by Jason Bodner

July 21, 2020

My wife couldn’t sleep last night. She watched an interview that got her mind churning.

In September of 2016, French President Nicolas Sarkozy gassed an ideological fire he set earlier in saying that population growth is a bigger threat to humanity than climate change. As the debate grew over green energy vs. fossil fuels, the rhetoric intensified as each side dug in their heels before Sarkozy weighed in.

On one side, the greens passionately defended a suffocating mother earth. The other side saw the fossils obstinately ignoring science and liked the way things were. Either way, Sarkozy said that the whole argument was focusing on the wrong problem. While he believed in green energy, his stance was simple and inescapably logical. When he was born, the population was around two billion. It had more than tripled to 7.5 billion in his lifetime. UN estimates project the planet to have 11 billion people by 2100.

Simply put, Sarkozy said, the larger threat is too many people, meaning consumption of more resources, higher temperatures, and generally a bigger strain on our fragile planet.

My wife applied Sarkozy’s twist-in-the-tale thinking to the COVID pandemic. Were we thinking about things all wrong? Should we let things run their course? Is this nature’s way of population control?

I could see why she couldn’t sleep.

Debates often get hot, so I’ll tread lightly here, but the root of the pandemic debate in the U.S. is now centered on: “Do we open up business or shut down until the numbers fall?”

As U.S. COVID-19 cases grow, death rates remain relatively stable. The fear is that once hospital capacity maxes out, deaths will spike and we will have a 1919 Spanish Flu-like event, so let’s just compare now with 100 years ago, using Sarkozy’s logic. In 1918, the world population was 1.8 billion.

Spanish Flu deaths were about 50 million or nearly 3% of the world population with a 28% infection rate.

COVID-19 today has an infection rate of 0.2%. CDC estimates infection rates potentially 10 times higher, which would make that 2%. The current death rate is under 0.01% of the world population.

Rates of infection and mortality of Covid compared to Spanish Influenza

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Broad perspective helps, but our readership is primarily investors, who want to know “what effect will coronavirus have on the economy and, more importantly, their stock portfolios?”

Here are some big questions to ponder:

Will the travel and leisure sectors ever come back? Will bars and restaurants? Luxury retail? Brick and mortar retail real estate? Will workers ever return to their offices? How will auto sales come back? Is this the end of life as we know it and the beginning of a new home-bound era?

The biggest question for most investors is: What does that mean for our stocks?

It’s hard to be bullish now, especially when thinking emotionally.

But if we rationally look at history, we might arrive at these few tentative conclusions:

  1. The Spanish Flu killed nearly 3% of the world’s population, yet we emerged from that epidemic (and a continent gored by an unprecedentedly vicious war) to embark on a period of economic growth unparalleled in modern history. But the post-quarantine and wartime 1920s brought cars, radio, cinema, aviation, and even TV. Personal wealth and excess followed until, of course, 1929.
  2. People generally suppose the worst. It’s human nature and a survival instinct. But rarely do things unfold according to how our nightmares manifest themselves to us.
  3. 100 years of stock prices show that the game is tilted to favor the stock buyers. Big money drives stocks higher over time, even in pandemics. My research shows that the strongest sector of the last six months was technology. Big money has been placing monster bets on tech. We found this by looking at stocks with the most big-money buys on a top 20 weekly buy report for six months.

Charts S&P 500 1950 to 2016 Sector Exposure Pie Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

So, stocks go up over time. And they will continue to do so, because of the 4th and most important factor of all…

  1. Then there’s the Fed (the Federal government and Federal Reserve), the biggest sector of all.

The Federal Reserve Bank was born out of a stock market and banking panic. In October 1907, people rushed to take their money out of the Knickerbocker Trust. They financed a failed attempt to corner shares of United Copper. The resulting bank run had a domino effect and spread to less industrial production. J P Morgan had to bail out the situation, but it birthed the need for a central banking system – the Federal Reserve, born in 1913. Its mandate is promoting maximum employment and banking stability.

That means avoiding and mitigating recessions. Therefore, the Fed steps in when things get hairy. We saw it in 2008 and again in 2020. The Fed bought bonds, troubled assets and lowered rates. That flooded the system with liquidity and reduced volatility. Any stock lover loves how this props up the S&P 500.

The only thing left for the Fed is to buy stocks. They already started buying ETFs. The logical next step is to buy stocks. They’re trapped: if they only bolster debt markets, capital will move away from stocks to debt for the imbedded “Fed put.” This is compounded by 401ks: In 2008, they bailed out banks, and in 2020, they bailed out junk bonds, so it’s unlikely that the fed would just let stock buyers burn.

Long-term, there’s no better game than stock investing. There is gratification from investing in businesses powering global progress. A century of price appreciation is on your side. There’s also the Fed put.

Odds are in your favor. And especially when you focus on outlier stocks.

Remember: Stocks always go up, long-term

Don’t be the fish who fights the flow. Salmon spawn upriver but often into the claws of waiting bears.

Columnist Jim Hightower said: “Even dead fish go with the flow.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Bull Market in U.S. Bonds is Dead

Sector Spotlight by Jason Bodner
The Biggest Sector of Them All

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Read Past Issues Here

About The Author


Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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