Investors and everybody else need to be afraid because America is in a depression because of coronavirus.
America’s gross domestic product (GDP) collapsed in 2nd Quarter 2020 wiping out five years of economic growth, The New York Times observes. In detail, US GDP fell by 32.9% in the second quarter, Newsweek reports.
“For the first time in seven decades the U.S. economy contracted by double digits,” Josh Lipsky tells Newsweek. “The American economy has never had to climb out of such a deep hole and it will be impossible to do so without immediate help.”
Lipsky is the director of the Atlantic Council’s global business and economics program.
“To put it simply, it could take years of historically fast GDP growth just to return the economy to the pre-COVID-19 status quo,” Josh Bivens tells Newsweek. Bevins is the Economic Policy Institute’s Director of Research.
Overall, the United States economy will fall by 8% by the end of 2020, the International Monetary Fund estimates. Thus, I predict economic collapse will continue through 2020.
The Coronavirus Pandemic will continue
Furthermore, America’s coronavirus pandemic and the coronavirus depression could continue through 2021.
Ezekiel (Zeke) Emanuel thinks America will not be able resume normal business until November 2021 Knowledge at Penn reports. To elaborate, Emanuel thinks November 2021 is the earliest date at which we could contain coronavirus. Emanuel is vice provost for global initiatives and chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and Wharton professor of health care management.
Moreover, there will be no COVID-19 vaccine until well into 2021 Dr. Anthony S. Fauci admits. Fauci thinks the vaccine will not reach ordinary Americans until well into 2021, Bloomberg reports. Fauci is the director of the National Institute of Allergy and Infectious Diseases and one of America’s top epidemiologists.
“For three, to six, to nine months, there will be more people wanting a vaccine than there are vaccines,” Moderna CEO Stephane Bancel admits to Bloomberg. To elaborate, Moderna Inc. (NASDAQ: MRNA)is conducting Phase Three tests of its mRNA COVID-19 vaccine on 30,000 people in the United States. News reports claim Moderna’s vaccine research is the furthest along.
The Coronavirus Depression will continue until 2022
Hence, I think there will be no herd immunity to COVID-19 until the end of 2021 at the earliest. Herd immunity is the point at which a large portion of the population is immune to coronavirus.
Under those circumstances, I predict both the Coronavirus Pandemic and the Coronavirus Depression will continue until 2022. Consequently we will see enormous amounts of economic carnage over the next two years. For instance, we will see many historic companies and millions of jobs disappear.
Moreover, I predict the Coronavirus Depression will trigger civil and political unrest including violence, strikes, riots, terrorism, and massive protests. I think America could experience far greater and more destructive uprisings than the George Floyd riots.
The worst case scenario is that those riots could trigger a revolution or a collapse of the political system. I think political upheaval is probable because coronavirus has exposed America’s political leaders as stupid, detached, corrupt, incompetent, impotent, and ineffective.
What Stocks will survive the Coronavirus Depression?
Given these possibilities investors what companies will survive and make money during the Coronavirus Depression.
Obviously, the strongest companies will be those with enormous amounts of cash. I think buying stock in cash-rich companies; particularly cash-rich companies that are growing, is the best way to survive the Coronavirus Depression.
Cash-Rich Companies that could prosper in the Coronavirus Depression include:
Microsoft (NASDAQ: MSFT)
Microsoft (NASDAQ: MSFT)had $136.527 billion in cash and short-term investments on 30 June 2020. Plus, Microsoft’s quarterly operating cash flow grew from $17.504 billion on 31 March 2020 to $18.673 billion on 30 June 2020.
Finally, Microsoft’s revenues grew at a rate of 12.8% during the 2 ndQuarter 2020. Hence, Microsoft’s revenues grew by 12.8% during a period when US GDP fell by 32.9%. Thus, I consider, Microsoft depression-resistant.
Alphabet (NASDAQ: GOOGL)
Alphabet (NASDAQ: GOOG) had $121.08 billion in cash and short-term investments on 30 June 2020. That number grew from $117.229 billion on 31 March 2020.
Moreover, Alphabet’s quarterly operating cash flow grew from $11.451 billion on 31 March 2020 to $13.993 billion on 30 June 2020. In contrast Alphabet’s quarterly ending cash flow fell from $19.644 billion on 31 March 2020 to -$1.902 billion on 30 June 2020.
However, I think Alphabet is vulnerable to depression because its revenue growth shrank by 1.66% in the quarter ending on 30 June 2020. In contrast, Alphabet’s revenue growth grew by 19.25% in the quarter ending on 30 June 2019.
Facebook (NASDAQ: FB)
Facebook (NASDAQ: FB) had $58.24 billion in cash and short-term investments on 30 June 2020. Conversely, Facebook’s had $60.289 billion in cash and short-term investments on 31 March 2020.
I think Facebook is vulnerable to the coronavirus depression because its quarterly operating cash flow fell from $11.001 billion on 31 March 2020 to $3.877 billion on 30 June 2020. In contrast, Facebook reported a quarterly operating cash flow of $8.616 billion on 30 June 2019.
Notably, Facebook’s quarterly ending cash flow fell from $23.927 billion on 31 March 2020 to -$2.358 billion on 30 June 2020. However, Facebook’s revenues are growing. For instance, Facebook reported a quarterly revenue growth rate of 10.67% on 30 June 2020.
Amazon (NASDAQ: AMZN)
Amazon’s cash and short-term investments grew from $49.292 billion on 31 March 2020 to $71.391 billion on 30 June 2020. Thus Amazon (AMZN) is joining Alphabet and Microsoft as a king of cash.
Impressively, Amazon’s quarterly operating cash flow grew from $3.064 billion on 31 March 2020 to $20.605 billion on 30 June 2020. However, Amazon’s quarterly ending cash fell from $27.505 billion on 31 March 2020 to $10.337 billion on 30 June 2020.
Amazon is the stock of the hour because its revenues grew by 40.23% in the quarter ending on 30 June 2020. Hence, Amazon’s revenues grew by 40.23% during a period when America’s GDP fell by 32.9%.
Consequently, I consider Amazon the safest company in America now because its revenues and cash are exploding.
Berkshire Hathaway (NYSE: BRK.B)
The numbers show Warren Buffett’s House of Cash is vulnerable to the Coronavirus Depression. For example, Berkshire Hathaway’s (NYSE: BRK.A) cash and short-term investments fell from $64.175 billion on 31 December 2019 to $42.64 billion on 31 March 2020 to $36.074 billion on 30 June 2020.
However, Berkshire’s quarterly operating cash flow grew from $6.798 billion on 31 March 2020 to $10.668 billion on 30 June 2020. However, Berkshire’s quarterly operating cash flow fell from $43.096 billion on 31 March 2020 to -$6.509 billion on 30 June 2020.
I think Berkshire Hathaway will suffer in the Coronavirus Depression. For instance, Berkshire’s revenue growth shrank by -10.63% in the quarter ending on 30 June 2020.
I think the Coronavirus Depression could destroy Berkshire Hathaway because Berkshire invests heavily in traditional consumer brands and real estate. For instance, Berkshire owns the Burlington Northern-Santa Fe (BNSF) Railway which is largely a real estate company. To explain the BNSF owns large rail yards and land along its track.
Berkshire’s holdings include traditional consumer brands as Duracell, Kraft Heinz (NASDAQ: KHC), Brooks Brothers, See’s Candies, Fruit of the Loom, and Helzberg Diamonds. Plus Berkshire’s stock portfolio includes such huge consumer brands as Apple (NASDAQ: AAPL), Coca-Cola (NYSE: KO), American Express (NYSE: AXPR), and Kroger (NYSE: KR).
Hence, Berkshire Hathaway shareholders could be in for some pain. However, Buffett has sold off some of his worst stocks including airlines. Expect to see Berkshire shrink for the next year or longer because of the Coronavirus Depression.
Apple (NASDAQ: AAPL)
Apple (AAPL) is still a cash-rich company. However, it has less cash. For instance, Apple’s cash and short-term investments fell from $101.162 billion 31 December 2019 to $94.051 billion on 31 March 2020 to $93.025 billion on 30 June 2020.
In contrast, Apple’s quarterly operating cash flow grew from $13.311 billion on 31 March 2020 to $16.271 billion on 30 June 2020. However, Apple’s quarterly ending cash flow fell from $41.665 billion on 31 December 2019 to $1.384 billion on 31 March 2020 to -$8.01 billion on 30 June 2020.
Conversely, Apple’s revenues grew by 10.92% in 2nd Quarter 2020. In contrast, Apple’s revenues grew by 0.51% in 1st Quarter 2020.
Thus, I think Apple has a margin of safety because its revenues are growing. On the other hand, Apple’s cash is shrinking. I think Apple will survive but it could have trouble making money.
In particular, I predict Apple’s overpriced, outdated, and often clunky tech will be a tough sell at a time when consumers have less money. The Coronavirus Depression could hurt Apple because cash-strapped consumers will buying cheaper and often better Android devices.
What Stocks to Buy
I think some the stocks above are the safest for the Coronavirus Depression. Unfortunately, Mr. Market overprices these stocks because of their high margin of safety.
For example, Mr. Market paid $3,182.41 for Amazon (AMZN) shares, $1,516.24 for Alphabet (GOOGL) shares, $206.78 for Berkshire Hathaway Class B (BRK.B), and $210.28 for Microsoft (MSFT) shares on 17 August 2020. Fortunately there are many other cash-rich companies out there.
The Walt Disney Co. (NYSE: DIS) for example, had $23.115 billion in cash and short-term investments on 30 June 2020. Yet Mr. Market paid $129.37 for DIS on 17 August 2020.
In contrast Bank of America (NYSE: BAC) had $973.061 billion in cash and short-term investments on 30 June 2020. Yet Mr. Market paid $25.90 a share for Bank of America on 17 August 2020.
Finally, Ford (NYSE: F) had $57.13 billion in cash and short-term investments on 30 June 2020. Conversely Mr. Market paid $6.98 for Ford shares on 17 August 2020.
However, all of these companies will face huge risks in the growing pandemic and depression. Ford, for instance, is in what many people consider a declining industry; automobiles, while Disney is terribly exposed to real estate and tourism.
To explain, I think the Coronavirus Pandemic will kill tourism and destroy enormous amounts of real estate value. At this point, I think the only value Disney’s cruise ships have could be scrap metal.
The Value in Digital Real Estate
Moreover, the Disney theme parks are liabilities because they could be become coronavirus super spreaders. To elaborate I think the public will turn on Disney if one child dies after catching coronavirus at Disneyworld.
However, Disney owns enormous amounts of valuable content; Marvel Comics in particular, and it owns a huge streaming video platform (Disney+, Hulu, ESPN+). Thus, Disney owns valuable digital real estate.
To explain, the valuable real estate today is digital. A piece of digital real estate such as Disney+ could theoretically reach any person anywhere on Earth who has an internet connection or a smartphone. Hence, digital real estate can grow in a way physical real estate cannot.
Moreover, digital real estate such as Hulu cannot spread coronavirus. In contrast, Disneyworld can spread COVID-19. Plus, digital real estate such as ESPN+ can reach people hiding at home from coronavirus.
In the final analysis, I think there are many stocks that could grow during a Coronavirus Depression. However, those stocks will be expensive and potentially volatile.
Originally published at https://marketmadhouse.com on August 17, 2020.