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:
- Drop kids off at school
- Work on the house
- Write on the blog
- Pick kids up
- 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…
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.
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.
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.
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.
How are y’all holding up?
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