APOCALYPSE OR OPPORTUNITY? How the currency of fear influences human behavior in today’s split-second media environment, and how you can minimize the global impact.
We are now entering the 4th week of financial turmoil stemming from the global reaction to the spread of COVID-19. Today, the markets continued to shed percentage losses not seen since the 2008 financial crisis. How is this market event different? What will the long-term impacts be to the economy? How can we as individuals help make things better? In this edition of MARKET-vision, I will aim to answer these questions and provide a calm, rational perspective on current events.
First, let me be clear: I do not take the pandemic lightly, in fact the disease itself is quite deadly to those in high risk populations (primarily those over 60 and people who are already ill or who have weakened immune systems) and it’s important for all of us to take the necessary precautions to protect our health. It has also exposed major weaknesses in our healthcare system, and the precautions we’re taking can help limit the spread of the disease, protect the more vulnerable members of our community, and reduce strain on hospitals and medical professionals throughout the country.
That said, the impact COVID-19 is having on our markets is unprecedented, and the consequences could far outlast the viral outbreak, testing our nation’s ability to push forward and adapt to the situation in a way that can benefit us all.
So, how is this market event different from 2008? I’ll leave the technical economic analysis to the industry professionals, but from where I sit the primary difference seems to rest in the fundamentals and fear. Going into the COVID-19 crisis, the global economy — while saddled with too much debt that will eventually catch up with us — was in pretty good shape. US unemployment was at historic lows, companies were thriving, and consumers had generally been positive about their personal finances. In 2008 that wasn’t the case, and my hope is that due to the strong foundation, we will bounce back from this with fewer bailouts, layoffs, and less of a crisis mentality all around.
Secondly, but perhaps more overwhelming than the fundamentals is the fear of the unknown. 12 years ago, the fear of uncertainty was grounded in reality — the unraveling of the Ponzi-like scheme of Collateralized Debt Obligations, mis-rated Mortgage Backed Securities and the resulting liquidity shortage created a genuine economic tsunami that forced people, markets and governments to react with cynicism and doubt. The scenario unfolding here in 2020 is more difficult to explain except by way of explaining the human emotion of fear.
FDR famously said, “we have nothing to fear, but fear itself.” If we all resist the instinct to panic, and instead maintain a sense of calm and creativity, we can keep the focus on the fundamentals and public safety and ride through this storm without devastating consequences. After all, if your money is in the stock market, your investment horizon should be for the long-term. If you’re in it for short-term speculative profits, then you’re either a savvy professional investor that knows how to hedge against market risk, or you’re an average investor who should be in Vegas at the craps tables instead (and please go back, as soon as they’re open!)
So what are the long-term potential impacts to the economy? Again, my crystal ball is still in the shop, but the most likely impacts long-term are minimal, depending on how you define long-term. Stagflation, higher unemployment, continued wage growth declines relative to prices, and government stimulus through interest rate cuts and tax cuts will continue to increase sovereign debt levels to unsustainable levels and put pressure on banking sector profits. But this was all happening anyway. COVID-19 may just be the excuse the markets were looking for to initiate a correction that was overdue and force us to address the looming debt issues sooner rather than later. Which in the end, is probably a good thing to have happen.
So how can you help make things better NOW? Take a page out of Taylor Swift’s hit “You Need to Calm Down,” take a deep breath, and try to focus on the bigger picture. If you have some idle cash, and won’t need it for 5-10 years, if your risk tolerance and investment horizon allow for it, invest in the market – everything’s on sale! Bottom-line — this is all about perspective and reaction. We all know that when we act out of fear, things usually get worse. When we act from knowledge, thoughtful consideration for others and courage things usually turn out for the better.
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Let’s work together to turn this media-frenzied “Apocalypse” into an OPPORTUNITY. An opportunity to practice civility, human-kindness and creativity. With the world’s ingenuity and ability to adapt, we can help keep the economic engines running in our communities, states, countries and regions.
In the long run, I expect we’ll look back in 10 years at this situation as another bump in the road, so keep your eye on the ball, your hands in your pockets and leave your investments alone. It’s the cumulative impact of a positive, courageous outlook that will generate the opportunities of the future.
John Henning is the Chief Client Officer at Granite Solutions Groupe. He has over 35 years of leadership experience in the financial services and technology industries, and currently oversees all client account management, professional services, marketing strategy, business development and sales operations for GSG. To stay updated on the latest market news and insights, be sure to follow us on LinkedIn.