Monday, March 30, 2020


The market is down, people are out of work, but I think it is just getting started.

I noted in some earlier postings that my neighbor died.  She was 98 years old.  People ask what she died of, and I reply, "being 98 years old."   The "oldest person in the world" is a crown that changes hands on a weekly basis.  Usually those folks are around a hundred and teens.  Few live that long, fewer enjoy living that long.  If you live the four-score-and-twenty the Bible claims you are due, then good for you.

But don't act all shocked when someone over 80 dies - regardless of the cause.  We should all hope to live that long.   I probably won't.   But I digress.

The new owners of her house are tearing it a new one.  They took down quite a few trees, which cost them thousands of dollars.  While they had the crane there, we had four smaller trash trees taken down, and that cost us $2400 - which our stimulus check should cover.  So much more light in our house now!   Living in the dark isn't healthy.

But anyway, there is a dumpster in their driveway, and they put in a new split-system for their "Jekyll Room" (our version of a Florida room or glassed-in porch) replacing a balky and broken window unit mounted through the wall.  They are doing the kitchen and baths and putting in a new sewer line and a new roof - your basic makeover.   Funny thing, though - if you asked me while my neighbor was alive, I would have said her house was "in good shape".   And it was, but it needed updating and the roof was getting kind of old.

Anyway, the point is, while a lot of people have been laid off from their jobs in the service sector, there are a lot more who haven't been laid off yet.   These remodeling projects - and they are going on all over the island - are still going ahead full steam.  The homeowners contracted for them before the virus hit, and they have the money to pay their contractors, at least for the time being.

But down the road, what happens?   Will people keep buying vacation homes and remodeling them?  Well, some will.  Others may hold back, nervous that their bank account and investments are diminished by the recession.  We saw this the last time around.  Contractors were going hungry - a friend of mine had their house done over for a very reasonable amount, as no one else was hiring.

This is just one example.  Multiply it by the number of contractors across the United States, currently working on jobs, but maybe soon to be unemployed.   Throw in construction workers for new homes, or office buildings and hotels (such as being built here on the island). Contracts were signed and construction should be completed, but after that, then what?

I think we may see a delay or hysteresis effect here.  It may take several months for the real effects on the economy to sink in.   It is a death spiral or the snowball effect at work.  A guy gets laid off - he decides not to trade in his jalopy on a new car, but instead conserve cash and keep the old car for another year.  That means one less car sold by Mammoth Motors.  Multiply this by thousands, and pretty soon Mammoth Motors is laying people off.  They, in turn, decide that maybe this isn't the year to buy a house, an RV, or a jet ski.

And on and on.  We saw this the last time around.  Mark got into Real Estate when we looked at a foreclosure property in 1994.  Bear in mind the Real Estate market crashed in 1989, and you can see there is a huge delay between a crash event and the effects rippling though the system.  It takes time for people and companies to give up and move on and then slowly rebuild.

So if you want to time the market, good luck with that.  The bottom of the market could have been last week, or this week, or next, or six months from now.

I think, going forward, there will be bargains for some time to come, and a bull market will emerge from this bear, in the next few months.  After all, the recovery last time around started only a month or so after Obama took office.

So even if you don't "time" the market correctly, you may still do well down the road, if you invest in a number of things, over time.

It may sound depressing to contemplate all of this, but it is just reality, and reality is value-neutral. Virus or no virus, we were headed for recession, eventually.   Trump was hoping that it would not strike until after the 2020 elections - which is why he had been goosing the economy with tax cuts, deficit spending, and low interest rates.  It is 2008 all over again - with Bush signing a bailout package to keep "too big to fail" from failing - after years of deficit spending and tax cuts.  We barely recovered from that when we got Trump.

Will people ever learn?  Hell, no.  These boom-and-bust cycles profit a few people very handsomely and take away a little bit from a lot of people (or in some cases, a lot from a few people).  Maybe this time around, people will wise up.