In August 1914, famed explorer Ernest Shackleton set sail for a record breaking attempt to travel across the continent of Antarctica. But his ship and crew were soon stranded in the polar sea, wedged between ice floes that would not part. As the days passed, the sun slowly set in the horizon. During the Antarctic winter, the sun does not appear in the sky for two and a half months. Alfred Lansing describes the polar night in his book about Shackleton’s journey, Endurance:
In all the world there is no desolation more complete than the polar night. It is a return to the Ice Age – no warmth, no life, no movement. Only those who have experienced it can fully appreciate what it means to be without the sun day after day and week after week. Few men unaccustomed to it can fight off its effects altogether, and it has driven some men mad.
As Americans isolate in their homes, trying to slow the spread of coronavirus, I am reminded of Lansing’s description of the long Antarctic night. The self-imposed damage to our economy is shocking. Federal Reserve Bank of St. Louis President James Bullard predicts 30% unemployment by May and a 50% decline in second quarter GDP. Restaurants, bars, sports, conferences, and vacations are all cancelled. Full stop. The market priced this in quickly with a 30% drop in less than one month.
Now the question becomes, how long and how much?
The U.S. economy is approximately $20 Trillion per year. Restaurants, bars, sports arenas, nail salons, and barber shops are all closed. Hotels and airplanes are practically empty. Layoffs and furloughs were immediate, and unemployment claims skyrocketed. How could our system be so fragile? We will need better contingency plans once the dust settles.
Meanwhile, supermarkets, drugstores and home delivery services are booming. Wal-Mart, Amazon, Walgreens and others are hiring. Sadly, the healthcare system is seeing a boost in activity. The mail is still delivered, along with FedEx and UPS deliveries. Energy, clean water, and trash collection continues. Yoga and exercise classes immediately switched to virtual settings, as has school work for millions of children and college students. Financial markets and banks continue to function, despite historic volatility. The economy is not closed, only parts of it.
It is a lot of information for market participants to calculate and anticipate. 2020 is practically a write-off of corporate earnings. The Fed announced unlimited purchases of Treasuries, corporate bonds, municipals, even bond ETFs! Congress is mulling a multi-trillion dollar fiscal package to put money in consumers’ hands immediately. This is a very expensive crisis.
We will get through this.
Shackleton and his crew faced a harrowing journey from their shipwreck on the ice. Their resiliency and grit are almost unimaginable to the modern reader. At one point, a crew of three sails what can only be described as an uncovered dingy more than 850 miles across the most treacherous seas on Earth to reach civilization. In the end, Shackleton lost no crew members.
We too will make it through the coronavirus pandemic and market crash of 2020. While the darkness has only just begun, there will be light again. As we forge on into this Antarctic night, let’s make sure that we emerge with all of our crew members intact. For now that means staying at home, staying still, staying invested, and remaining calm.
In bear markets, stocks return to their rightful owners. – J.P. Morgan