03/24/20

Stocks generally price based-on expected current and future earnings; however, at times events make estimating current and future earnings very difficult, especially when an event has the possibility of drastically affecting the entire economy.

This Covid-19 pandemic is certainly an event that renders estimating current and future earnings very difficult.

The DJIA’s highest closing was on 2/12/20 at 29,551.  Yesterday’s close was at 18,592, which is a 37.09% drop from the high closing, which seems to me to be a fairly reasonable valuation, considering the Covid-10 recovery risks and variables that still aren’t known.

I think that as the end of the 15-day National Emergency approaches on March 31, we will probably see the personal movement restrictions customized with states and counties working together to implement restrictions, in lieu of national restrictions.

Places like southwest Florida, where very few people rely on mass transit and where we don’t have much crowding the personal interaction limitations will probably apply to seating in restaurants, medical facilities, etc.; public gatherings will operate under enforceable crowd restrictions; churches will set voluntary crowd restrictions, etc.  Classrooms will be difficult; however, about two weeks ago, Rosemary picked up Niaomi and Brihanu at school because they were both coughing.  They may be able to spread the seating out and work with parents to minimize risk factors, by keeping children home when there is any communicable health issue.

The restaurants may reduce their wait staff by 20%, but most restaurants have lower performing wait staff employees, so they will be able to at least get their top workers back into the economy.

So, most of the small business economy should be able to return to 95%+/- within a week or two.

Banks, investment companies, non-medical professional offices also should be able to operate at near full capacity with certain behavioral restrictions, like hand shaking, eliminating close seating, etc.

I spoke with one of my tax software support people yesterday, and after settling my tax return issue, I asked him about their support operation staffing, and he said there are about 300 people in support, but they are in six different buildings and have very adequate spacing.  I assume they have very liberal sick leave policies in place, where they ask employees to use sick leave whenever an illness may exist or even being starting.

The governments in major cities are certainly more qualified to make decisions regarding implementing functional guidelines or requirements to fit the needs of their community.

The management small businesses can certainly make decisions regarding their restart, and that takes care of roughly 50% of the GDP.

Among the publicly traded businesses, they also have a much greater ability to make decisions regarding their operations.  Office based industries, like insurance and financial services can reduce office crowding by allowing some employees to work remotely.  Manufacturing normally isn’t nearly as people intensive as it used to be, so most of it could reopen.

With our economy being heavily service based the main industries that will suffer long-term are travel including airlines, passenger trains, cruise lines, etc., and they can workout financial assistance loans, much like we put in place following the Aug. 2008 financial crisis.

In the government sector, many of the office workers can work remotely.  Clerks accepting payments of taxes, fines, etc. are limited and with Internet payments, the personal interaction with clerks is already much less than historic levels.  Obviously, government services like police and firefighters require fairly close quarters, but they didn’t close during the 15-day emergency period.  Government management normally work in offices, so they can still work with plenty of distance between personal meetings.

I personally think it was a good idea for the Trump administration to declare the 15-day national emergency, which should be revisited before the 15^th day.  They might keep it in place longer; however, I’m quite certain they are considering the various economic sectors and are doing what they can to minimize the economic interruptions, while still limiting the personal interactions that will lead to unnecessary spreading of the Covid-19 virus.

Philip A. Erickson, CPA