Investors – professionals and non-professionals alike – are out of their minds if they believe we are on our way to what is being referred to as a “V” recovery. Today alone I’ve heard 3 or 4 references to such a recovery.
Recoveries come in many letters that are used to describe a stock and economic rebound from all things bad. The “bad” represents a shock of some sort that leads to a sharp leg down (the left side of the “V” in this case). The “good” leads to a recovery, the best type of which is “V” shaped (and represents the right side of the letter).
You may suffer a violent shock to the downside, but the forces of good (in this case that would be the trillions of Fed dollars to the rescue) allow the rebound to bring you right back to where you were before the downturn. Really? Are we really to believe that after the world effectively closed down as totally as it ever has in history, that we are just going to ride a wave of Fed money up to land where all this began in February? Was all the drama and angst for naught? Not likely.
The other recovery letters exist for a reason. Recoveries can also occur in the shape of a “U”, where the stock market and economy don’t turn around on a dime, but rather take some time to head back up. The “W” describes a much more choppy recovery – one that has fits and starts, falls again, heads back up again, etc. The dreaded “L” clearly shows the shock and the fall, but as you would suspect, no type of recovery begins anytime soon.
Call me a naysayer, but you’d have me wrong. I’d like to think I am a realist. I am afraid that the cover story thus far is fairly simple: We were caught flat-footed faced with a frightening pandemic, and our country essentially shut down to protect itself. Open your eyes slightly wider, and you will see that most of the developed world was in shock and fought the pandemic with the only tool at hand – isolation.
When Volkswagen – one of the largest auto manufacturing plants on the planet closed its doors on March 18th, all 44 auto manufacturers on earth were closed. Not a single automobile was being manufactured for the very first time since the advent of the car. Consider how many people are attached in one way or another to the automobile industry, and the ramifications should be clear.
The auto plants all being idle at one moment is what drives home the drama for me of closing down the world (never mind the USA). We are not going to get over this in a month or two, and all these “surprise” earnings coming in right now only include one month of disruption (March), if that. I feel like some people are starting to party due to optimism and denial. The trillions of dollars of cash disbursed to partygoers may represent the aspirin or pain pills that enabled some to forget that a blackout hangover has yet to be dealt with.
I can’t see this event as anything but far less than half over, contrary to what the stock market’s trip up the right side of the “V” would indicate as of today. This is not a time to buy the dips. I am certain that there is another shoe to drop, yet. It is time to think, watch, and let this play out some more. Hell, we have not even been let out of our cages, for the most part!
I think that cautious optimism is warranted, with the emphasis on cautious. We will all party again, no doubt, but it’s not time to pull out our kazoos just yet.