The virus, SARS-CoV-2 snuck its ugly head and caused illnesses called COVID-19. On February 23, 2020, total cases were reported was 37, 552, with 99% of cases in China. Consequently, the Chinese government ordered a complete lock down. Since then, it has spread worldwide at the frightening speed with 1835,318 cases and 113,190 deaths (Worldometer). A total of 549,989 cases with 21,648 deaths were reported in US alone as I write this. Deaths reported hover around 1000 lives daily among the 17,000 new cases. The Chinese lifted the lock down April 8 after zero reported deaths for three days. The Coronavirus outcomes as it relates to health and finances, only time will tell.
Unemployment
Over 16.8 million U.S. citizens claimed unemployment, with this number increasing every day. The massive closure of restaurants, hotels, and factories effected everyone, especially the most precarious workers. The stimulus bonus checks of $1200 per person are being issued this week. Even yet, will this make up for prolonged unemployment without an end in sight?
Businesses
All the stores closed as a result of “stay in place” order. Apple stores, with $245 billion in cash can afford to close their doors temporarily. How about the small business owners who also had to close due to statewide order limiting activities to absolute essentials? Will the small businesses be able to open their doors, rehire their employees and thrive once again?
Stock Market
The DJIA has plunged 13% and S&P 500 index 12% over night as containment measures shut down schools, bars, restaurants, and shopping malls. The stock market has continued to be volatile and the worst may yet to come.
Real Estate
The real estate markets have come to a screeching halt since the agents have been ordered to stop showing houses. Some agencies launched virtual tours but the conventional buyers may not be comfortable buying houses unseen. The properties, which are currently on the market, have slashed their prices to ensure fast disposal.
The Worst Case Scenario Outcome
Coronavirus Outcome
The worse case scenario may come after lifting the shelter-in-place order. People will flock to the restaurants and bars once again and cause an uptake in infections. Furthermore, South Korea is already seeing evidence of reemergence of COVID-19 symptoms from citizens who have recovered previously. Since no one is immune to the coronavirus may cycle around again, infecting more people.
Unemployment
Unemployment will continue to rise. The employees who have been furloughed will run out of their sick and vacation pay. Without the influx of revenue, the companies will not have the reserve funds to continue the payroll. The companies will be forced to lay off their employees permanently. with this prospect, they will lay off their employees. If you are a business owner or in a leadership position, are you prepared to lay off your workers?
Businesses
The large businesses such as the airline and the hotel industries will survive due to federal bail out. They always do. The small businesses will open but will not accrue the revenue as before. Customers will be afraid to go out again or part with their money.
Stock Market
The market will depend on what happens next. It will rally back up once the “shelter-in-place” order is lifted. We’ve already seen evidence of that when the DJIA fell to 18,591 (3/23/20) and rallied back up to 23,248 (4/13/20). The worse case Coronavirus outcome is if the rate of infection spikes up after everyone reenters work and social activities. This will drive the stock market further down.
Real Estate
Mortgage giants Fannie Mae and Freddie Mac have ordered the lenders to reduce or suspend mortgages. What happens if the secondary markets or lenders are not Fannie or Freddie? What happens to the landlords whose tenants got laid off and could not pay?
Many of the 16.8 million people who filed for unemployment own homes and may foreclose on their houses. The surplus of houses will drive real estate prices down. The commercial properties may end up vacant due to the fact that the small businesses will not survive the prolonged closure.
Best Case Scenario
Coronavirus Outcomes
The containment measures is successful in squelching COVID-19. Consequently, the shelter-in-place order lifts by June 1st. All American citizens heed the warning to exercise caution by wearing masks and practicing social distancing. Frequent hand washing for 20 seconds becomes part of the norm. Vaccine for the Coronavirus is produced within 6 months, earlier than the projected 12-18 months.
Unemployment and Businesses
As the businesses open their doors again due to Paycheck Protection Program (PPP), they rehire all the employees who have been laid off. The citizens become customers once again and dine in their favorite restaurants. The Apple stores open with their newest 5G iphone 12, and take in everyone’s stimulus check. Above all, Disneyland opens back up, making the Americans happy again.
The travel industry booms with adventurers buying airline tickets with gusto. All the businesses go gangbuster, which leads to hiring more people. As a result, the unemployment rate declines back to 3.5%.
Stock Market
People will become more bullish than ever before due to thriving businesses. Investors flood the market again and the DJIA hits all time high of 30,000.
Real Estate
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, allows the homeowners get their missed mortgages rolled into their current loan without owing back payments. The real estate investors, who have been waiting on the sideline rush to buy, driving the real estate market higher than it is currently. People will realize that real estate is less volatile at times like this and add it to their portfolio.
Lessons Learned
I am an optimist who is mildly skeptical so I believe the Coronavirus outcomes are somewhere in between the worst and the best-case scenarios. When the wound is massive and deep, it heals but inevitably causes a scar. Due to the major impact the Coronavirus had and continue to have on all critical indicators, including health, socialization, and financial, it is doubtful that we will bounce back over night. Minimum of 1-2 year recession is unavoidable. However, this is not the worst thing in life.
“You don’t have to come out of hell empty handed.”
-Rabbi Steve Leder
When faced with a badass challenge, don’t get out of hell without taking something with you. What can you learn from the Coronavirus pandemic so that you can influence the outcomes in the next crisis?
Invest in the long term. Diversify your portfolio with bonds to lessen the impact. If you are retired, sell your bond funds during the bear market while you wait for the next bull cycle.
Have an emergency fund to cover 6 months of expenses. Retirees should have 2 years of expense in cash to get over the extreme bear market.
Finally, prepare for the next emergency. In the city of LA, we’re more likely to experience an earthquake. Stock up on water, imperishable food, reusable mask, and most importantly, toilet paper.
Most importantly, educate yourself on world events and finance so that you can prepare for what is ahead.