For treasurer Josh Frydenberg, yesterday was meant to be all about the economy.
Indeed, he was meant to hand down the first budget surplus since 2007. Instead, all he could offer was a sobering reminder about the impact of the coronavirus.
It certainly wasn’t a cheerful affair. And it was summed up perfectly in his remarks that ‘the Australian way of life has been put on hold.’
By now, most Australians realise just how true that is. As well as the magnitude of the economic burden that it will entail.
Hence why Frydenberg was so adamant to stress that fact. Noting that ‘there is no money tree’.
Getting back to the way things were is going to take years. Though, we have the slight advantage of weathering this crisis better than most.
However, the key takeaway from Frydenberg’s speech wasn’t what he said at all.
His 20-minute monologue was completely overshadowed by his actions…
Partway through his address the treasurer erupted into a coughing fit. Taking a minute to pause as he tried to control himself. Even his attempt to joke about the situation elicited a muted response.
You could feel the tension.
No one in the room was going to say anything, but they were clearly all thinking about the coronavirus.
Fortunately for him, Frydenberg doesn’t have the virus. He underwent testing to make sure of the fact. But that hasn’t stopped his coughing from becoming a newsworthy topic.
And it’s this paranoia — this fear of the virus — that was on full display yesterday.
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Mindset matters
Seeing the response to Frydenberg’s coughing fit has all but confirmed my suspicions.
People are going to freak out at the slightest sign of COVID-19 symptoms. Be it for themselves, or for those around them.
I’m not trying to suggest people shouldn’t be vigilant about staying safe. Everyone should be doing everything they can to keep healthy.
But that doesn’t mean we can’t take things too far either.
At a certain point, we have to realise that the fear of this virus may become greater than the virus itself.
And as we start to exit the harsh lockdowns, I’m concerned that this fear will magnify. Once people are amongst each other again, the slightest signs of sickness are going to trigger fear in people.
Think about it, four months ago I wouldn’t even pay any mind to someone coughing next to me on a packed train. Sure, it wouldn’t be pleasant, but I wouldn’t start worrying about my health.
Now though, even if I’m not worried about the virus, I’d certainly be thinking about it. It’s almost impossible not to, it has ruled our lives for the past three months.
On top of that, you can never underestimate the irrationality of crowds.
To date, most of us have had the luxury of being stuck in isolation. Leaving us with our own thoughts and those close to us.
We have, for better or worse, been leading fairly individualistic lives. Once the crowds start returning, so too will crowd mentality.
We’ve already seen some early glimpses of it with the anti-lockdown protests. And whether you agree or disagree with them, you can’t deny that emotion is the driving force behind it.
My concern is that emotion will begin to boil over. Not just in day-to-day life, but also in markets.
A need for conviction
Trying to predict which direction markets will head right now is a nightmare.
On the one hand you can argue that stock markets have priced in the worst of COVID-19. And right now, that’s what most indices are suggesting.
Since the March lows, the market has been looking to the future and eyeing a positive outcome. Seemingly contradicting all the negative stats and figures that are still being reported.
It is a solid argument that the bulls may have the upper hand over the bears.
But, as we saw overnight, there are times where the market’s resolve is tested.
The Dow closed 1.9% lower just a few hours ago. A result that has been blamed on Dr Fauci’s warning that reopening the US too quickly could be dire. Even suggesting that it could lead to ‘an outbreak you may not be able to control.’
Now, while it certainly was a strong warning, it was just that…a warning. Fauci didn’t have any data or evidence, he only had his word.
Personally, I can certainly see merit to his argument. The market response though, was a little surprising.
Because if a simple warning was it all it took to cause the bulls resolve to waver, then I have to question just how much conviction there is to it. It was a clear win for the bears, but far from a total victory in the grand scheme of things.
Which brings us to you, dear reader. See, as an investor, you might be thinking it is your duty to pick a side in all this madness. Siding with either the bulls or the bears in the hopes you picked the winner.
Right now, I’d say your odds of picking the right side are only slightly better than flipping a coin. There is a whole lot of chance involved.
In my eyes that’s not good enough. Which is why I wouldn’t make the call.
Instead, what I think investors need to do is not look at markets, but rather look at companies. That is something that is far easier to have conviction in. A way to avoid the mob mentality that is creeping back into our lives and into markets.
Don’t pick a side, pick stocks that you have conviction in. Companies that you believe have the capability to come out on top no matter what markets do.
It won’t necessarily be easy or pan out as you expect…
But, at the very least you won’t be dictated by emotions. Because right now, we are probably all a little too conscious of this virus for our own good.
Regards,
Ryan Clarkson-Ledward,
Editor, Money Morning
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