When something bad is happening you want to stop that process by doing less of it.  Eventually less and less will turn and become positive. This is one of those things that you hear of flattening of the curve. The curve will turn at some point. We dig into that process and how the markets are effected.

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Episode 021 – Stop Digging

Rick:                 Thank you for joining us in Market Insights from Southwest Investments. I’m Rick Zich, your host. Joining me today is Bart Schannep. Bart, welcome to the show.


Bart:                 Glad to be here, thank you.


Rick:                 Awesome. We have… It’s one of those things where when we got bad things happening, the first thing that you do is you stop doing those things that are creating the bad thing, like the analogy of “When you’re in a hole, stop digging.”


Bart:                     Right.


Rick:                     Let’s dig into some of the things that are happening now and what we think is going to help stop them and where we’re at. Let’s dig into it.


Bart:                 Right. This is the situation. We are in really unprecedented times. You figure we have an unprecedented global crisis, which led to a global market meltdown, which has led the central banks and fiscal stimulus around the world to really amp up, which has now led to a rally as investors are starting to perceive that there’s a light at the end of the tunnel.

Now, we didn’t dig this hole. This happened to us, right? This pandemic, this virus. When it first hit, it led to the fastest decline, 35 percent decline, fastest decline in the stock market since 1933.


Rick:                 It was like three weeks. It was very fast.


Bart:                 Boom, very fast.


Rick:                 When we talk fast, traditionally in stock terms, the stock market, fast is maybe a few months, but when we’re talking fast, this is fast.


Bart:                 It was followed by the fastest 25 percent gain measured in days right after that. We do believe that we are in a short-term bear market inside of a much longer secular bull market. We believe that the economy, which was very strong before, had this massive stumble, this complete shutdown across the world. It is our hope that the recovery will be, if not U-shaped, maybe even closer to V-shaped quicker in coming back. Well, how does that happen?


Rick:                 Real quickly before you get into that as far as U shape and V shape because that’s one of those jargon terms that sometimes we might think of. When you think of the V shape itself, that’s how quickly it went down. It didn’t go down in a slope like a really wide V. It went down fast, and we’re expecting it to go faster.


Bart:                 So far we’re about halfway up and about just as steep in up as the decline was.


Rick:                 Right.


Bart:                 We’ll see what happens moving forward from here, but this is what we can see. In the world of investing, one of the things that investors focus on is rate of change. When we had the pandemic, and we all know the facts. It was coming out roughly at 100 percent more contagious than the standard flu. We had no immunization for healthcare workers to be able to do anything about it. One of the first places it hit was both China and Italy, and they had a bunch of deaths very quickly.


Rick:                 It scared a lot of people.


Bart:                 That scared the wits out of everybody. Okay. Now what we’re seeing is we’re seeing that rate of change slow down. Normally investors look for rate of change, the rate of change to be modified, whether it comes to earnings growth, sales growth, money supply, you name it.

Well, now it’s, “Okay, how many infections? How many deaths?” Okay. Well, Italy declining in both those. How many infections, how many deaths in Spain, the other country that seemed to be so seriously hit? Down. Now we’re seeing the same in New York City and in Seattle. Now, we still have a lot of people getting the infection, and deaths are following, but our projections. You figure the modeling that they’ve been using had projected 90,000 people dying in the U.S.


Rick:                 Significantly higher amount than we’re seeing now.


Bart:                 That was last week’s.


Rick:                 These things are happening fast.


Bart:                 This week, now it’s only 60,000. What is next week and what is the following week? We don’t know, but we do see the curve is flattening. Not everywhere, okay, but Louisiana, Colorado, Delaware, Iowa, Kansas, Mississippi, Missouri, Montana, North Dakota, Ohio, Oregon, Vermont, Washington and Washington DC.

Okay. Well, that’s how things start to get better because they have to get better somewhere. If they’re starting to get better there, I know that New York has been the hardest hit. They have not flattened yet. They’ve not flattened their curve yet, but it’s perceived that as news starts getting less bad, that’s what helping defeat the market.

Now, we’re going to get a lot of bad news coming. All the backward looking indicators, we’re going to start seeing reports on how lousy car sales were, housing starts, sales of durable goods, retail sales, you name it. Those are all going to come out bad, but those are all the things that have happened.


Rick:                 That’s right. That’s right. Stock prices are not necessarily what happened.


Bart:                 Right.


Rick:                 The terminology is they get priced in.


Bart:                 Right. The market knows all these bad things happened.


Rick:                 That’s right. It’s already in the past.


Bart:                 It’s already in the past. One of the reasons the market’s been moving forward or up direction is because although the GDP is expected to take a significant hit, it’s not expected to be a permanent hit. That’s what we’re there looking forward to. The market has been pummeled. The market has recovered halfway. Getting back to the other half will be following news getting less bad, less worse. That’s what we’re looking forward to.


Rick:  Thank you so much for joining us. We look forward to seeing you next time around. Thanks.