Larry Berman

Berman's Call

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When navigating the fallout of COVID-19, the first thing to do is make sure you do your part in the global pandemic. Sacrifice is needed by all to preserve as much life as possible. Take care of yourself and your loved ones. And know that today is not the bottom in equities — we are just getting started.

The good news is that the monetary and fiscal guns are already out. The bad news, the monetary guns are jammed up. They will help with financial system liquidity without question, but they won’t help medically, and that’s what’s needed. But Congress and politics will likely be troubling on the fiscal side too. It was in 2008-09, it’ll be no different today, and may indeed be more complicated. We need nothing less than a blank cheque to help mitigate the financial risks. That won’t be easy given changes to Dodd-Frank and the polarized political climate. Bottom line is that social distancing is here for a few months — it’s working in other places to reduce the spread dramatically.

I estimate that global GDP can fall five to 10 per cent in the coming quarters. 2008 saw a dip of over eight per cent in the U.S., but the global economy never went negative. This time it’s the world. That’s about 3.5 to 7 trillion dollars. It may take that much fiscal support globally. And while the virus is temporary and we will recover, it could take several years to recover the GDP loss — the world is not ready for this and Trump doesn’t have it Twitter.

Earnings will likely fall as much as they did in 2008 — about 40 per cent more or less. Wall Street analysts have not even started to factor much in yet. The market may be about half way there. If the S&P 500 earns $90 over the next year and we consider the historic multiple of 16x, we get an S&P 500 at 1440. But we have no idea, worst-case scenarios could be much lower. No one knows. Who would have guessed 2009 would bottom at a devilish 666. The 2000 level may be enough, the psychological levels at the 2016 election of Trump (SPX 2132) might come in to play, though the Russell 2000 (IWM) small caps broke those levels equivalent last week. Maybe the 2016 lows might be in play (SPX 1810).

In 2008-09, this happened. This time is might look the same. No one knows. The overshoot can be acute — do not try to time it. Prior to Trump’s tax cut, the S&P 500 earned $120. A huge part of earnings growth post 2018 were tax cuts and share buybacks. So at a minimum, we should see $120 at a 16x multiple is 1920 on the index. It probably takes 18-24 months to get the earnings back. One thing history tells us, buying the market down 29 per cent from a peak in a recession always pays off big.Where the bottom is, no one knows.

It’s time to have your plan to go shopping over the next few months. These will be the best valuations to own in more than a decade. Our upcoming Spring BNN Bloomberg Roadshow is being converted to webniars (not live events) for this series.

Please still sign up for your cities, and you will get notified on the weekly webinars changes. If this unprecedented period of volatility does not convince you that one should be cautious when valuations are unstable so that you can get aggressive into periods of panic, you need to sign of for the upcoming series and learn more about the tools you need to use.

We will host a weekly Berman’s Call on line where Larry will update his thoughts on the market and have lots of Q&A and ideas to help you with navigating the markets. As always, we ask for a voluntary donation in support of Dementia and Alzheimer’s research at the Baycrest Hospital to attend. We have raised more than $500,000 in the past decade thanks in part to BNN Viewers and a matching donation from Larry.