So, back in August, I wrote this:
And 7 months later, here we are.
(Side-note: I sandbagged it. The S&P 500 and Dow Jones are 30% and 35% off their all-time highs respectively.)
I’m no clairvoyant. I could have predicted a downturn at just about any time in history and been correct. Markets go mostly up, but they go down too. Frequently.
I also had no idea that the black swan would come in the form of a virus. If you had asked me back then, I probably would have guessed that the next correction would be caused by North Korean aggression, robot traders losing their minds, trade wars, or just overvalued markets reverting to the mean. I never would have guessed that the cause would be a pandemic. This black swan is no mild bird flu…
Frozen Dinosaurs And Axe Murderers
Life here in 1500Land is a little sad and boring. Our go-to place to hang out was always the library. We’d visit the books at least three times per week. Now, the library is closed indefinitely and we’re quarantining the kids. Regarding that last action, the fun never ends:
Life pre-virus:
- Drop kids off at school
- Work on the house
- Write on the blog
- Exercise
- Pick kids up
Life post-virus:
- SHE’S TOUCHING ME!
- I WAS SITTING THERE!!
- SHE ATE THE LAST CORNDOG!!!
- I HATE MY SISTER!!!!
Here is footage of our children from last week:
When not fighting, we watch Kahn Academy, Netflix, and making use of the snow:
I am no homebody and like to get out of the house, so this new reality doesn’t suit me well. I’ll have to be careful or this situation will devolve into a Jack Torrance situation:
Just kidding! Maybe…
Multiples
One site I like to have a look at every once in a while is multpl. On the homepage, it shows the S&P 500’s current PE ratio and a historical graph. Interestingly, the markets are still high by historical measures:
What is more interesting to me is what the graph will look like at the end of the pandemic. Look at what happened during the Great Recession:
It’s not difficult to figure out what’s going on here. The S&P’s PE skyrocketed because earnings (the denominator) crashed.
This Time It’s Different
In the Great Recession, decreased consumer spending was an effect of a market downturn caused by bad mortgages. People lost their jobs, so spending went down.
The nature of this recession is different. Since many of us are confined, we’re not buying stuff at Costco (besides toilet paper), traveling, eating out, going to the movies, or buying fuel. Decreased spending is a primary effect, not secondary.
Earnings will crash and they’ll crash very hard. But, when the virus passes, perhaps life will return to normal quicker than it did in the last recession because the cause isn’t financial. If I had to guess, the PE spike this time will be even higher, but for a shorter amount of time.
Ignorance
Sometimes, it’s difficult to comprehend a situation until it’s upon you. This was definitely the case with how I thought about COVID-19. I thought it would pass quickly and the world would move on. I was astounded when I first heard of school being canceled in another state. My thought was:
This won’t happen to us.
A week later, it happened to us.
Perhaps it hit home for me on Saturday morning when I received this text from a good friend in Florida:
The sheer number of people I know who have either lost their job, or all their clients, in the last week is staggering.
Oof.
Construction, Sleep Deprivation, And Depression
Back to 1500Land…
I’m trying to establish a routine where I home school the girls for part of the day and then we all head outside for some exercise (we maintain distance and don’t go inside stores or anywhere else).
The new reality isn’t easy. The girls fight with each other. They fight with Mindy and me. They haven’t had a chance to retrieve their school materials yet so sometimes I struggle with what to teach. I’m probably a sh*tty teacher too.
My world changed and it changed quickly. A couple of weeks ago, I was plowing through a basement remodel and about to build a deck. Now, all of that is on hold until the girls go back to school in August (hopefully). Last week, I stacked up all of the wood and put a bunch of weight on top of it in an attempt to prevent warping:
I thrive and am happiest when I’m building and creating. Now that all of that has been taken away, I’m suffering a little.
The other related part of all of this is that we’ll now have to live for an extended amount of time in chaos. Here is what our dining room looks like:
I want to live in a dirty construction zone!
-said no one ever
When you’re making progress almost daily, living with sawdust isn’t so bad. The light at the end of the tunnel is near. But now, the light is very far away.
Our youngest child has also been having night-terrors. She wakes up screaming in the middle of the night. I’m a poor sleeper to begin with, so now, I’m in a persistent state of sleep deprivation. I feel like a zombie at times. I’ve learned firsthand that losing sleep can be very bad for mental well-being.
It’s difficult to deal with all of this and it has thrown me into a bit of a funk. I’m hoping that the depression passes once we get on more of a routine.
I feel selfish and silly for having these thoughts. (This makes me feel even shittier!) Our life is better than most. Financially, we’re not struggling. We’re all healthy. Life could be much worse. I need to keep that in mind at all times.
Brace Yourselves
And if you’re still with me, perhaps now is the time to consider that this will probably get worse before it gets better. From my observations and what I read, many aren’t behaving as they should. Early last week, I drove through the tourist town of Estes Park. Most of the stores were open and lots of people were out on the street. On Saturday, I drove past a donut shop on Main Street here in Longmont and there was a line of people waiting inside.
China was able to stop the virus quickly because the government forced people to quarantine. In America, quarantine is merely a suggestion. I don’t think that enough are taking COVID-19 as seriously as they should. I really hope that I’m wrong.
The issue is the exponential nature of the infection. Like any exponential phenomenon, the numbers don’t get big until the end. For a while, the world will look fine. And then, it won’t and the change will happen very quickly. I suspect that most cities of significant size here in America will order all businesses to close for at least two weeks in an effort to reduce interactions.
Plan now.
How are y’all holding up?
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
Thanks for the honest post
We’re on lock down in Illinois near Chicago and my 3 teenagers are starting to get on each other’s nerves.
I’m thankful that I found your blog several years back and we are now in a great financial situation to handle this event.
You’re right about many people not listening to the recommendations to distance from each other. I don’t think many people understand the exponential effects of this virus as Doc G recently explained with jlcollinsnh.
We need to educate those we know how serious this can become.
Thanks again for the post.
Hang in there
Thank you for the kind words Goerge! Stay sane and healthy, although not necesarrily in that order! 🙂
These are crazy times we live in. I always appreciate your perspective and good luck keeping the kids separate, I know I am struggling with the same issue.
You mentioned trouble sleeping and have seemed to succeed with a data based approach to finances. Have you ever tracked your sleep or read any of the literature out there? I would recommend Why We Sleep by Matthew Walker as a way to look at things in a different way, but I am sure there are lots of options out there.
I track my sleep with a FitBit which seems to be pretty accurate.
I have that book on my reading list! Thanks for reminding me to prioritize it.
Two things I discovered about sleep so far:
1) You have to quiet your brain to go to sleep. If you think about stuff, you stay awake. No clue why it took me so long to figure this one out.
2) For me, I have to go to sleep and stay there. This one is kinda hard to explain. For example, if I fall asleep, but then wake up a half hour later, I’ll be awake for hours.
Take care.
Thanks for the article. Unfortunately, we are in IL and most people are not taking the this seriously. People aren’t social distancing. We stopped going to the grocery store and do strictly pick up because no one is following the suggested 6ft rule. It’s disturbing. I got sick the week before all of this for a week so I will be on week three of not going anywhere and it is getting to me too.
What is wrong with people? Scrary.
Stay safe and sane.
Carl, how did you know about the recession in August of last year before even the Chinese knew the existence of the virus. I need lottery numbers from you 🙂
Yes, it is pretty bad and I was pessimistic when I cancelled my China plans end of Jan and also sold a portion of my stocks. I regret not selling more but I believe it will get worse before it gets better. For now we all need to focus on your health and well-being. Money can always be made later
Financial Freedom Countdown recently posted…The Bond Market, Fed, Coronavirus and Recession
Haha! The winning numbers are… Wait! When you win, are you gonna share it? 🙂
Thanks for the honest update, Carl. I am also in a funk. We are in a ordered lockdown in Bavaria and there are 25K fines for breaking it. We don’t break it! But I read about others who do, and it makes me mad and resentful because I don’t want this to last a second longer than it has to.
I am also concerned about our loss of civil liberties, and wonder if the pandemic justifies it. But I really don’t want our hospitals to be overwhelmed so I try to behave well for the social good.
Even in a house with a yard, I feel stir crazy. But Anne Frank lived with 7 other people in 45 m2 silently for nearly two years, right?
Stay healthy!
Wow, 25K fines!? I’m usually against stuff like, that, but I’d support some kind of punishment here in the states. I have a bad feeling this is going to blow up here worse than any place else.
Yup, the Tako family is just making the best of things the way they are. It’s a crappy situation to be sure, but there’s little we can do about it.
Someday relatively soon, perhaps when the chill of early Fall is upon us, the world finally begin unlocking again. Herd immunity will have developed, and the new case rates will be a fraction of what we’ll see this spring.
But spring has only just begun… there’s going to be a lot of pain between now and then. Prepare yourselves for it.
Stocks and investments of all sorts are going to be in the dumpster. It’s going to be a fracking mess.
Mr. Tako recently posted…Lock Down Week 2: Homeschooling, Bikes, And Making The Best Of Things
“Someday relatively soon, perhaps when the chill of early Fall is upon us, the world finally begin unlocking again. Herd immunity will have developed, and the new case rates will be a fraction of what we’ll see this spring.”
Ahh, such a pretty picture you paint.
Maybe we’ll have made good progress towards a vaccine by then too?
Yeah. And then we’ll have to deal with the people who won’t take it.
Sigh.
I know, right? Andrew Wakefield is one of the biggest dickheads of our time.
Thanks for the update from Colorado Carl. I am working here from my bedroom in Colombo, Sri Lanka. We are in week 2 of an all businesses closed other than essential retail, day 3 of a 24/7 curfew. It’s creepy to observe – apocolyptic, – but I have to give the government credit for making the hard calls to curtail infections. Reality will set in soon for the US – take the economic pain now, and recover later. Credit is going to be tested, cash flows will be tight,, those without emergency funds are in trouble. I am optimistic that with strong state and local leadership, the US will come out on the other side by mid-May.
I’m not sure that we have strong state and local leadership though…
I’m holding up great, of course it’s not ideal but to those of us who force discomfort in our lives on a regular basis this is just a different flavor of discomfort. Focus on what matters, health, fitness and family. And after the outbreak is done and over we should continue to do that same exact thing!
Dave @ Accidental FIRE recently posted…How Much Has The Population In Your Area Changed?
Ahh yes. The lessons of the Stoics are especially valuable right now.
Hey Carl, really authentic update. We’ve been locked down in Spain for just over a week, home schooling our four young kids. We have a garden that we can go out in and decent weather so the kids can spend a fair bit of time outside.
My worry is for older family members who were initially not taking this seriously enough / not understanding what social distancing actually meant. My worry now that they are social distancing is the impact this will have on their mental health. I have members in my family / close friend circle who have suffered from severe depression, and social isolation will not be good for that.
From our end, we are trying to have video calls frequently with friends. It helps grandparents and grandkids to speak to each other.
And for my wife and I, it’s been great to catch up with people we haven’t been in touch with in so long. It definitely helps us stay sane having adult calls with people other than just each other.
The excuse that we’re too busy to organise a call is no longer as valid (assuming you can keep kids from going full itchy and scratchy while you’re on the call!).
Haha, yeah! Let’s have a call soon. How about on Saturday? What is a good time for you?
Saturday is great – sent you an email!
It seems that it will get tough for everyone who doesn’t have an emergency fund if 20% of America becomes unemployed. I’m hoping that after the virus is gone and life goes back to normal that people understand how important it is to pay off their debt and save money for times like these.
SWFL Financial Coaching recently posted…How to Manage Your Money to Have a Successful Financial Life
And I have a feeling it will more than 20%, at least for a brief amount of time.
Carl,
Thanks for the timely update. In tough times it’s hard to see the good, but gratitude is more helpful now than ever. We can all take one for the team and follow public health advice. The healthcare system is trying to cope with a possible surge ahead and we all hope a little pain now means less suffering for the most vulnerable in the future. Stay well!
Hey D!
I hope you’re holding up OK over there. I’m not sure if you and yours are on the front lines, but if you are, I hope you’re not burning out or burning up.
I look forward to talking to you again when the world is normal again.
Hi Carl – I always enjoy reading your posts! I have been reading your blog for almost two years.
I am a father of four, with two of my children having night terrors a couple times a week. So I understand the anxiety that night terrors create. For our kids, we noticed that they were always sweating when they would come out of their rooms totally in a different world, talking and saying things that made no sense at all. It would take ten minutes for us to wake them up and get them back into our world. We really saw the amount of night terrors decrease when we started to take off the extra blankets after they fell asleep. We would remove all the heavy blankets and comforters and cover them up with a sheet and one lighter blanket. In the summer, just a sheet. Not sure if your kids are experiencing the same kind of night terrors as mine, but maybe this will help. Good luck!
Thanks so much for the tips! What you say is similar to our experience, so I’ll start paying attention to temperature tonight.
Stay healthy and sane!
I guess we won’t be seeing you in NYC this summer. That’s probably the worst part for us so far, the lack of socializing. At least it’s been an opportunity to catch up with old friends we’ve failed to keep up with via text, phone, and video chat. It’s not the same as being able to shake a hand or give a hug, but we’re lucky that’s all we have to complain about over here.
Aside from that life hasn’t changed too much for us. Mountain bike trails are closed, but I can still garden, and brewing beer suddenly became a bit more critical to us than just a hobby! Generally I feel bad for how good we have it when people I know are losing jobs that they rely on.
When it comes to being depressed, I think a lot of us are having trouble sleeping at night. I mean there’s a frigging pandemic, and it’s natural to feel down and stressed about it. Shit sucks, but we’ll do what we can over here informing friends and neighbors on how to stay safe while doing our part by staying home.
Stay safe, and hopefully things turn around sooner than later with this thing.
I have been reading your blog for awhile and we are in the early stages of our FI journey. Thanks very much for your honest post! It really made me feel a whole lot better about this situation. Take care!
Nice read. Here in Michigan it sounds like our Governor is about to enact lockdown.
Fortunately my wife is able to work from home and her job is fairly secure as she works for one of the states energy providers. Also my part time job has kinda stopped ,(pretty much just gets me out of the house during the school year, stay at home dad during the summer) just add’s pocket change to our finances) so I’m try to maintain law and order among our 3 daughters…one’s a teenager (yikes).
We have outlined a routine that seems to be working for now that keeps fights to a minimum, but we are only starting our second week…
Stay healthy and thanks for the post’s!
It can get a bit chaotic here at home as well with two little humans running around. I’m working from home indefinitely for now. Stores are getting shut down to prevent the spread of the virus. It’s pretty amazing that it took a virus to cause a global bear market/recession. Who knew? Just remind me that we are even more connected to each other than ever.
Hopefully people can set aside the differences and we can all come out more united after this pandemic.
Hi Carl–I enjoy your posts and I owe you a big thank you for sharing your story so publicly. You see, it was the 2018 NYT article about your FIRE journey that served as my introduction to this movement–and it changed my life.
Long story short, my wife and I have always been thrifty, but since discovering your blog (and all the other great resources out there) I realized I had the flexibility to step back from my full time job and pursue some other interests.
I feel very fortunate to be able to stay at home with our three kids during this crazy time…but it ain’t easy.
My son’s middle school teacher sent around this article in attempt to relieve parents from the burden of feeling the need to become instant teachers. I found it helpful, maybe you and others might too:
https://slate.com/human-interest/2020/03/you-are-not-your-childs-teacher-quarantine-education.html
Best of luck and stay safe!
Tim!
I’m so glad that article helped you! I usually only hear the negative stuff, so I really appreciate your kind comment.
Thanks also for the article. One other thing that helped me is that our school explained that 2-3 hours per day is enough. If I had to go for 7 or 8, I’d go insane.
Stay sane, healthy and wealthy!
Anxiety suffering friends have commented that for the first time in a while, now that everyone is freaking out a bit, they’re feeling more calm because the outside matches their internal expectations for once. I feel a little of that, and a little sigh of release now that it looks like the other shoe is dropping with a recession (which I’ve been saving-in-anticipation-for since 2018). A whole lot of day to day tired and frustration with the kiddo at home all day long and needing entertainment. A whole lot of tired from needing to parent and work full time and also be a human who eats food we cooked. Made a fab curry for dinner, that took 80 minutes.
We’re making the best of it because as tired as we are, we’re ten times better off than others in our lives.
People aren’t taking this seriously enough and I am unconvinced that a couple weeks of quarantine will be enough to significantly dent the curve. I can’t even start with the federal government’s shenanigans and utter lack of a coherent intelligible response or plan to handle this. I’m just grateful we’re in CA and our state government seems to be taking the risk to lives seriously. So far.
Yeah, California seems to be doing great!
“I can’t even start with the federal government’s shenanigans and utter lack of a coherent intelligible response or plan to handle this.”
It’s tough, isn’t it? Especially today.
I think what will happen is this: The states that take it the most seriously will be OK. The ones that don’t do anything are going to be in a world of pain. This will result in the healthy states banning flights from the ones that are f***ing around.
This is definitely a time that I’m thankful for have a too large home with full gym, sauna, hot tub, places for us each to escape to for me time, and a 2000 acre lake in the backyard for kayaking (and hopefully boat rides if they don’t outlaw recreational boating).
The new reality for investors is going to be interesting. I totally agree with people being pissed about having to bail out companies for not being able to go a month or two without the government stepping in. All of those in the FIRE community should take pause though because this could have huge ramifications moving forward.
Corporate buybacks have accounted for more share purchase activity than all household purchases, all mutual fund purchases and all ETF purchases… COMBINED. The 10 year + bull market that allowed all of us to see our net worth’s grow was juiced by companies putting unprecedented levels of their free cash flow into buybacks to raise their stock price.
Will this go away all together in the future, no, but will it impact the returns we can expect moving forward, yep! So when we all get upset about these bailouts for irresponsible CEOs and companies keep in mind the main driver of the early retirement engine the last 10 years (cheap money, and corporate buybacks) won’t be around to fuel the stock market. It’s probably a really good thing, but it’s absolutely going to impact those who plan on a 40+ year retirement window.
Where do you live? I’m moving into your spare bedroom! See you tomorrow? 🙂
Investing: It will be fascinating to see how this pans out. If the virus goes away quickly, I think we’ll all be OK. If not, we’re all gonna feel pain.
LOL, you can actually have your own 2 bed 2 bath wing with its own kitchen. I paid cash for a house somebody foolishly built beyond their means during the last economic collapse. I paid $0.30 on the dollar in cash from what it cost to build because I “had powder dry” and could act quickly when blood was in the streets. This is just one example in my life why I tell people they should instantly dismiss people who scoff at the idea of taking chips off the table when you have won the game, or say it is dumb to sit on a pile of cash and be ready to pounce. These are the times you can truly impact your net worth in a dramatic way. I’m hoping for an opportunity now in commercial real estate for the distressed properties that were purchased in the last couple of years.
On the flip side, I would be happier if none of these opportunities ever materialized and this pandemic doesn’t end up costing hundreds of thousands of lives and economic carnage. I’d be happy to book my current losses if it meant that life could go back to the normal world we had before. Things will never be the same though, and they shouldn’t, the world needs to be better prepared for when the big 10% killer virus really does hit which could be in 2024 or 2120.
“I paid $0.30 on the dollar in cash from what it cost to build because I “had powder dry” and could act quickly when blood was in the streets.”
Damn.
I remember looking at a newly built, 12,000 square foot home around 2011. Today, it would sell for well over a million, but at that time, the first person to show up with $400,000 in cash got it. I almost cried because we couldn’t come up with the cash.
I like what you said in the second paragraph. We’ll probably come out OK, but man, others are going to suffer. And yeah, the response has been abysmal. Put partisan shit aside and listen to f***ing scientists.
Hello Carl, great post as always.
I live in Mexico (in a border city with US), things are not too bad in Mexico regarding the virus spread (yet) but we have a lot of people coming from the US to avoid quarantine measures, and since our stores still have toilet paper and water bottles, definitely not cool as some local folks can barely purchase their supplies on a paycheck to paycheck basis.
Just hoping that people can be conscious of themselves and others, since this situation can bring the worst of our selfishness if we let it.
Take care and God bless.
Luis recently posted…Home security cameras for beginners
Our household is holding up okay. Good but not great. We are early in our FIRE project, so our financial situation is much-better-than-most but still not 100% okay. It’s unclear to us how much the Black Swan is going to affect us financially: Definitely still waiting for the other shoe to drop there (we’re in a state in flyover country that hasn’t been affected much yet, health-wise). My W-2 job at the university is solid, for now (universities are hurting but there is always a longer lag time before our budget reality sets in). My husband is a sole proprietor (self-employed psychotherapist) and his business is down to 50%; not sure how long that will continue.
Thing I enjoyed and learned from your post:
**I’m definitely calling COVID 19 the Black Swan from now on. I know black swan is a general term, but I don’t care. I’m adapting it for a specific, proper noun use now because I like it.
**I am ordering a new puzzle online today. I saw the corner of one in your dining room and immediately knew this is just what I need to bring together my two teenagers into loving, family harmony. It will work, right? Please say yes.
**Wood can’t just wait around or it will warp.
Hey RtD!
I’m glad to hear that you’re holding up, even if life isn’t as good as it was just a short time ago. I’m sorry to hear about the 50% loss in business though for your husband.
Puzzles! Yeah, it’s peak puzzle time! I forgot how fun they are!
PS: I like your electric car and ebikes. I don’t have an electric car yet, but my ebike is incredibly fun.
Thanks for a great post. It is really very difficult now to stay afloat due to recent events that have entailed all these prohibitions and precautions. I don’t know how long I can endure a seat at home. And the point is not that tired, but there is no banal choice, haha. When it’s limited, it’s difficult, especially if you can’t go out to work in the park under the house, while maintaining a social distance with everyone around.