It's been stressful as countries work to contain the spread of the coronavirus. Motley Fool analyst Bill Mann joins us to share his insight into the top headlines as well as how he's managing his money amid the volatility.
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This video was recorded on Feb. 28, 2020.
This video was recorded on Feb. 28, 2020.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Bertie Brokamp. I've already called you that one, haven't I?
Robert Brokamp: You're running out because there are only so many things you can do.
Southwick: Personal finance expert here at The Motley Fool. Hello, Bro.
Brokamp: Well, hi.
Southwick: In this week's episode... Well, it's been a doozy of a week for everyone as investors [and the world, at large] try to deal with the spread of the coronavirus. Joining us, in-studio, to help make sense of the headlines is Bill Mann. Hi, Bill...
Bill Mann: How are you?
Southwick: ...analyst at The Motley Fool. All that and more on this week's episode of Motley Fool Answers.
So, Bro, what's up?
Brokamp: Well, we're going to talk about stocks a little later. They're not up, but I will tell you what is up because something else is down. As the stock market goes down, often people flee to the bond market driving bond prices up and driving rates down. So the 10-year Treasury, as of this taping on Friday -- so a few days before this episode comes live -- is at 1.15%, an all-time low. The 30-year Treasury is at 1.66%, another all-time low. We've never seen rates this low.
When rates go down, the prices of existing bonds go up. The Vanguard Total Bond Market ETF -- an ETF that I own a little bit of -- was actually up 3.5% this year doing its job -- going up as stocks go down. Over the past year the bond market is up almost 11%.
If you asked anyone a year ago if they would expect 11% from the bond market they would have said no, but that's where we are.
What does this mean for your personal finances? Well, first of all, mortgage rates are also down, so the rate on a 30-year mortgage, according to Freddie Mac, is 3.45%, only a little bit above the all-time low of 3.3% is from 2012.
Southwick: Giving it away.
Brokamp: Just giving it away.
Mann: Come get a house!
Brokamp: Exactly. So that's good. Now what this also means is probably at some point the Fed's going to cut rates. It was just a few weeks ago when Fed Chair Jerome Powell was saying, we're probably where the rates are this year. Don't expect anything. Now the markets are predicting, with about a 90% chance of certainty, that there will be at least one rate cut and maybe three this year.
Southwick: Whoa! Bill's ready to pull the trigger on saying something.
Brokamp: How much is that going to help, Bill?
Mann: I'm a very simple bear and maybe I'm not creative enough to think about this; but, ultimately markets are dropping and the 10-year, which is a great fear gauge -- maybe even better than the VIX -- is skyrocketing. What good is a rate cut going to do when you're talking about a health scare? Is it going to make people less afraid? This isn't a financial crisis.
Brokamp: Right, and I don't have the answer to that. Part of it is psychological. When you read the articles of people saying the Fed shouldn't even wait until the March meeting -- they should cut now -- it's just to reassure folks that they're on top of it.
Southwick: Whatever "on top" that means.
Brokamp: Whatever it means.
Mann: Does a quarter point rate cut come with a mask?
Southwick: We're doing things, OK? We're doing stuff. Get off our back. We're very busy.
Mann: Actions are happening.
Southwick: They're just running around waving their arms.
Brokamp: Practically speaking, what this means is to the extent that you can earn anything under cash, which is not very much, it's going to go down. What you can do now -- and I think it's probably worth considering -- is buy a one or two-year CD to lock in today's low rates before they go lower. That's what's going to happen. That's the one thing that occurs to me -- is that those are going to go down. Also other types of loans will be cheaper. Maybe it's a better time to buy a car. It might mean that you...
Mann: But you can't talk to people.
Brokamp: That's true. Just stay in the car. Don't get out of it, ever.
Mann: Just beep your horn until someone brings you another car.
Brokamp: Hopefully credit card rates will go down. We talked last week about how much the level of credit card debt is at an all-time high. The average rate, now, is between 17-21%. Maybe that will go down and be helpful. But for the most part I agree with you. There's only so much that the Fed can do at this point.
And that, by the way, is what's up.
Southwick: So it's been a rough week [on Wall Street and around the world], to put it lightly, and so we thought we would have Bill Mann come in. He's an analyst at The Motley Fool. He's been an analyst with The Motley Fool for a while, now.
Mann: 633 years.
Southwick: 633 years.
Brokamp: Which must be the same because Bill and I started on the exact same day.
Southwick: Oh, no way!
Southwick: I didn't know that.
Brokamp: We have the exact same Fooliversary.
Southwick: Oh, that is fun.
Mann: That was either one of the greatest days in Fool history or the worst.
Southwick: Did anyone else start with you guys?
Brokamp: Rich McCaffrey, who's no longer here.
Mann: Yes, who was a great guy and a great analyst. I miss him terribly.
Brokamp: He moved to Morningstar and then Legg Mason. Is he still alive? Hey, Rich, how are you doing?
Mann: That's terrible. He's doing great.
Southwick: I think it's obvious we want to talk about anything other than the stock market this week, so let's talk more about Rich. What's his favorite color?
Brokamp: Great guy. Lovely wife.
Southwick: So woof, it was a rough week for Wall Street and the global markets. As of today I believe the Dow has dropped for seven straight days, but who's counting? There's been a lot of crazy headlines out there, so Bill's [here] to help us dissect the headlines and hopefully feel better about ourselves. Today is Friday. For our listeners it's [next] Tuesday.
Mann: Yes, so the market can't drop tomorrow.
Southwick: Not for us, but for our listeners it can.
Southwick: Who even knows what's going on in the world when they're listening to this? I don't know. Maybe they're living off of tin can food and stockpiling guns. I don't know what's going on this coming Tuesday. It's gonna be chaos, maybe. No, it's not. It's all going to be fine.
Bill, thank you for joining us today. Should we open up the newspapers and see...?
Mann: You actually should. I think this is one of those situations... There's something that I always find so interesting [with] our leaders. With journalists. To be responsible [with] most crises they don't want to make people panic. But at some point you don't want people to underestimate what's happening, either, and there's this interesting inflection.
I think that's what happened this week. We went from it's the flu. It's not as bad as any of the other things that turned out not to matter that you had to remind yourself [about]. This actually is worse.
Southwick: Let's look at the top of The Wall Street Journal this morning, this morning being Friday in our world. The big headline was, Stocks on Track for Biggest Weekly Losses Since 2008. Oh, 2008 was the worst.
Mann: That was the worst.
Southwick: Bill, take us back.
Mann: It's been the quickest that we have moved from a top into a correction in history.
Southwick: Which is a 10% drop, right?
Mann: A 10% drop. I think these sort of demarcations are silly, but they exist so let's use one. To me, we talk about coronavirus as it is an epidemic or pandemic, but we also have to think of it as being an economic incidence, and the economic incidence, in this case, is going to be worse than the actual disease will turn out to be. I think for most situations you want to just shrug and say I don't know what's going to happen, but what is going to happen is that fairly heroic measures are going to have to be taken to stop the spread of the disease and that's going to hit supply chains everywhere.
Southwick: It's like the effort to keep it from spreading is what's hurting the economy. It's not the actual impact of so many people being sick. It's us trying to keep it contained that's what's doing it. I think you said it on one of the other shows -- or maybe you just said it aloud...
Mann: Hey, there are no other shows out there. This is the show.
Brokamp: The lesser shows.
Southwick: The lesser shows. I think you commented that you were kind of surprised that it took so long for the stock market to react. Why is that?
Mann: I think it goes back to how people are primed to not panic. And I think that's really the case in the midst of a bull market. I mean good news tends to be overemphasized and bad news tends to be hand waved away, a little bit, until it becomes self-evident that it really is bad and impactful.
China was already locked down in the middle of February. Factories were closed and the market was still hitting all-time highs. I just had to ask myself what's going on here because, in other times, really small events have made the markets react very sharply, but in this case the country that is literally the center of global manufacturing was closed for business and we're like, "Well, it seems OK."
Southwick: It's a whole town. Not even a town. It's a city of millions of people being told, "You can't leave your house."
Mann: It's essentially the country. We get reports from Beijing and from Shanghai where traffic, right now, is 3% of what it usually is. These are word-of-mouth reports, but the eyes on the streets are saying that the country is ground to a halt. And just to highlight how impactful this can be, Dun & Bradstreet did a study and showed that of the Fortune 1000 companies worldwide, about 163 have a Tier 1 relationship with Chinese suppliers, which means that Chinese suppliers directly supply things to them. But nearly all of them, 938 have a second-level relationship with a supplier in China. So any type of interruption of the supply chain will really impact companies that we would think about.
Southwick: Let's start by talking about the sectors that are going to be the hardest hit. We can head over to CNN who's saying that, "The global travel industry may not recover for years."
Initially we saw a cruise ship quarantined in Japan. We see the people waving from their balconies. And the initial headlines were like the cruise industry is really going to take a hit. As if, "Oh, no. My portfolio. The cruise industry. I'm so overexposed there. This is going to be bad." Then people were like, "Oh, wait a second. l travel. Maybe I shouldn't even go on a plane. I shouldn't go on a vacation." Now companies are telling their employees to cancel all their business trips. You're not flying anywhere.
Mann: Yes. Apple just cancelled a conference. Microsoft just cancelled a conference. And these were conferences that were happening in April and in May. So it is deeply impacting the travel industry.
To go back to China -- and I understand that by Tuesday these points are completely meaningless because it's already in 56 countries -- Chinese travelers made 150 million overseas trips in 2019 and right now it's functionally zero. And when most things go from 150 million to zero, that seems bad. So the travel industry is being impacted in really harsh ways. Take Apple, for example. If you can't get an iPhone, right now, because of a supply issue, you're going to get it when the supply becomes available. But a trip -- that's not something that's going to get consumed again later. It's just simply not happening. So any company that has a lot of debt and a lot of leverage -- in many different ways -- is in a lot of risk right now and travel is probably at the top of the heap.
Southwick: Are there any other sectors that you [think] are going to be in trouble?
Brokamp: The price of oil has plummeted. Absolutely plummeted.
Mann: Yes, the oil manufacturers. The luxury industry simply because of where they count on most of their growth coming from. From China. From the Middle East. Those types of companies are going to feel the pinch.
But [take] the pharmaceutical industry, all of the basic ingredients for pharmaceuticals tend to be made in China and in Asia, now. Just the basic materials. And if those are unavailable, that's a big problem.
Southwick: Let's talk about some individual companies. CNBC today had the headline, Apple is now down more than 20% from its record, making it among the hardest hit Dow stocks. And so Apple and Microsoft are among the most prominent businesses that have warned that supply chain disruptions could slow sales. What's funny, though, is if you actually look at Apple's chart, it's $270.
Mann: Thank you.
Southwick: That's where we were in December.
Mann: Exactly. First of all, everyone just take a deep breath. It's so easy to get wound up. I feel like what we were just doing is getting people wound up. Just keep in mind that Apple, Microsoft, and companies like that are coming down a lot because they have had unbelievable runs in their share prices. Apple has essentially doubled over the last year -- and that's hard to do when you started as a $600 billion company -- so any type of disruption for Apple had no bad news priced in.
Yes, it's a fact that Apple has dropped 20% but this is not a crisis. You're back to where you were in December, so thank you for putting it that way.
Southwick: You're welcome, although I am a little bummed to see Disney is also down 20%, but I guess people aren't going to go into the parks except for the Southwicks. We're going to Disney World in three weeks.
Mann: The Manns are on our way, too, in April.
Southwick: Are you really?
Mann: Yes, so what I'm saying is...
Brokamp: Shorter lines is what you have, too.
Mann: Yes, that's good. That's also good, but the way we tend to go there is just buy Disney now because we're leaving all of our money.
Southwick: Maybe we should go before Disney gets a Mann and Southwick pop. They're going to talk about us in their earnings report. Thankfully, we recovered from the coronavirus because of the Manns and the Southwicks.
Mann: The Virginia effect.
Southwick: It's true. You're welcome, Disney. I guess they're taking a hit because I think people aren't going to go. People say, "Catch a falling knife," and "ooh I've got some money on the side. I'm going to take advantage of it because Disney's now on sale." These are the moments where some people feel like they're quite clever for getting a stock when it takes a little bit of a haircut, as they say.
Andrew Leggett, one of our analysts in Australia, posted on Twitter, "Good news! The correction you've been holding cash for is here. Bad news! The market is still higher than a lot of the time you spent waiting for it to come."
Mann: I think you need to do that again, but in an Australian accent.
Southwick: [In Australian] Good news!
Mann: G'day. G'day.
Southwick: [In an Australian accent] The correction you've been holding cash for is here. Now, I can't do an Australian accent.
Brokamp: That was pretty good.
Southwick: It was actually bad.
Mann: That was actually super good. And, yes, he's exactly right. If you are waiting for corrections you tend to leave a lot of money on the table. But there are certain things that are true. It's that you tend to make money when the emotions in the market are at their extremes.
This morning, as I was recording this -- it is Friday -- I tweeted, "If you want to feel a little bit better, find a company that you have always wanted to own and buy just a little bit of it." And I'm not saying that news isn't going to be worse on Monday. The market might not be down, again, but it is a pretty good opportunity to own some of those things that you've always wanted to own. And it will make you feel better.
Southwick: Right. And on the flip side, [we're seeing a lot of people] thinking, "I should invest in whoever makes Lysol. I should be investing in whoever makes face masks." There's this idea of an opportunity, but it's a short-term opportunity. Whereas a more Foolish investor is thinking, "There's an opportunity for me to buy Disney at 20% less than I would have bought it yesterday." It's all about your time frame.
Mann: And those things tend to not work out very well -- like when a thesis like that just becomes completely obvious to you.
Southwick: Oh, you're so smart. No one's thought of that.
Mann: Face masks? One of the services that I run is an international service and we own a company called Top Glove. Top Glove makes about one-quarter of the world's medical and food prep disposable gloves. One of the things that we thought about when we were buying it is that at some point -- we didn't think of the coronavirus -- it's an inevitable thing that food safety, food prep, and better hygiene is going to be used in lots of markets, because most of their consumption was here. I guess we're smart, too.
Southwick: A Bloomberg reporter contacted me yesterday or two days ago. He contacts me every now and then when a stock pops and he thinks that maybe it's because we recommended it. And usually he's right. He's like, "Do you know why this stock did this today?" And I'm like, "Oh, yes. We recommended it."
Mann: He was like, "Yup."
Southwick: But this time he contacted me and said, "Hey, Teladoc popped today." Teladoc is a remote doctor. "Did you guys recommend it?" I looked and said, "Several months ago. A long time ago. That's just a coronavirus bump." But it's still not a bad stock to invest in. I think it's a good trend.
Mann: There's certain companies that we love. Zoom is one of them.
Brokamp: Are you talking about Zoom Electronics, the Chinese technology company with the ticker [ZOOM]?
Mann: I do love this story. It's gone up about 100%.
Brokamp: It's doubled because people have confused it with Zoom Communications...
Southwick: Oh, the wrong Zoom. Oh, no.
Mann: That may work out badly. I'm not a prognosticator, but that may work out badly.
Southwick: People are like, "Well, Netflix is going to do well because of the coronavirus. Peloton is going to do well because of the coronavirus."
Mann: Yes, like Slack.
Southwick: And it's like, "For how long?" Slack, yes.
Mann: And some will. One of the things that you need to keep in mind is that once this crisis ends, I guess I can call it a crisis. Let's call it a crisis. Once it ends, there's going to be some scar tissue and there are going to be habits that are changed. And Teladoc is in a perfect place for people to try it out because maybe they're a little bit nervous and then to say, "I really like that service. It is really easy and I get good medical advice." It's much better than me just googling symptoms, I guess. That never works out well. I don't have to go to the doctor. It's really great. Maybe this will be something -- in fact it will definitely be something -- that causes people to change some habits.
Southwick: Let's go over to MarketWatch and their headline, "Major bank economist says the coronavirus market reaction 'boggles the mind,"' by which they mean Tom Porcelli, chief US economist at RBC Capital Markets. He's scratching his head not only at the market's reaction, but also at speculation that the Fed could lower interest rates as a result.
My memory is fuzzy, but this seems like a much bigger reaction than we had to SARS. To Ebola. This feels like the biggest reaction we've ever had in my lifetime.
Mann: I think that Tom Porcelli is onto something just because the reaction came so quickly. People were ignoring it for a long period of time, and then suddenly everybody reacted at once. This is definitely a much bigger global risk than any of those things were because it started in China, because it was allowed to get out of control in China before they tried to lock it down, and because we're much more globally interconnected now than we were even a decade ago. I understand the reaction, but it is weird.
Southwick: It seems unprecedented. The Financial Times interviewed a guy -- just some financial guy. Don't worry about him. I'm not even going to bother saying --
Mann: This one's an easier one to say.
Brokamp: Financial guys are the worst.
Southwick: But it just goes on forever. It's like, "Patrick Kaiser, portfolio manager for Brandywine Global Investment Management." I don't even know who they are, but his quote was fantastic, because it was like, "There is fear in the streets. [...] No one wants to have exposure over the weekend." Whenever I read articles like this in the Financial Times, I'm reminded about just what it means to be a Foolish investor than the rest of Wall Street. The rest of the world.
Mann: I'm willing to guess that if we looked at Brandywine Global Investment Management's books, today at the close they're going to own some things.
Southwick: Probably they did not completely sell out.
Mann: They didn't listen to their own guy. I mean, it's a great quote. It's so overstated.
Southwick: "Fear in the streets."
Mann: There's fear in the streets. Yes, there is. Again, just breathe. We are in an extreme event, and where I will agree with him, just a little bit, is that unlike any financial crisis, a healthcare crisis doesn't take the weekend off. Maybe he's making that point in a somewhat extreme way, but this, too, also, will actually pass. The fear that we feel is real. The risks are real. Don't just wave them away, but ultimately the world economy and our great businesses are way stronger than this.
Southwick: It can feel kind of icky, some of the articles out there, because they'll be like, stocks to own to take advantage of the coronavirus. Some of the articles just make you feel...
Mann: People are dying. Here's what you buy.
Southwick: People are dying, right? People are dying. These are the stocks to own while people are dying. I feel kind of icky, in some ways, talking about where investing and the coronavirus come together and hits our wallet, but I guess we're really talking about protecting our wealth.
In closing, what's your general advice to people here? And what are you doing?
Mann: I've had cash on the sideline for a while simply because I felt like the market was fairly expensive and so I hadn't been selling things. I've been putting money in and just holding it in cash. I started deploying just a little bit. Again, companies that I haven't owned because I thought that they were expensive and that I thought it would be a good idea to get a little bit of exposure to at a cheaper price. So mainly I'm doing nothing, but I'm also looking to take advantage of -- not death, because that's terrible -- but of other people's reaction to it.
Southwick: But generally speaking we're all going to be OK? Is that right? Tell me we're going to be OK in Disney World.
Brokamp: It's going to be great.
Mann: Stay away from the Haunted House. That's all I can tell you. The Haunted Mansion. Otherwise you're going to be fine.
Southwick: OK, thank you.
Well, that's the show. Bill Mann, thank you so much again for joining us.
Mann: I'm so glad to have been invited. You guys do such a great job.
Brokamp: Well, thank you.
Southwick: Thank you.
Brokamp: It's all Alison.
Southwick: You have to say that when you're sitting across the table with us; but, thank you.
Mann: I walk out of here and I'm like, "One star!" No! It's such an engaging show. I have a friend from Michigan who had financial issues. He's 45 and getting ready to get started. He asked me, "What do I do?" I said, "Just start with Answers." He really did start listening to the show. It will teach you how you should think about your money.
Southwick: Well, thank you.
Brokamp: Well, thank you, Bill.
Southwick: Do you want to give a shout-out to your buddy? I guess he'll know if you're talking about him. He may never have thought a friend would repeat that.
Mann: That's right. He got out of bankruptcy and a couple of bad choices. Three wives.
Southwick: That thing down in Mexico that he doesn't like to talk about.
Mann: After the third wife he decided he'd shorten things up and buy a woman he didn't like a house and...
Southwick: Isn't that the old joke, rather than get married again I'll meet a woman I don't like and buy her a house. Classic. Well, that's the show. And with interest rates so low, why not buy her a house?
Mann: That's right.
Southwick: The show is edited contagiously by Rick Engdahl. For Robert Brokamp I'm Alison Southwick. Stay Foolish everybody!