And How Should You Invest?
As the coronavirus pandemic seems to be leveling off there are hopes for better times ahead. What will the recovery be like and how should you invest? We have written about how to approach investing at this time of crisis starting with our wondering how far stocks will fall. Will there be a stock market rally and, if so, how soon will it happen and how strong will it be? The answers to these sorts of questions hinge on just what society and the economy will look like in the weeks, months, and years to come.
What Will the Recovery Look Like?
J.P. Morgan writes about recovery from the covid-19 recession.
The global recession induced by COVID-19 might only be a couple of months old, but direct central bank intervention and some encouraging signs of recovery from China have sparked the debate of a “V-shaped” versus a “U-shaped” recovery in economies and markets.
The “best case scenario” will be a “V-shaped” rapid and rapid recovery, which has been the most common case over the last half century. The Financial Crisis and Great Depression are the prime examples of prolonged, “U-shaped” recoveries. The economic conditions that end up with a quick recovery are those in which there are sufficient cash and credit available to ramp up production, put businesses back in operation and get consumers to start spending again.
The case for a fast recovery is that central banks and governments have been quick to helicopter in money directly to whole societies. The case against a quick recovery is that just how soon the virus will allow the economy to ramp up again is not clear. When the initial stimulus checks run out, will there be more? How successful will attempts to reopen businesses in the face of a potential second or third wave of covid-19 infection?
To the extent that states and the Federal government are willing to issue debt in order to do things like rebuild American infrastructure, such attempts to mobilize the economy like in WWII could have long term benefits as well bring the country out of a year or two-year long recession instead of letting it sink into a decade-long depression!
The bottom line from J.P. Morgan is that long-term damage is likely from this crisis and that investors should consider this when choosing investments.
We routinely look at what Warren Buffett and Berkshire Hathaway are doing as a guide for long term investing. It is of note that Buffett is yet to make any large purchases and is still stockpiling cash!
Investments for a Slow Recovery
Consumer goods are still necessary during a recession. Thus Walmart is doing well as Dollar General and Amazon.com. Kiplinger lists twenty stocks for a recession and the list is heavily tilted towards companies that provide the necessities of life and not the luxuries. We wrote years ago about investing in beer as example of things that people will buy during both good times and bad! Mexico may have to do without Corona beer for Cinco de Mayo due to brewery shutdowns, but over the longer term, production will ramp up again and this sort of product will continue to make money for investors.
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