A “V” or maybe a “W” shaped recovery (or X, Y, & Z), oh yeah, and what in the world is going on with oil?
These are the questions we are hearing this week, so, let’s tackle them. The news continues to talk about a “V” shape or a “W” shaped recovery, referring to a quick turn around in the markets or the economy, and the letter referencing the shape of the line on a line graph. This is where tricky shorthand must be backed by facts. Stockmarkets have been known to have “V” or “W” shaped quick recoveries, but not economies. The problem with the quick recovery idea is that over 26 million people are out of work. While many of these employees will start back in May and June, the amount of damage already done to the economy is unknown.
Next, what’s up with oil? Recently, oil futures went negative. Crazy, but this means oil was priced for sellers to pay the buyers to take their oil! The reason…sellers are running out of storage space. This would compare to your local gas station paying you to fill up your car because they ran out of room to store their gasoline. Nice idea, but probably not going to happen.
We believe that patience is needed. Charles Munger, the 96-year-old long time business partner to Warren Buffet, was interviewed by the Wall Street Journal and makes it clear that he regards this as a time for caution rather than action, and that “sitting on your rear end” is one of the keys to great investing results. This is from the man who helped spend $5 billion in the middle of the ’08-’09 Financial Crisis.
Patience is wise, cautious action, not lazy inaction. We believe this is time to be conservative, watch the data, and prepare for the future. As Yoda said, “patience you must have, my young padawan…”
Or as James wrote, “See how the farmer waits for the precious fruit of the earth, being patient about it, until it receives the early and the late rains.”