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Covid Cases Are Cratering – What That Means For You And Your Portfolio

For much of the last year the world has either been in pure panic…  Or a wait and see approach.

This began almost exactly a year ago when Covid began spreading worldwide wide in mid-March 2020. 

The day the March stock market panic began on March 13th my family and I were on our way to visit family in Puerto Rico and to attend my father in laws services after he passed away.

When we left only one family in the entire airport was wearing masks.

We got 3 days of “normal” vacation and site seeing in… But then the hammer dropped as cases started accelerating.

The market crashed by 30% in days.

The island of Puerto Rico enacted a state of martial law.  Everything closed.  We spent the rest of the “vacation” at my wife’s aunt’s house.

My wife, 3 kids, and I were worried we weren’t going to make it back home.  When we could fly out – only 7 days after we flew in – almost everyone in the airport was wearing a mask.

The world changed rapidly in only one week.

And we’ve been in that similar state of panic since then.

But now almost exactly one year later things are finally looking – hopefully – to be coming to an end.

Covid cases and deaths for the first time since the pandemic began are falling rapidly.

Both worldwide…

And in the United States.

This is amazing of course.

But I want to recommend caution.

From the research I’ve done, yes the vaccines appear to be helping worldwide… And yes the world appears to be getting some sort of herd immunity to the virus now that more than 100 million people are confirmed to have gotten the virus worldwide. And as many as 800 million people worldwide are thought to have gotten it at some point – even if they didn’t know it.

But other research I’ve done also attributes some of the drop to people getting testing less now than they were.

Look, I’m not a virologist and I don’t see the raw data that comes in.

But because of this uncertainty – and the so far only 2-week period where Covid cases are falling rapidly – I still want to advise caution on how this affects your investment decisions.

The economy in the US – and for much of the world – is still in bad shape due to high unemployment and lockdowns.

Valuations are still sky high which makes investing right now incredibly risky… Especially combined with the bad economic situation and high unemployment in most countries right now.

And frankly, we still don’t know enough yet to tell whether the pandemic is truly over… Or if its going to come roaring back at some point.

We just don’t know.

Best Case Scenario

Let’s hope for the best and say the pandemic “officially” ends by June 1st worldwide.

If this happens, things will get back to some semblance of normal in a matter of months.

Which will lead to lower unemployment, low or minimal lockdowns, and far higher economic activity.

If this all happens its amazing considering what we’ve dealt with over the past year.

But it will still take time for the economic situation to get back to pre Covid levels because people will be cautious.

This means a drawn-out economic recovery.

Here’s what I said about this a few weeks ago.

This was proved even more when the US government released full year 2020 GDP numbers that showed the US economy grew at its slowest rate since 1946 – 75 years ago.

How bad were things in 2020 for the US economy?

It shrunk at a 3.5% rate for the full year.

9.8 million jobs are still gone.

And 23.8 million adults are struggling to feed their kids.

This is from the US economic data and The Washington Post.

This is bad enough…  But here’s what David Wilcox Senior Fellow of the Peterson Institute for International Economics and the former director of the domestic economics division of the Federal Reserve said about last year’s economic numbers.

“2020 has no precedent in modern economic history,” “The influenza of 1918 and 1919 predates our modern system of economic statistics, and since World War II, there’s never been a contraction that even remotely approached the severity and the breadth of the initial collapse in 2020.”


One example is that in the US alone there are still an estimated 15+ million people are out of work and receiving state or federal unemployment benefits.

The peak unemployment rate during the financial crisis was in 2009 at 9.9%.  Pre crisis unemployment rate was at 4.4% in 2006.

It took 9 years until 2017 to have an equal or lower unemployment rate.

In a best-case scenario, it shouldn’t take 9 years to see a full recovery to pre covid levels of unemployment… But it might.

Federal Reserve Chairman Jerome Powell said the following a couple weeks ago that put the current unemployment rate around 10%.

“The headline unemployment rate has “dramatically understated” the true damage, [to the economy] including the biggest 12-month drop in labor force participation since at least 1948.”

Without misclassification errors that have plagued the Labor Department since the pandemic began in March, the unemployment rate would be closer to 10%.”

“Despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared.”

Emphasis above is mine.

This is right at the 9.9% unemployment rate we saw at its height in 2009… And it took 9 years to get back to pre-crisis levels.

Plus, on top of this market valuations are still either at their all-time highest levels or their second highest levels ever depending on which metric you look at.

Yes, the only other time in history according to the metric – Shiller PE or CAPE ratio – the S&P 500 was valued higher only once in the last 120 years and that was right before the Dot Com bubble crash.

The market is valued at a higher level now then right before the Great Depression.

High valuations don’t mean a crash is coming soon… But they increase the likelihood of a crash…

Again, here’s what I said about this last week and why this is so important.

But this isn’t just me talking… Here’s Jeremy Grantham of famed investment firm GMO…

“The current stock market is “one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”

“These great bubbles are where fortunes are made and lost — and where investors truly prove their mettle…Make no mistake — for the majority of investors today, this could very well be the most important event of your investing lives.”

These bubbles and then crashes were some of the worst in world financial history.

According to some estimates, at its height the South Sea Company was worth $4 trillion in today’s money after factoring in inflation.  Making it by some estimates the most valuable company ever.

As you can see in the chart above shares, in the South Sea Company rose from £100 in 1719 to more than £1,000 in August 1720… Only to spectacularly crash after the speculation ended.

The company never fully recovered.  And many of its directors went to jail and were accused of treason.

This according to Beth Daley of TheConversation.com.

The same thing happened before the Great Depression in 1929…

This led to the greatest and longest recession in world history.  And transformed an entire generation and how they thought about the stock market.

Many never invested in stocks again.  And it took 25 years for the stock market to reach another high.

The same thing happened again with the 2000 Tech Bubble Grantham mentions…

It took almost 20 years for the NASDAQ to reach another high after this crash.

We’re repeating history again today…  In both my estimation and Grantham’s.

This makes investing in stocks riskier now… And it also means you should expect lower returns owning stocks – if you buy today – for potentially decades going forward.

Yes, you can still buy individual stocks that will make you a lot of money over the long term – which is what I try to help you do every day.  But the overall risks in the market are extremely high right now.

And this is a best-case scenario.

Frankly, I’m not going to go into the mid case or worst-case scenarios I researched because they follow these same lines… But the economic and investment situations are far worse.

Let’s go one step further though.

Let’s say unemployment craters as Covid cases do and the economic situation in the US and worldwide improves faster than I expect.

The market valuations are still insanely high.  And already brings in a huge – almost historic – amount of risk into investing today.

I’m not trying to throw cold water on the Pandemic Victory Parade… I’m an eternal optimist and hope this comes true soon.

But when I talk about investments, I don’t tell you anything based on hope.  I do on actual data and information.

And there are still enormous risks in the market right now due to the valuations… Even if we are at the end of this pandemic.

I’m not saying you sell everything unless you want to lock in profits.  What I am advising here – and do daily – is advise caution… And only investing in the best.

Because if you invest in undervalued stocks that have huge competitive advantages, leading to large profits and cash flows, and little to no debt… The best… You’ll earn higher and safer returns no matter whether the market crashes tomorrow or 10 years from now.

If you’re looking for the best way to protect your portfolio as the economy hangs in the balance…

Make sure you’re in great stocks that have the following traits…

  • They’re cheap.
  • They have little to no debt compared to a lot of cash.
  • They produce large profits and cash flows.
  • And make sure they aren’t in industries that could be hammered by Covid.

To see some of those kinds of stocks that will help protect your retirement portfolio – Click the links below.

Disclosure – Jason Rivera is a 14+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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