The Second Wave

Monday, June 29, 2020

The COVID-19 numbers were already bad. Now they’re getting a lot worse …

The number of confirmed COVID-19 cases globally surged beyond 10 million over the weekend. Now, there are another 200,000.

The United States has the most by far: 30 times more than China overall, 112 more than China per capita.

This is crazy, out of control.

And it’s raising some urgent questions for investors …

Q: Is the data accurate?

A: In some countries, government stats are moderately understated; in some countries, grossly understated. But they’re rarely overstated.

Q: What will be done to stop the pandemic?

A: In many regions of the world, especially the Americas, the horse has left the barn; the virus is already spreading like wildfire.

In fact, the CDC says that for every confirmed case of COVID-19, there are probably ten people who have been infected. That would be over 25 million in the U.S. alone.

So, to flatten the curve now would require lockdowns — plus crackdowns on the population — that are even more Draconian than those imposed in March and April.

But there’s no political or popular will to go back to national lockdowns, let alone stricter ones.

Result: Any government response is bound to be too little too late to stop the pandemic.

That probably won’t happen until a vaccine is widely distributed.

Q: Where is all this taking us?

A: The IMF and World Bank forecast the deepest global depression in 80 years in 2020, followed by a recovery later in 2021.

But it’s little more than a guess, based on shaky assumptions. They assume that …

  • The second wave will not be more severe than the first.
  • An effective vaccine will not be delayed.
  • The massive layoffs we’ve already seen will not set off the vicious cycle that’s typical in a recession. In other words, they assume consumers will not cut spending drastically … their spending cutbacks will not severely reduce corporate sales or government tax revenues … and the corporations and governments will not announce many more layoffs.
  • The financial fallout will not be a big deal. No wave of corporate bankruptcies, no big bank failures, no state or local governments going broke.
  • Congress and the Fed will continue to provide massive stimulus, with virtually none of the side effects that have plagued government excesses throughout history. No currency collapses, no bond market meltdowns.
  • Social unrest will not be a big problem. Major political disruptions will not occur. Trade wars will not erupt.
  • On the positive side: They also assume that technological advances will not help move the economy to a different plain soon enough to offset the downside forces.

In reality, all it will take is just ONE of these assumptions to be off the mark, and only God knows where the economy will wind up.

What we do know is that, whether the economic forecasters are half right or dead wrong, even the best-laid retirement plans are now in grave jeopardy.

Your interest income has been slashed to zero or very close to zero.

Your dividend yields are being gutted.

Income from salaries, rental property and other sources is — or soon could be — in grave jeopardy.

But my prescription is unchanged:

  1. Go to our Weiss Ratings website.
  1. If you haven’t done so already, be sure to sign up.
  1. Create a watchlist, and add the stocks you own or are interested in.
  1. To reduce your risk, avoid stocks with a Weiss Stock Rating of “D+” or lower.

Good luck and God bless!

Martin

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