There is nothing either good or bad, but thinking makes it so.   William Shakespeare

The United States is staring in the face of a very difficult economic period. With the March jobs report showing losses of over seven hundred thousand (limited to the first two weeks mind you), April will be a bloodbath with job losses approaching 30 million. If you are not familiar with economic history, this is far more than the Great Depression.

Given these figures, many stock market analysts are predicting equities could crumble again with losses approaching fifty percent or more from the current level. Grim, very grim, indeed. Of course, perspective is always important, especially if we are talking about equity (stock) value. Remember a few short months ago, the artist known as WeWork was valued at over a hundred billion, and now, given that it’s largest financial backer Softbank has backed out of an equity infusion, Wework might be more aptly named, Nomorework. Pardon the gallows humor, but I am trying to point out that equity value needs to be backed by more than air, clicks, users, or non-financial metrics. In the difficult economic environment we have just begun, the difficult question for security analysis is considering what kind of predictability there is in demand?

How can one offer up a model when people are not even let out of their homes? Each investor is left up to their own means to consider how long these restrictions will hold. The question is related to the approach of Federal, State, and local governments and how the efforts to stem the pandemic work. It appears the approach has been more Jeffersonian than Hamiltonian. It has been, and will be, every jurisdiction for itself. Under that method, one would think states will look at the number of mortalities relative to those infected, the progression of the numbers infected, and compare those figures to China, Italy, Spain, New York, and other global jurisdictions. You would think that as testing becomes more widespread, if you or your business gets tested, you can function as long as you pass the test. Kind of like high school, pass your class, go to the next grade.

In all seriousness, if you look at the financial pressure the citizens of large cities like New York, Las Vegas, Detroit, and New Orleans are now under, state and local governments are looking at financial disasters of their own with no tax revenues coming in the door. As soon as it is practically possible, politicians are going to want to open their economies. Once that happens, employment can will ramp up and demand for everything comes back. As an investor, your perspective on how long this will take and over what time frame is crucial. If your time horizon is longer than 18-24 months, the idea everyone is going to be locked in their homes for eternity doesn’t seem realistic. If, however, the next two years is really important to your financial health, you might have a different viewpoint. Shakespeare wasn’t my favorite subject in school, but William had it nailed on our current dilemma.

Speaking of quandaries, if ever there was a group that deserved it’s predicament, it is the major airlines. Yes, the bastion of storage fees, long lines, delayed and canceled flights, cramped conditions, and personable customer service. Domestic and International airlines are all in a world of hurt with bookings down 90-95%. Historically, airlines have been the worst investment industry to allocate capital to. Over the last decade, with consolidation, investors believed the massive demand of travelers and earnings power, helped by baggage fees, warranted investment. Even Warren Buffett threw down his hard-earned scratch. He bought over ten percent of two airlines, Delta and Southwest. That is, until this week, when Mr. Buffett reconsidered and sold plenty. Hmm, you have to think that the terms of a loan, or other capital infusions by the government, will be plenty dilutive to existing shareholders. As Mr. Chanos remarked in his interview with CNBC, the airlines should be raising capital through the equity markets. Government loans or anything that would essentially wipe out shareholders with government participation (preferred equity or warrants) makes no sense.

The other industry which deserves what it currently has on its plate is the cruise industry. With all major cruise lines not domesticated in the United States, they pay zero in taxes to the United States.  Carnival lined up money with a private equity group at terms that were not so wonderful, I believe 12% or so. A match made in heaven, private equity and the cruise lines. I am sure the private equity groups will be quite attentive to the health procedures so badly in need of improvement.

Elsewhere, lo and behold, in the oil market, the always self-congratulatory Donald is trying to play matchmaker with the Saudis and Russians. His goal is to help raise the price of oil by guaranteeing production cuts from those countries. You would think logical operators would have figured out that demand destruction of 20 million barrels per day isn’t consistent with increased output. Instead, they flooded the market and oil broached $20 bucks per barrel, with some believe it is headed to 10. More joy. The actor known as OPEC+ is now scheduled to meet virtually next week to discuss the situation. The market got excited with Donald’s efforts and bid up oil prices during the last few days of the week. Without demand improvement, or at least letting people out of their houses to start, oil is going to be hard pressed to get off the deck.

On the earnings front, there was light news with RH (used to be Restoration Hardware), Dave and Buster’s, and Constellation Brands all beating estimates. Next week we will start earnings reports with investors awaiting news about virus affects. No estimates or projections will be offered as all guidance will probably be withdrawn. Sadly, it seems it is now all coronavirus all the time.