The Invisible Enemy

Everyone has a plan until you get punched in the face.
- Mike Tyson

Those words hit too close to home for a lot of us in the past few weeks. As of this morning (3/23/2020), the Dow Jones is 35% off its highs. Fed cut rates to almost 0%. There are close to 44k confirmed cases of COVID-19 in the US and increasing at a rate of 35% every day. Unfortunately, I personally now know three people who have tested positive for the novel coronavirus. Let's talk about that 35% drop in Dow Jones. The current crash is the fastest crash since 1900.

The above image shows the number of days it took the market to crash 30% at different times in history.
The same goes for Indian markets.


No one knows how long this will go on, but I don't think its ending anytime soon. The economic recovery could take up to 3 years, and that is the optimistic scenario.
I am personally starting to see some effects. I was at the NFL summit for the past few days back, and everyone was scrambling to prepare for a plan in case there is a mandatory lockdown.
NBA canceled the rest of the season, LaLiga followed suit, and just a few hours later NHL suspended the rest of their games.
While sports entertainment is only a small part of the world economy, it's big enough to be considered a sample that represents the current state of the world.
These suspensions and cancellations have real impacts on revenues and profit margins. So I will not be surprised if profits come in less, companies lay people off, and dividends slashed. The Fed is becoming ineffective, they are flooding the markets with more liquidity, but the market is not convinced.

It's tempting to overreact in such cases, but I know one thing with the high certainty world is in more danger than it was last week. K and I have been working from home since last week. Our days are significantly different now. While both of us are lucky to continue our life by working remotely, we miss the traditional work environment. Instead of streaming Netflix during lunch, we watch NY state governor Cuomo's daily press briefing. I like the way he communicates with the masses, perfect blend of facts and anecdotes. New York is currently the epicenter of the outbreak in the US, and I think it's the blueprint of most big cities around the world. I made a mistake by not following COVID-19 events in Wuhan, which was also a big metropolitan, and I am not going to make the same mistake again. New York is about ten days ahead of Mumbai, and I'm worried. I don't want to be the one shouting that the sky is falling, but I'm in "Prepare for the worst, hope for the best" mode. This does not mean hoarding toilet paper. It means stocking up on the medical supplies and only stepping out if necessary. Another humbling reminder is the power of compounding. The spread rate of the virus has been around 35% in the US, and China has a similar spread rate. On March 1, the US had 65 confirmed cases of coronavirus. Today March 23, there are ~44,000 cases. If this rate continues, the entire US population of ~330 million will be infected by 3rd week of April. Yeah, it takes just about two months to infect an entire country.


You can mess with this very basic model here. That's the real power of exponential growth. The good news is that it is a double-edged sword. If we can control the spread rate, the total infection drops dramatically. That is why lockdown/curfew/quarantine is so essential to get it under control. The true end game(#MCU #PunIntended) for this is a vaccine that will take at least a year, if not more. But humanity has survived far worse. I'll let Morgan Housel take over here. That's enough with what has been; I want to focus on what's possibly coming and my game plan tomorrow(or soon).