Stansberry Research

Doc Eifrig’s COVID-19 Briefing

March 25, 2020

Editor's note: You can find a full transcript of Doc and Matt's briefing, complete with slides, below the video. If you'd like to view a pdf of the slides, click here.


Dr. David Eifrig "Doc": Hi, I'm Dr. David Eifrig. I'm socially isolated. But, I'm connected with Matt Weinschenk. Matt, how are ya? Are you socially isolated?

Matt Weinschenk:  I am socially isolated, very isolated, Doc.

Doc:  Alright, it's March 24th and we just wanted to give folks who are subscribers and interested in hearing what we're saying about what we're seeing, what's going on. Welcome. Go ahead, Matt.

Matt: Hello, yeah. We just thought, you know, things are moving so fast, everybody's got lots of questions, there's lots of information out there. I don't know what's going to happen next, and we just wanted to clear it up. So, I'm Matt Weinschenk, senior analyst, and we've got Dr. David Eifrig, we're with Stansberry Research. We do Retirement Millionaire, Income Intelligence, Retirement Trader, and Advanced Options are our services. But this is just sort of a general information session, unedited, no fancy studios, just wanted to get together and talk through what we're talking about and loop our readers in so they know what we're seeing.

Doc: We're really, and just so people know, we're not selling anything. But we do want people to sign up at HealthandWealthBulletin.com if you'd like to get our free dailies which we're putting out. We've got some good information we've been sharing with folks really, for a couple years now.

Matt: Yeah, so I think just to frame this conversation, there's a lot of different things going on and if you kind of want to walk through it, we're going to have to talk about the virus, and then we can talk about the economy and then the markets after that. They all sort of go in turn.

And, I think, you know, not even Doc and I don't really agree on what's going to happen because I don't think we can know what will happen, but you see a lot of people pointing to South Korea and China and other places and saying, "Look, this thing is under control, this is only going to be two or three weeks, it's not a big deal, it's a big buying opportunity."

There's a lot of people that seem to want to say "now's the time to buy" and they've been saying that the whole way down. But it has worked in South Korea, it has worked in other places, but if you look on this next slide, we have the cases growing in the U.S.

And yes, you know, if we go back one. Yes, it takes two weeks to find out if this isolation is working, and yes there's testing that has to be done on people, but the point is, it has worked in those other places, but they're doing track – testing and tracing and lockdowns and isolation that's far beyond any scale that we have, that we're doing here in the U.S.

So, to point at those as optimistic scenarios, I think is not the right way to do it. And I think if you have any confidence in your prediction, you're not doing this right because there's so much unknown, so many unknowns. We don't know. Two weeks ago, if you asked what… you wouldn't have expected that almost everyone would be staying home and we'd be doing all this isolation. And two weeks from now, we could have an imposed lockdown. They're talking about opening things back up because the cost isn't worth it, I mean we don't know what decisions are going to be made, so it's really hard to project what's going to happen.

Doc: And I think the interesting… what to note here and to contemplate is, for example, here in New York City, they don't have enough test kits and so they've asked anyone who doesn't have a fever, doesn't feel like they need to be hospitalized, to stay away and not go outside and instead stay at home and not be tested. And so, those people are likely positive and if they don't have any symptoms, there's going to be a lot of them that are positive that aren't even going to go in.

Here is some trajectories of how cases have gone.

You can see that the Hong Kong, Singapore, Japan on the lower right have sort of been really the best at monitoring and controlling this process. Do you take anything more out of this chart, Matt? What's your take?

Matt: Yeah, so if you point to South Korea or Japan and say "hey look, there's success here." Well, the success for the U.S. is the opposite. We are on a worse trajectory than Italy. We're on a worse trajectory than China was, so there's more bad news to come. We don't know how bad it's going to get.

We will kind of talk about some baseline predictions, but as far as bad news from the infection, it's not over. We're not past the worst of it and we're not close. And it's not going to be two weeks. And it's not going to be three weeks. That's what I'm looking at, but again I think humility in your projections at this point is paramount, from an investor perspective especially. We don't know what's going to happen. We don't know what policies are going to be put in place.

Sometimes if the news gets worse, that might mean a stronger reaction, so that might be a good thing. We don't really know what's going to happen, and I think you have to really just keep that in mind because nobody's known this whole time and to think you can sit and figure it out now without knowing – there's just biological stuff we don't know.

We don't know sort of how many people are asymptomatic. We don't know how long they might carry the disease or how long they're shedding viruses. Or we don't know if there's going to be a resurgence in the fall or if it's going to mutate. So, I think just projection at this point is just… is just crazy to do that.

Doc: Yeah, I think this chart though also gives me some comfort and you can see the black dotted line, we're just below the number of cases doubling every two days and you can see where China has started to flatten out and Italy, although many, many more deaths as a percentage of people, partly because of their age population as well as their smoking population. And, to your point, I mean, this is one of the kind of charts that Porter Stansberry, the founder of Stansberry Research, would laugh and give me a hard time about. But it's important to look at and see where you are relative to other people and then the question is, whether or not you can do any sort of prediction. I mean, would you say that's sort of a fair question of whether or not that's possible?

Matt: Yeah and this next chart I think is key here.

So, this is a survey of epidemiological experts and what their projections are. And the range here of death – this here is particular projections of death – go from two thousand to six million. So, if you take the experts, there's no consensus. They don't really have a way to predict what's going to happen. There's so many unknowns.

So for people, you know, I don't know how much time you've been spending on the Internet, but there's all these tech guys who think they've looked at the numbers and figured out; there's investment experts like us, like hedge fund guys like, "oh here it is, here's what's going to happen." And, you know, the experts don't know what's going to happen here. So, it's just again keeping yourself – keeping your confidence level where they should be as this is still very uncertain.

But, you know, I think you don't want to just throw up your hands and not have any idea what might happen, so on the next slide here, we've kind of outlined…

It helps to formulize the scenarios that you might see and think of what will lead to each case. And so we've kind of said, you know just biologically and a purely hypothetical scenario, if you could lock everybody up for two weeks and then test everybody, you would know everybody that has it, you could remove them from the population, keep them quarantined and everything would be over in two weeks. If you had the testing and if you had a full lockdown. But that's not happening. We're nowhere near that. I think, you know, we kind think that what you maybe should expect is two to three months to the peak, hopefully that's not too much of a burden on the health care system, so maybe the fatality rate's not that bad, relatively, around 1%.

Two to three months, some businesses will fail, unemployment will go up, but ideally, not a huge crisis. That's sort of the hopeful baseline scenario, but in a worst case, we'll see a more strict shutdown come after cases resurge. This could go five, six, seven, eight months or longer.

Hospital system will be overwhelmed, so we'll see a higher fatality rate, unemployment could go to something like 20% or more and when things shut down, when things get really damaged, it takes a lot more time for the economy to recover to get people back to work, to get people purchasing things again to get businesses started back up.

So that's the scary case. And hopefully as that scary case gets less likely, the more the market would really rally as you sort of close off those worst-case possibilities.

So that's what we're looking at, but again I think you just want to make sure you're not going crazy with your predictions here because we don't know what's going to happen.

Doc: And where do you come down? Would you be best case or baseline or worst case if you had to pick one of the three?

Matt: So, I would take baseline and I would maybe… I would add another month or two to it. That's kind of what I'm feeling. But you know, Doc, I don't know if you've been this way, but one day I wake up and I read something and I'm optimistic and by the end of the day, I'm more pessimistic, and I can flip flop three or four times. And hopefully you just try and calm that noise and sort of take a reasonable view.

But maybe a little worse than what we have baseline here. I think we'll go into the economy and things next, but I think, you know, there's obviously the health crisis which is important, but we're talking from an investor perspective, so forgive us if we sound a little callous at times, but that's just what we're trying to get at.

But I think the race here is, we got to figure out how long this disease and this virus goes, and then there's how long businesses can survive a shutdown and those two things are sort of at odds. And as one – as the disease is longer, the risk of businesses being in trouble is greater and we kind of hope, as investors, that the virus ends before the businesses are too shut down and too damaged. And that's two, you know, that's two variables that you have to predict and two unknowns there.

So, that's kind of what we're going to try and watch play out and see what happens.

Doc: Yeah, one of the things… I ran into a guy in a sandwich shop. The sandwich shop owner is the only one working in his shop now, and he's had to fire the three people working for him. The guy that I ran into in the shop was and is and has been for several years a barista in the coffee shop, a local coffee shop, which is completely shut down. They're not even doing takeaway foods. They're considered a non-essential business. And I asked the guy, I said has he already applied for unemployment? He has. That's not going to kick in for three to six weeks, he'll get retroactive numbers.

But I asked the question which is an obvious one, both to the owner of the sandwich shop and the guy who was visiting for lunch with him… First of all, I asked the guy who's unemployed, would he go back to work at the coffee shop that he used to work at. He's like, eh, he's not even sure about that. He might go and visit his parents, which are not in the area. And then I asked the owner, do you think his people would come back to work if things ended in three weeks. And he said, I don't even know where those people are.

I think two of them have gone to other states and so, there's this sort of naiveté imagining that each of these people are just little pieces on a board that people can pluck back into place and businesses take off. That's got me worried from an economic point of view, so I think I'm probably your baseline/worst case. I think from the medical part, it's probably closer, in my mind, between best case and baseline. Just my gut, just my gestalt so far on sort of the dynamics of it.

Matt: So just to recap there, you think that the medical part might not be so bad, we might have a quick recovery there, but that the economy is more fragile than maybe this is kind of implying.

Doc: Yeah.

Matt: So, it'll handle less. Okay, actually let's get on to the economy.

 Because we've got some interesting numbers on that stuff. So, you know, we did look at past epidemics, and they tend to have a V-shaped recovery. So if the economy declines, you know, in 1958 was actually a little recession. The SARS in 2002 was a slowdown in growth, but not a recession, and they recover quickly because it's a weird demand shock and things, we kind of get over things pretty quickly in those cases. But clearly this is different than those. This is already well past those, so the comparison is certainly not direct. And maybe not even useful at all.

Another interesting shock to demand as far as something that was completely unpredictable and it kind of put a dent in the economy was September 11. But, again, things bounced back quickly because it was a strange, one-time shock. But, again, this is already well past that as far as the economic impact, so we're not sure how useful those comparisons can be, but it's something we want to look at.

Just to take a look at what is kind of on the table.

Goldman is projecting a 10% quarter-over-quarter decline due to the coronavirus. Again, we don't really like to deal with people's predictions and we don't take them as gospel, but that is sort of the order of magnitude we're looking at. James Bullard, the Fed, one of the Fed Governors, said he was looking at 30% unemployment, 50% decline in GDP if nothing was done, which – things are being done, we'll get to. But that's pretty scary and on the next chart here, we show a 10% decline in GDP quarter-over-quarter on the next one.

Is that red line at the bottom. So, this is something – if that were to happen, that is pretty much off the charts of the last 50 years.

Even the financial crisis, we never saw a number like a 10% quarter-over-quarter decline, so the level that we're talking about could be intense. So it shows that we haven't seen something like this before. We haven't got the comparisons to really figure out what that'll do. And back to your point, Doc, on the next slide we've got an interesting chart here.

Study of how much cash small businesses have on hand. And for a small business, it's typically 27 days of cash buffer. Restaurants you can see, are the lowest – 16 days. So that's scary. And even well-run businesses and even conservative businesses have never prepared for a decline in revenue to zero. Right? 100% decline in revenue has never even been on the table before. So if you're smart and you say, "hey, someday we might have a recession" but what do you buffer for? A 30% decline? A 40% decline? Never 100% decline.

Doc: Yup. Do you think… Do you think that government is a solution? I mean, do you think that it solves it by any sort of cash infusion to individuals or loans to businesses? I mean, without true demand, their customers don't come back to a restaurant which you know… I'm making this up, but I imagine in my brain, I'm going to be reluctant to go out for a while, even though it might not be rational to do so if the all-clear was sounded. If they said, you know what, no new cases for six days, seven days, are you going to go out to dinner? With your wife and kids?

Matt: Yeah, so let's go… Let's make it more hypothetical. I mean, obviously if it was fully all clear, if there was… if we had a cure we could all take tomorrow, I think there would be a huge surge. People want to get out. People want to do these things. And I think that… but we don't know what kind of answer we're going to get. We don't know if there's going to be a resurgence. We don't know if we're going to choke this thing off and it's going to be a true all-clear. But I mean, people want to get out there.

And if… I don't know, Doc. What do you think medically – do you think we'll get a strong solution in any sort of short term? Or do you think it's going to be much longer, okay we've slowed things down, you can go back out, okay, now there's a localized resurgence here, so this state's going to pull back in and get people self-isolating again or do you think it'll be a clean bill of health?

Doc: I mean… Look, you might hear some noise in the background, that's because we've got some guys who are hammering away and sawing on the back half of an old Victorian house that I'm in. And talking to them in the morning, the first thing they're thinking is first of all, this coronavirus came from the Chinese Army or the U.S. Army – some, all this conspiracy stuff. And that's absolute utter nonsense.

The other part of it is when you ask them about their level of fear, they're like – they really don't want to be here. They want to be home as well with family and I just have a sense no matter how rational, I kind of feel I've lost the question you were asking me, but I just don't think even with an all-clear sound that people are going to run back out or that the natural history of demand will occur instantly because I just don't see these guys able to assemble staff to serve in restaurants.

There's another example, a friend of mine last night – she's an ophthalmologist and I trained with her. And she says that her group is organizing today, this afternoon, they're having a meeting and three out of the seven ophthalmologists have to go to either quarter time or no time because they don't have any patients. And it's based off of seniority at the practice and I mean, she's got mortgage payments to go and kids to pay for and food and I mean…

How do you bring that back suddenly? And does that free her up to compete now? I was asking her that question, you know, get her contract out. If they let her not work, heck, I'll start her up – I'll finance her to start a new business all on her own. So these are questions that I don't think… in theory it's great to just imagine you'd turn it off – the virus – and things will come back. I just don't see that.

Matt: Yeah. And it's one of those… you know, it's hard to predict because it's going to be a sort of tipping-point scenario, right? And we don't know where that is.

If it's three weeks, things come back. If it's five weeks, it's a lot harder to come back. There's going to be a point where it goes kind of from one category to the other and it's not a linear thing where it gets a little harder each day. It's going to be like okay, well we're at a new wave of layoffs and a new wave of closures and now things are going to be harder to bring the economy back online.

So, as you were talking about with layoffs, so this is a Google Trends chart for the search for "file for unemployment."

And this last surge here is partial data from the last week – a huge boost. And we also made this chart long enough to show the searches for "file for unemployment" in 2008, through that whole period of recession. It is one-fifth of what's happening now, so there is going to be a lot of at least short-term unemployment going online.

You know, we have an unemployment claims number that has already shot up on a perfectly straight line. But again, put that in a long-term perspective on the next one, in the next slide here.

And it's certainly important, right. This is all the way back to '05 or so. It's certainly a spike, but fortunately we're coming from a really strong level of low unemployment claims, so, you know that's… The economy is uncertain, but there is some resiliency there and if it's short enough, we can come back and the longer it takes, the harder it is.

Doc: Yeah, I think one of the positive and good arguments is even if things don't turn around so quickly, the actual, maybe absolute level of unemployment might not be that high and might only be – you look at this chart, unemployment claims back up to a level of say in '15-'16 or even '17 and those aren't percentages of people unemployed, this chart does not show that. But it's potential to only go from 3.5, 3.2 and run back up to 5 or 6 percent, which, growing up in the economic books I've read, that was supposed to be maximum employment. So I'm hopeful there of stuff. What do we have for the next chart here?

Matt: So next, I was thinking we would move into markets.

Doc: Yeah.

Matt: Because really, that's kind of what we do. And I think our takeaway, we'll start with the conclusion and then we'll show you where it comes from, is that we're not at the bottom yet. That's as strong as we can get. Now people like to say, well, how much more of a bottom is there? How much longer? And go, ah, there's 10% more downside over the next three months. And I don't think you can do that because we don't know what's going to happen yet, but I think – I feel pretty good now saying we are not there yet and I'll show you why.

So, this is a credit spread.

This is the difference in yields between high-yield bonds and investment-grade bonds. And this is a simple indicator of crisis or panic. If this gets over six or seven percent, you can basically raise your hand and say, "okay now we are in crisis mode." It's a dead-simple indicator when we are in a crisis. So, you can see that we have seen things shoot up pretty substantially there.

Doc: And just to be clear, this is saying that right now, junk bonds, high yield bonds, are trading at 10%, or we like to call that 1,000 basis points, over, so 10% more in yield versus the equivalent 10-year treasury. Is that an accurate way of looking at that?

Matt: Yes. I think this is high-yield over investment-grade, but…

Doc: Investment grade. Sorry I said Treasury.

Matt: Ah, that's okay. And so, we are in panic mode. But, if you look at history, that's – we're not at the bottom yet. So, on the next slide we look at 2002.

And you can go back to other crises too, we just went back to the last two to show you. So 2002, the top panel here is that same credit spread we were showing. And you can see it spikes and there was a panic and there's a dot-com bust. The bottom chart is the S&P 500 so you're trying to find where the bottom in the market is. So the dotted vertical line shows the bottom in the stock market and you can see in 2002 the panic of credit spreads was not at the peak. Right, it peaked and then it started to come down and there was still some bad times for the stock market and it was already on its way – well on its way down before the stock market rallied. So we do the same thing in 2008.

Credit spreads – this time they spiked all the way to 20%. But again, they started easing off, easing off, easing off, and it wasn't until four months later, three months later, that the market bottomed. Okay, so now we look at today on the next slide and we have no easing off.

It's still full-on panic mode as far as high-yield bonds. People do not want to take on risks. So that would suggest we've still got some time before this comes down and before there's an opportunity in stocks.

Next, we have another indicator of similar value and that is the VIX. Right, the VIX is the fear index. The VIX is the cost of hedging, the VIX shows when there's panic. You can see we've recently now spiked to levels that are financial crisis levels. People are very scared, people wanted to buy protection and pay a lot for it. But if we do the same study… So again, if you think "okay, so you buy when there's blood on the streets, you buy when people are most scared, that's when you get the best deal." But that doesn't happen               

You still have time. So here in 2002, we show where the VIX peaked on the top. That's the VIX on the top and the stock market is on the bottom.

You still had another 30% downside and almost a year before the stock market bottomed after the huge spike in the VIX.

The volatility comes out of the market before stocks show strength again.

Let's do 2008… It's the same…

The VIX spikes and there's still a 40% downside before the market starts to rally. What's happening here, Doc – if you want to think about the structure of this – there's selling in the market. And there's selling for good reasons… There's a virus or a financial crisis or a Dot-Com boom. Fundamentals are deteriorating so people want to sell.

But there's also a point where the financial market stops working. There's not enough liquidity, and bid/ask spreads get big. People are force selling, and there's panic selling.

That's when the VIX rises when there are dislocations and when there is tons of volatility due to the financial market breaking down. But that's when the Fed steps in and they boost liquidity and they try to calm things down. The Fed can't make the market go up and they can't make the economy improve. But they can make sure markets clear and they can make sure that, even though there is selling, that it's orderly and people can unload things at a normal pace if they want to.

What happens is volatility comes out of the market and it calms down, but there's still more room to the downside and still more selling to happen. That's what we're watching for. You don't have to be a hero and buy at peak VIX.

The last chart here is showing that we're still at peak VIX…

It started to come down, just today, from 70 or 80 down to 50. So that's a bit of a good sign. But if you buy when there's blood in the streets, you at least wait until the battle is over and they're cleaning up the blood, to continue that analogy.

Doc, what do you think about that?

Doc: One of the things, to go back just a bit, VIX, for people who don't know, is the Volatility Index. It's calculated based off of how options trade.

It's thought and believed that people, partly due to the psychological phenomenon known as loss aversion, people don't want to lose money and they'll use puts and buy put options for protection. Because of the way puts and calls and the underlying securities are all related to each other, if someone starts buying put options indiscriminately and pays any amount of money for protection, the VIX pops up and that indicates panic. (Recall that if you own a put, you now have the right to sell the underlying security.)

At times like this when the Fed comes in and says, "Hey, we're going to create the orderly market and we're going to create liquidity," I'm okay with that. I start to get worried – and I'm sure you saw that this week – when the Fed also starts talking about buying up corporate bonds.

The next on the list is to start having the Fed buy up securities and stocks like they do in Japan. That's when I think, that's game over in terms of having government owning your debt and equity in what's supposed to be your private business. And that becomes problematic for me. I think we're probably a few years away from that coming home to roost if they do, in fact, do that.

I don't know if you had any thoughts on that, Matt, or what your feelings are on the likelihood of them doing that…

Matt: In the recent announcement, the Fed really pulled out the bazooka, as they say, and the Fed is going to offer direct lending to corporations as opposed to going through the bond market. They are going to buy corporate bonds. They're working with Congress to set up a small business loan program to help provide bridge financing.

I think that the debate over whether this is wise in the long term or whether this is how we want our country to be set up is for another time. You could debate that forever and I think there's a lot of certainty and opinion and philosophy in that. I think, for now, the cost of doing nothing is huge. And the Fed has learned a lot since the last crisis, and they are designing things better.

It sounds like a bold statement, but I do have kind of a lot of confidence in what they're doing. And I think providing liquidity to Greece's market clearing is not the same as owning things or manipulating the prices of things. I'm, in a general sense, okay with it. It doesn't scare me. I think the economy is a complex thing. It's not as simple as it was a long time ago. When you have all these intermediaries, things can break down. A little bit of liquidity keeps things moving. I think that's of huge value and it's not a cost to taxpayers.

Can it go too far? It sure can at some point. But where the line is? That's a long conversation.

Doc: Yeah, but I think at the same time we have to recognize that the money the government is putting together and putting up to spend to do all of this has to come from somewhere. And that comes from the people they're giving it to. You have to keep that in mind. And the older I get the more nervous I get about people being less worried about it. So I would put you in that category too as someone who is less worried it than I am.

How about this next chart?

Matt: So just back to the health of the financial sector, we were talking about how that's what the Fed can affect. Again, we racing this challenge in the economy of the longer this things goes on, the longer businesses are closed down, maybe they can't pay their debt. Maybe they can't pay their interest. We see, sort of, contagion in the financial sector. And that's where things get really scary.

So, is that going to happen? Well, since the peak, financial stocks have dropped about 40%. The market, not including financials, has dropped 30%.

That sounds a little ominous, but banks and things are always a little more levered and a little more cyclical. So that's not that bad. The comparison here is 2008... In that crisis three months from the peak, the market was down 11% and financials were down 40%. When there is fear in the banking sector, that's what you see. And again in 2008, from the peak to the bottom, stocks were down 50% and financials were down 80%.

So what this chart shows is a little bit of confidence that this will not be a huge financial meltdown. The market could be wrong, but that's what it's seeing now. So I see some encouragement there.

In a similar vein, the next chart we have is correlation.

When everybody is scared and everybody is selling, they say correlation goes to one in a crisis. What that means is that sometimes good stocks do well and bad stocks don't do as well. Or bonds do well and stocks don't do well. Things moved based on their inherent values, to a degree. But when everybody is scared and everybody is selling everything, everything just goes down. And correlation between assets gets really high.

So we see here – this is implied correlation across the S&P 500 – while correlation has come down it's still very high. But that's at least one sign that markets a moving a little bit better. This might be because of the Fed's liquidity and also people getting a handle on what's happening.

Doc: I know you love that chart and that statistic, but I also note that from November/December 2018 it hasn't done much. So are you saying that this spike up is a sign that everyone is dumping the baby out with the bath water? That now it's coming back?

Matt: Yes, I'm saying that from February to mid-March, we went from kind of a normal market to a point where everyone was selling whatever they could. And then from mid-March to now, it's starting to pare back a bit. There's a little bit more reasonable thought in the market.

Now, our next charts concern valuation and just how much downside we could see in the market…

This is the price-to-earnings multiple, which is trailing price to earnings on the S&P 500.

In the Dot-Com Boom, we saw a contraction from 30 to 18. That's a 40% decline. During the financial crisis, we went from 18 to 12. That's a 40% decline. So far during the current crisis, we've gone from 22 to 15, which is really only a 35% decline. If you look at prior recessions, prior bear markets, the valuation on the S&P 500 typically contracts more than it has already. So we would expect more downside there. So that again supports that we're not at the bottom.

Doc, I have a feeling you'll like this next chart.

This is from Yardeni Research. He has a ton of great charts. This one looks confusing. Porter would love this chart.

Doc: Just to add the inside joke there between Matt and I… Was it two summers ago or the fall when we went to the University of Chicago?

Matt: Oh, yeah.

Doc: We got to hear Ed talk to some folks.

Matt: Yeah. And he just has a great knack for making things simple and understandable, and just taking two numbers and putting them together. And you're like, "Oh, okay. I don't need this huge, complicated model. Now I see where we're going."

And this is a great example… The red line is the S&P 500 and the blue line is what the price would be at different price-to-earnings multiples. So you can before this crash we were at 19 times earnings, based on forward earnings. After the crash, we're down to 13 times earnings.

If you were to say, if you had a feeling for where we were going to go – 12, 11, or 10 times earnings – you can then see what the price of the S&P would be.

This is gut feeling, but we could easily hit 12. We could easily hit 11. So that means that the S&P would go from 2,300 to 2,00. That's a more than 10% downside. This chart can help you get a gauge for where the market is going to go based on how cheap you think it can get.

Doc: And just another comment, not on this graph, but on Yardeni… I've been following him for a long, long time. And, I think I even told you Matt, that back in my Wall Street days, Yardeni would send stuff out. He'd magic marker it and fax it out. You'd wait to get your Yardeni fax and the order by which you got your fax was based on who you were to him or how much you had paid him for his research.

Matt: You got ranked?

Doc: Yeah, yeah. It was very funny.

Matt: Even now, his website is all pdfs. So you just go and get pdfs, and then just flip through them. Then there are all of these charts in there. It's just funny. But it's good information. So I like to check it when I can.

Doc: I think you'll appreciate too, when were at that conference at the University of Chicago, remember we got his book?

Matt: Yep.

Doc: I was so excited. I thought it's going to have just tons of his old charts and stories about it. Of course, it had stories, but you had to go and click and find the link on the website. He has so many charts and graphs. I was so disappointed because it was going to take all of this extra work to follow his stuff.

Matt: It was already like a 600-page book. It would have been 2,000 if he put his charts in there.

So we're kind of getting to the wrap up here…

If you take the three things that are happening – the virus, the economy, and the financial markets – I would look at these from back to front.

The financial markets are up to the Fed. They've already taken aggressive action. Unless things get a lot worse, I think things are functioning smoothly there and they've done pretty well. I'm always hedging what I say because it's hard to predict, but I'm not too worried about the financial markets at this point. Not like we were two to three weeks ago.

Moving backwards to the economy… This is up to Congress. If they're going to backstop wages, if they're going to have stimulus, if they're going to send everybody checks, those things can make a difference. The key is how long the problems are going to last. If we can clear up the virus, the have the power to keep people in okay shape so that we can bounce back when this is over.

They're bouncing back. They're arguing about what's in the stimulus package; what's going to be in the bill. But I think they're going to pass something. It's going to be helpful even though it might not be perfectly efficient.

But again, the virus is still what we don't know. There will be worse news. We are not at the peak. This is up to President Trump and his executive team. We don't know how bad it can get. We don't know what the next measures will be. We don't know a whole lot.

So we've got two out of three things that we're making progress on and there's optimism to be had. We just don't know what's going to happen with the virus, but we have to look at those three things and judge what's going to happen.

What do you think, Doc?

Doc: It's funny… My feelings about it and my thoughts are exactly the opposite in the sense that I think the things we know about the virus are much more known now and seem to be, even though in the United States we have a lot of people yet to get infected and  a lot of people to still die from it, it seems to be able to act like other viruses where it starts out, then slows down, and goes away.

We've seen that in some of these Asian countries which have used both social isolation and tracking all methods that humans use. But, in a way, the virus kind of has to not be that virulent. It kind of has a natural history.

So I'm kind of more excited about that. I think there's some discussion of this [hydroxychloroquine] – a longstanding malaria drug. It's not without its harms by the way. When President Trump gets up there and claims it's going to cure everything from A to Z, you've got the realize that it's going to cause a lot of kidney failure in a lot of people. Especially if you're giving it to older people to try to save them. Maybe used in younger folks as a prophylaxis like it can be for malaria, but even though it's FDA approved, it's not like drinking tonic water. In sprite of what people say.

On the other hand, going to the financial and the economy, I'm a little more worried. That's mainly because in my world, when I go out and talk to these folks, I see what's really going on. I know several high-end restaurants across the country that have shut their doors. That means their waitstaff and chefs – all notoriously mobile people any way – are probably gone. And so is the culture they created in those businesses and restaurants.

And so that's the service business, which is a large majority of our economy.

On the financial side, I'm sure you've heard stories already of margin calls being made for real estate investment trusts that were leveraged. That's going to have some rollover effects still. And I'm not that much a believer that Congress or the Federal Reserve has that much direct control. I know you probably would argue is does have indirect ability to influence it. I get that.

So, on a scale, I'm a little more optimistic about the virus part of it not causing the end of society as we know it. And I'm a little more worried about the financial part.

It's kind of fun to have this conversation and chat and share with people our thoughts. Do you have any sort of counter or thoughts?

Matt: Yeah, it's interesting. I think it's almost an issue of framing. I think we're not that far apart. You're kind of saying, as far as what's know, the virus is biology, right? So we kind of know what's going to happen there.

Whereas the economy and the financial sector are people's behavior and that can be tougher to understand. I think my framing is sort of that the virus is the virus and we can't do anything about it. I mean, we can, but it's going to do what it's going to do. Meanwhile, there are steps that policy makers can take in the financial sector and in the economy that can hopefully mitigate things.

It's almost like a control versus predictability thing. I think we're not that far apart. It's really how you frame the issues. And maybe it's what you worried about. Like if you worry about the unknown or the uncontrollable.

I don't know. See, this stuff can get pretty deep, pretty quick.

Doc: Yeah. Right, right.

Matt: So that's interesting. I think if we go on to the takeaways here that we want people to know…

The short answer for investors is that we don't think we're at the bottom. Would you agree with that, Doc?

Doc: Yeah. I'm letting you do the financial side here now. I'm going to say also regarding the virus, don't panic. We're closer to the end of this then we are to the beginning. We suspect that it's still going to kill some people. We hope that we don't run out of ventilators in places where we might. But allocation of ventilators and systems are being set up. In New York City, the Javits Center is being turned into a medical center and hospital just like they've done over in Asia.

I think that's probably an accurate statement for the virus. Maybe less so for allocated investors. I'm going to take the other side a little bit on this.

Matt: I think my point here is look, if you've got a stock/bond portfolio, index funds in your retirement account, and you haven't sold and you're still holding, and you're worried… now is not the time to sell. Panic selling is generally a mistake. We're already done 35%. If there 10% to 15% more downside, you really have to nail reentry to have any purpose to selling now.

So if you've held through this, just keep holding. There can't be that much more downside. That's my advice to most people.

If you're an active investor or if you're looking for opportunities, there's still more downside so go with stalwart names like Berkshire,  a diversified company, which helps them a lot… Apple… The blue chips.

Since we're not at the bottom – or you accept that we're not at the bottom – that's what you want to be holding because they're more stable names. It's a pretty simple strategy.

Doc: Yeah, they're sitting on tons of cash. Berkshire doesn't even need to have the cash for dividends. They're looking for opportunities. Who better to have a team that specializes at looking for opportunities in a crisis than that group?

And then Apple… I have a Samsung, but I'm probably going to switch to an Apple any day now. Do you still have your Google phone? Your Pixel?

Matt: I do, but Doc, I've got a Google here, I've got a Linux desktop here, and I've got a Macbook right here. I've bought everything, but I do love my Google Pixel.

The other thing… When the market snaps back, it's the risky assets that come up first. So small caps, when we get to the bottom, are going to have an absolute tear. High-yield bonds – junk bonds – look scary right now, but they're going to come back very quickly baring the worst surge in defaults, which may happen. But if that doesn't happen, those are the things that are going to come back the fastest.

So what you don't want to do is get to the market bottom and then start buying defensive things. If you're not at the bottom and you're looking for investments, you go for something safe like Berkshire Hathaway, maybe some health care stocks. If you get to the bottom, it's too late to get defensive. You've got to get defensive before.

At the bottom is when you want to be taking on risk... small investments and some exciting things. That's what we'll be looking to do. But it's tricky. You've got to find the right time.

Finally, we do have some options services. Options give you lots of flexibility. We're going to be adjusting our covered call selling strategy to take advantage of some of the interesting things happening in the market. We made some moves in our Advanced Options service that's going to try to help people protect some of their capital as the markets go down.

If you're looking to find other ways to make money, other than holding stocks and hoping they go up, we can do some things there. But I know options aren't for everyone.

Doc: Great. Alright, well, thanks for joining us today. We just thought we'd try to get out there and let people know that we're not panicked. We're kind of chilling. We wanted to share some of our ideas and thoughts and how we might be thinking about things. Anything to close?

Matt: I would say people can sign up to Health & Wealth Bulletin for updates. We're not trying to sell anything, we're just trying to help people. We know they want information these days. I think, Doc, we'll be glad to do this again if people are interested. We'll see where the market goes and when things change.

But this was good. I found it good to talk through things and I hope we can put some people's minds at ease.

Doc: Yeah. Let us know if you're interested. And for those of you wondering what I'm drinking here, it's green tea this afternoon. See ya!

Matt: Alright, Doc. Have a good one.