We drop the most important episode of Coronavirsus SOS yet, liquidity is the most important asset you have right now.

The market has fallen 30% since the peak of a decade long bull market, while velocity of this fall is significant the absolute percentage drop isn’t at a crisis level.

Source: YCharts

Brokerages estimate the economic impact of the coronavirus will shave between 25-30% of earnings from the S&P 500, at this point it’s a guess at best.  This implies the the S&P 500 is as expensive as it was as we entered 2020 – at roughly 19x Forward P/E. If this is a recession scenario (and it is!) there’s still significant downside to the market based on this multiple, we should bottom between 10-13x Forward P/E.

The emergency measures enacted over the weekend are completely inadequate, they are providing liquidity to the banks when they should be providing liquidity to people on the street!  Checks should have been in the mailbox yesterday.

Can the U.S. consumer survive a full shutdown?  Well let’s look at how much liquidity (cash) have by age bracket, this is the most sobering graph for ardent market bulls.

Americans under 35 have less than 2 months of liquidity.  Everyone’s goal should be to have liquidity of 6-12 months, don’t rely on the government to bail you out!

Source: Bureau of Labor Statistics, United States Census Bureau’s Annual ASEC Survey

We have to look to the depression as an analog, the unemployment rate jumped from 3% in 1929 to 9% in 1930 – this is the type of economic dislocation that everyone should plan for in a worst case scenario.

Source: Bureau of Labor Statistics




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