Quite a few people asked me what I think on the current situation and the impact it will have so I decided to share my thoughts with all of you. Of course, I am not a doctor, not a financial advisor, not a stock broker and as far as I know – I cannot predict the future. So please do not use this blog as nothing else but my opinion…
- Of course, we entered the uncharted territory here but this is not the first pandemic epidemy. The last one called H1N1 took place in 2009 -2010 and claimed lives of more than 12,000 in USA and up to 575,000 worldwide. Hard to tell where we are going with COVID-19 but as of today approximately 4,600 fatality cases worldwide were reported. I personally do not recall such panic back then, in August 2009 I was on a cruise and the pandemic could not stop the rising stock market after the crash that ended in March 2009, just one month earlier….;
- As far as I know, nobody cancelled the regular flu yet… Here are some numbers from health.com: Flu season is hitting its stride right now in the USA. So far, the CDC has estimated (based on weekly influenza surveillance data) that at least 12,000 people have died from influenza between Oct. 1, 2019 through Feb. 1, 2020, and the number of deaths may be as high as 30,000. So COVID-19 is nowhere near those numbers (at least not yet), but can you imagine what would happen if every flu related case was reported by media?;
- Typically, viruses do not survive in hot weather. Of course, we do not know it about Corona yet – let’s just hope that with the upcoming Summer the things will improve and the scientists will develop the vaccine soon;
Economy. There is no question, there will be an impact. However, we did not have a recession since 2009 and the virus was the trigger to the overheated market. But here is what is interesting: typically in the hot economy the Central banks raise the rates until they become too high and then recession starts. In this case the rates are already very low so I do not think there will be more than 1-2 upcoming rates reductions – I doubt we will go into negative rates territory but yet to be seen;
Stock market. Well, hype buying and panic selling is nothing new to the markets. Consider this: when president Trump was elected in November 2016, the Dow Jones index was below 20,000 and this February it was above 29,000 (more than 50% increase in just over 3 years) – it went to high and too fast. Stock market was simply overbought and expensive and needed a trigger to correct. Of course, COVID-19 is the mother of all triggers but this is nothing that we did not see before… I remember well the crashes of 2000-2002 and 2008-2009. Here is a good example:
This is the graph of Las Vegas Sands, the company that owns Venetian Las Vegas and other resorts. In 2007 people were buying this stock like there was no tomorrow and drove its price unrealistically high: on October 29, 2007 it close at $148.76 per share. Then 2008 promptly arrived and the fun has begun – on March 09, 2009 LVS had an intraday low of $1.42. Obviously, it was oversold but just like today – in March 2009 the panic was extremely high. But panic also brings opportunities: in the recovery that started that same March 2009 brought the stock up to the price of $53.80 on November 09, 2010. In simple words, if you invested $10,000 in LVS on March 09 you would have approximately $380,000 (or 38 times return on investment) in 20 months!
As I stated earlier, this is not an advise to buy any stocks today. Just a reminder that panic often brings great opportunities.
Real Estate. And finally, to our bellowed investment strategy. Boring investing does not look too bad these days, isn’t it? So in my opinion this the best place to be right now. There is still a lot of cash around waiting to be deployed and the rates are extremely low. In panic times people are looking for safety and they buy tangible assets. And unlike 2008-2009, this recession was not because of real estate. So I believe that if we continue to work on good projects (not speculation), we should come out of this crisis even stronger.
The following is taken from the Real Estate Guys e-mail I received several days ago: Of course, most real estate investors are doing what they often do when these things happen … much popcorn, watch the fireworks, and cash rent checks. Sure, if the storm is bad enough, it can blow your insulated, brick real estate portfolio over too. But compared to the poor folks living in straw portfolios built only for sunshine, real estate looks pretty darn secure. So it’s no surprise, that even the mainstream financial media are pointing out the safety features of real estate
On our side we still consider the Built for Rent projects to be one of the best strategies at the moment – even when people stop buying real estate, they still need to live somewhere; and actually when prices of homes drop due to weak demand, the rents go up. Last week we placed another land for a Built for Rent project under contract and have more similar deals in the pipeline.
So here we go, my 2 cents on the topic… I strongly recommend not to watch economic news every 2 minutes, it will not help your portfolio. Read a good book instead and enjoy it while you wait for a rebound.
I wish all of you health and happiness (a good wish these days for sure)!