For the past 12 years, since the housing market debacle and the 2008 recession, we have been the beneficiary of steady economic growth. If you were a stock market investor, you have seen the Dow Jones soar from around 7,000 to record levels breaking the 29,000 mark earlier this year!
That’s a 400% increase in its value. The bull has been on a rampage, but those days are over. The bear market is here. No matter how you paint the picture right now, it looks like recession, and the world is going into a long-awaited cycle that it always goes through at some point. Are you ready? The bear market…get used to it!
This One Caught the World Markets Off Guard
Usually when markets tumble (or crash), there is some kind of earth-shattering event that weakens the economic system like war or scandal or just plain irresponsible business practice. It sometimes is from a natural disaster like floods or hurricanes that wallop economies, but usually we see it coming and we see an end in sight to it.
When a wave of bad news called the COVID-19 coronavirus swept through China and traveled all over the world, slowly at first but spreading rampantly, it caused a chaotic reaction because of its threat to all of us. The threat and its reaction is something unlike anything most anyone alive has experienced as it last occurred when the Spanish Flu appeared over 100 years ago in 1918.
The Spanish Flu
The 1918 influenza pandemic (January 1918–December 1920) known as “Spanish flu” was an unusually deadly influenza pandemic, the first of the two pandemics involving H1N1 influenza virus, with the second being the swine flu in 2009. It infected 500 million people around the world, or about 27% of the then world population of 1.9 billion, including people on remote Pacific islands and in the Arctic. The death toll is estimated to have been 40 million to 50 million, and possibly as high as 100 million, exact numbers are unknown.
That was in an era when people didn’t travel the way we do today and the population of our planet was less than half of what it is today. You can easily see that what we are dealing with today has the potential to be a disaster of unknown proportion.
Shockingly, despite all of our knowledge and advances in medicines since 1918, we are completely starting from scratch to find a way to deal with COVID-19 all over the world right now. Here in the U.S., it’s apparent that we have dropped the ball in the advance of the virus and didn’t prepare for what we are experiencing right now and what we may have to deal with for years to come.
The Impact of the Spanish Flu on World Economics
Over the course of history, illnesses and pandemics have had a tremendous economic impact. Economic historians often struggle to calculate the economic impact of these events however, due to the lack of accurate records. The exception is the flu epidemic of 1918, which had a long lasting and significant impact on the world economy. In a ten-month period stretching from late 1918 into early 1919, about 4% of the world’s population died. As a comparison, the AIDS epidemic has killed about 25 million people over the last 40 years.
In the U.S. alone, over 700,000 people died from the 1918 pandemic which is greater than the total number of American deaths in both of the World Wars, the Korean War, and Vietnam, combined.
But one of the major takeaways from studying the flu epidemic is that it offers a real life example of what impact population shocks have on the economies.
It appears that the markets did decline during each of the three peaks in the wave of viral deaths that occurred between 1918 and 1920. But overall the decline fostered an eventual return and growth, and by the time 1920 ended, recovery was at hand. Yes, part of this was due to the end of WWI and the peace and prosperity that followed, but it proved what has always been true: economic weakness is the enemy of markets, and disasters like those from a pandemic are not essentially because of a weakness economically. Rather, they foster a change in the economics because of fear and our behaviors to protect ourselves and with a world economy such as exists today, that spells withdrawal and decline right now!
Some Old Advice Comes Into Play Here
Diversification of assets, saving for emergencies, using common sense about your personal finances, having a side gig and alternate streams of income, and all that personal finance banter you hear and I write about every week is ringing off the hook right about now.
If you haven’t taken any of that stuff seriously, besides your physical health, you are going to be suffering more than you should be economically. That’s what all this illustrates so clearly to me. If you didn’t think about the “what if’s” in life before all of this, it’s time to swear that you won’t let anything stop you from starting a better plan today for your future.
What Will Happen to Us Now for 2020?
Markets are impossible to predict. If that was easy, we’d all be millionaires, wouldn’t we? So what are the fundamentals of these markets right now?
Investors continue to blame the spread and economic impact of the coronavirus for the bear market’s steep losses. The virus, which has now infected and killed people worldwide, is now disrupting many countries’ lifestyles. Despite aggressive actions, it is still spreading.
Italian Prime Minister Giuseppe Conte announced last Wednesday that all the country’s stores except pharmacies and groceries will be closed in a move deemed both necessary to safeguard human health and a threat to the country’s output.
Wall Street worries that such measures could tip the global economy into recession, especially if Washington decides the disease is rampant enough in the U.S. to warrant similar measures. The World Health Organization (WHO) declared COVID-19 a pandemic earlier on Wednesday.
Sports events are being cancelled, workplaces are being altered, and social events are being curtailed. People are staying at home and all these actions mean economic headships and financial losses. It remains yet to be seen what our government will do to help people deal with all of it economically and medically. We will soon find out about all of these details and the virus’ short and long term impact on us. Until we do, chaos will remain.
Being a senior and having multiple underlying conditions in my own health profile doesn’t make me want to venture out into the world about now. I am not one who does a lot anyway, but now my wife and I are choosing to stay at home and protect our health. We know some can’t easily do that and we wish everyone to be safe.
Economically, I am not into the market as I once was, but my wife is taking a serious hit even though she is invested in pretty conservative mutual funds within her retirement account. She is just one of the many who are seeing a collapse in her 401(k) and it’s quite depressing.
The bottom may not be here yet in the bear market, but if you have time to recover (because of your age), the markets will return. It’s just a matter of when and why. Find new ways to earn and save, that’s the best way I can advise anyone to self-protect in the personal finance world right now!
How are you dealing with the current bear market and the COVID-19 virus? Are you now changing your life, your finances, and your future plan to protect against and deal with all of the chaos?