My wife couldn't sleep last night. She watched an interview that got her mind churning. In September 2016, French President Nicolas Sarkozy gassed an ideological fire he set earlier. He said that population growth is a bigger threat to humanity than climate change.
That was highly charged then. As the debate grew over green energy vs. fossil fuels, rhetoric intensified, and each side dug its heels in. On one side the greens passionately defended a suffocating mother earth. The other side saw the fossils obstinately ignoring science and liking the way things were.
Either way, in came Sarkozy saying that, while he believes in green energy, the whole argument was focusing on the wrong problem. His stance was simple and inescapably logical. When he was born, the population was around 2 billion people. It had more than tripled to 7.5 billion in his lifetime. UN estimates project the planet to have 11 billion people by 2100.
Simply put, the larger threat is too many people, meaning consumption of more resources, higher temperatures, and generally a bigger strain on our fragile planet. Like it or not – he had a point.
My wife suddenly applied that twist-in-the-tale thinking to the pandemic. Was she thinking about things all wrong? Should we let things run their course? Is this nature's way of population control? I see why she couldn't sleep.
Debates often get hot – so I'll tread lightly here, but the root of the pandemic debate in the United States is "open for business or shut down until the numbers fall?" As U.S. COVID-19 cases grow, death rates remain relatively stable. The fear is that, once hospital capacity maxes out, deaths will spike and we will have a Spanish Flu-like event.
Let's just compare now with 100 years ago – using Sarkozy's logic. In 1918, the world population was 1.8 billion. The high side estimates pinned Spanish Flu deaths at 50 million. That's nearly 3% of the world population with a 28% infection rate.
COVID-19 today has an infection rate of 0.2%. The Centers for Disease Control and Prevention (CDC) estimates infection rates potentially 10 times higher, which would make that 2%. The current death rate is 0.01% of the world population.
Broad perspective helps. But our community is primarily investors who want to know, "what effect will coronavirus have on the economy, and more importantly, on stocks?"
Here are some big questions to ponder: Will the travel and leisure ever come back? Will bars and restaurants? Luxury retail? Brick-and-mortar retail real estate? Will workers ever return to the office? How will auto sales come back? Is this the end of life as we know it and the beginning of a new, home-bound era?
The biggest question facing investors is: what does that mean for their stocks? It's hard to be bullish now, especially when thinking emotionally. But if we rationally look at history, we might surmise:
- The Spanish Flu killed nearly 3% of the world's population, yet we emerged from the 1910s gored by war and ravaged by flu to embark on a period of economic growth unparalleled in modern history. The post-quarantine and wartime '20s brought cars, radio, cinema, aviation, and even TV. Personal wealth and excess followed (until of course 1929).
- People generally suppose the worst. It's human nature and a survival instinct. But rarely do things unfold how our nightmares manifest them.
- Stock prices over 100 years show that the game is tilted for stock buyers. Big money drives stocks higher over time – even in pandemics. My research shows that the strongest sector of the past six months was technology. Big money has been placing monster bets on tech. We found this by looking back at stocks with the most big-money buys on a top 20 weekly buy report for six months.
So, stocks go up over time. And they will continue to do so, because of the fourth and most important factor of all …
- There's the Fed – the biggest sector of them all.
One former hedge fund manager and professor believes that the Fed will buy stocks.
The Federal Reserve Bank was born from panic. In October 1907, people rushed to take their money out the Knickerbocker Trust. They financed a failed attempt to corner shares of United Copper. The bank run had a domino effect and spread to less industrial production.
JPMorgan had to bail out the situation, but it birthed the need for a central system: the Fed in 1913. Its mandate is promoting maximum employment. That means avoiding and mitigating recessions. Therefore, the Fed steps in when things get hairy. We saw it in 2008 and again in 2020. The Fed bought bonds and troubled assets and lowered rates. That flooded liquidity and reduced volatility. The stock-lover loves how this props up the S&P 500.
The only thing left for the Fed is to buy stocks. The central bank already started buying exchange-traded funds (ETFs). The logical next step is stocks. The Fed is trapped: if it bolsters only debt markets, capital will move away from stocks to debt for the embedded "Fed put." This is compounded by 401(k)s: 2008 bailed out banks, and 2020 bailed out junk bonds. So, it's unlikely that the Fed would just let stock savers burn.
In the long term, there's no better game than stock investing. There is gratification investing in businesses powering global progress. Price appreciation over 100 years is on your side. There's also the Fed put.
The odds are in your favor. And especially when you focus on outlier stocks. Remember: They All Go Up (great stocks and markets). Don't be the fish who fights the flow. Salmon spawn upriver but often into the claws of waiting bears. Columnist Jim Hightower said: "Even dead fish go with the flow."
The Bottom Line
We (Mapsignals) are bullish on high-quality U.S. equities in the long term, and we see market pullbacks as areas to pick up great companies.
Disclosure: The author holds no positions in any mentioned securities at the time of publication.