to, the SATs are canceled through May. Our governments are trying to make the Coronavirus curve platykurtic while at the same time they are doing nothing to make the stock depth-of-market more platykurtic. Coronavirus can make you very sick, but so can this extreme volatility in the stock markets – at least it gives you severe indigestion. Desperate times call for desperate measures, and as we are trying to flatten the Coronavirus curve by shutting down major segments of the economy, we should also attempt to flatten the stock volatility curve by allowing large, well-capitalized banks back to doing what they did well for years before the do-gooders attached the strings that these banks now abide by.

$2 Trillion!!!

The US Senate has passed a $2 Trillion Coronavirus Assistance bill. The House of Representatives is likely to debate and vote on it starting Friday 3/27. Former (now deceased) Illinois Senator Everett Dirksen once famously said, “A billion here, a billion there, pretty soon, you are talking real money.” This $2 Trillion bill makes Dirksen look like a piker. We don’t know what the final bill terms will be but let’s examine the Senate bill.

Senator Everett Dirksen, R-IL

What’s In It For You?

If you work for a living, it is more likely that you will remain employed. According to this article in the Washington Post, $504 Billion will go to maintaining the payrolls of larger businesses (over 500 employees), and $377 Billion will go to small businesses for the same reason. That’s a combined total of $881 Billion, or 44% of the total $2 Trillion. If you are a small business owner, it behooves you at least to look into a loan through this program because the loan will be at 0% interest rates and can be forgiven if you maintain your payroll through June 30, 2020 (at least as I read it – read it for yourself here in the text of the bill through the Senate website.) Small business owners can apply for a loan through a bank that is also an SBA lender – many banks are SBA lenders. Loan amounts are capped at $10 million and are specifically designed to help small businesses pay their expenses during this shutdown, including payroll, rent, and other expenses. Don’t lay off employees, and you don’t have to repay the loan. What remains to be seen is whether this SBA loan will be in senior lien position to other loans that your small business may already have on its books.

If you are a taxpayer, you will get a direct payment of $1,200 per taxpayer and $500 per dependent child. Sounds good, but don’t get too excited because the direct payment amount gets reduced at incomes starting at $75,000 ($150,000 for married filing jointly) and end altogether at incomes over $90,000 ($180,000 for MFJ). This direct payment benefit is aimed at the part of the populace that could use it most: those at the lower end of the income ladder. Moreover, as I have noted before, I am skeptical that this benefit will have a significant effect because so much of the economy is shut down – bars, restaurants, entertainment venues, and many retail stores. Nevertheless, $1,200 is $1,200 and will be nice to have for many people. This $290 billion provision, together with $260 billion designed to beef up unemployment insurance, will help cash flows for people in dire straits.

There are other provisions such as some tax cuts, aid to state and local governments, and aid to hospitals and medical facilities, that bring the total up to the $2 with twelve zeroes. It is a mind-boggling amount.

Where is it Coming From?

The US Treasury will borrow this money by issuing more T-Bills, Notes, and Bonds through the usual markets. Because interest rates are so low (below 1% at maturities of 10 years or shorter), the current cost of this capital investment is good. It is a valid point to ask what we are burdening our children, grandchildren, and subsequent generations with. It is likely that this debt will be refinanced over time and never repaid. If interest rates remain this low, then it might be worth the gamble. If not, then we are committed to a lot more debt service in the future. It’s a moral question.


Though I am a proponent of small government, I am in favor of this bill, warts and all. Granted, there is pork in the bill, though we don’t yet know the extent of that pork and won’t know until the House passes its bill and the President signs it. However, this is not a crisis that these businesses large and small got themselves into as a result of poor decisions or poor management or disruptive technologies. This crisis resulted from a pandemic and our federal, state and local governments’ reactions to it, specifically the cessation of a large amount of economic activity. This is unprecedented, and so politicians are operating without a playbook. With interest rates as low as they are, I am an advocate of this program, especially if we can limit the pork.

Recession? Or Depression?

It seems self-evident, and most economists agree, that this Covid-19 crisis is going to result in negative GDP growth in the US and worldwide. You can’t shut down large segments of the economy and issue stay at home orders without economic repercussions. Economic forecasts I have seen have ranged from negative 8% down to negative 30% GDP growth year over year from 2Q 2019 to 2Q 2020. The bulk of the forecasts are in the negative low-teens. Let that set in for a bit.


The most common definition for a Recession is two consecutive quarters of negative GDP. Common, but not universal, as the US National Bureau of Economic Research does not fully accept the two-quarters definition. Nevertheless, for our purposes, let’s accept it. Will we have 2 quarters of negative GDP? We’ll see about Q1 2020 soon enough. Will the March air-brake halt reflect quickly enough to cause negative GDP for the entire quarter? It seems very possible to me. Assuming the Covid-19 infections flatten out and the government sounds the All Clear to continue “business as usual”, will the comeback be steep enough to pull the entire 2nd Quarter out of the nosedive and back to positive? I doubt it. What about 3Q 2020? That entails thinking about economic activity through the end of September. I think it depends on how quickly that All Clear is sounded. It isn’t looking likely to me that we will have positive GDP in the 3rd quarter, although the 2nd quarter may be so bad that any positive reading in the 3rd quarter would be a low bar to clear. My conclusion: A Recession in the standard 2 quarters definition is likely, and a Recession in the more multi-factor definition of the National Bureau of Economic Research seems to be already baked in the pie.


The definition of Depression is more difficult to pin down. The most common definition is a Recession that lasts 2 to 3 or more years or a 10% decline in GDP. If current economic forecasts are correct and the US GDP declines by the low-teens, are we then in a Depression? Because it is “or” 10% decline and not “and” 10% decline? It seems not. The concept of a Depression implies negative GDP over a long period of time, not just a short sharp shock. Most current economic forecasts believe the economy will recover some time prior to the end of 2020. Of course, that implies that the Covid-19 risk is drastically reduced or even halted, which is a big unknown. Even though the negative 10% standard may be met, I believe most economists would still not call this a Depression because the recovery will be relatively quick. Investopedia moreover says there has been only 1 Depression in US history, that being the Great Depression of the 1930s.


On one hand, what difference does it make whether it is a Recession or a Depression? Whatever it is, it still sucks. True enough. However, we in the US have not had any type of downturn in 12 years, which is long enough that a whole generation has entered the workforce without ever having experienced anything like this. Looking at this downturn analytically and seeing how and why it meets certain definitions helps us all with some perspective on what we are currently experiencing. In so doing, it may help us understand what things might look like on the other side of this crisis. My conclusion: This is no picnic, but it probably isn’t as bad as our grandparents or great grandparents experienced during the 1930s. As you are sipping cheap wine during your self-quarantine, raise a toast to them for what they went through.


The word of today is Conserve, and it applies to several aspects of life. I mean it in the context of “make what you already have last longer.” The longer we make what we already have last, the longer we will able to make it through this current health and financial crisis and the better we will be when we come out the other side.

Toilet Paper

Our local stores have been out of toilet paper for several days. We visited stores for several days in a row but there was none to be had. We had stocked up some prior to the crisis but we were starting to run low. Nothing urgent, but it was a concern. Without getting too gross or personal, we decided to “conserve” our toilet paper use. You can take that however you would like to take it. Make what you have last longer because now we don’t know when we will be able to get more. The happy ending: Yesterday I waited in line at Costco and bought a bunch of TP. We are good to go for at least a couple of weeks now. However, we are still trying to conserve – who knows what the situation will be in a couple of weeks?

Your Current Cash

Cash is king during a crisis. Conserve it! Make it last longer by spending only on essential stuff. Because restaurants and entertainment venues are largely closed, this decision is being made for you. Probably you are working at home and so you aren’t spending as much money on gasoline, and even if you are still buying gasoline, it is less expensive now thanks to Saudi Arabia and its spat with Russia and Iran. Saving and not spending your cash isn’t necessarily good for the macroeconomy but it will be good for you and your future needs. If you are living paycheck to paycheck, this is even more important now, and we all hope that those in that situation are able to weather the storm.

Companies and Cash

Companies need to think in terms of moving from GAAP accounting to Cash accounting. The longer companies can conserve their cash, the longer they can stay in business and the longer their employees can get paid. Perhaps the Government will come to the rescue with some sort of lending program, but until they do company managers need to focus first and foremost on keeping as much cash as possible. Now is not the time for new initiatives to expand sales, especially if upfront expenditures are required for the expansion. Put growth plans on hold and hunker down. Conserve is the word!


It’s not “every man for himself” out there but it is important to take care of one’s own interest first. Just like in the announcements on flights: Affix your own air mask first before affixing others. Develop your own personal conservation plan and stick to it. Be happy with smaller-scale entertainment: Beer at the supermarket seems to be plentiful and inexpensive, so grab a case and watch a plague movie rerun on your tv. This has the added benefit of not drinking and driving. Better yet: Actually talk to your family. They say Talk is Cheap, which in this day and age is a good thing. Hold on to what you have today so that you will still have it when you might need it in the future.