Monday, March 23, 2020

My webinar tomorrow night; Why this is the best time to be an investor in more than a decade; A Plan to Get America Back to Work; Good to see the Federal Reserve act

By Whitney Tilson

1) I've been spending every waking moment over the past week preparing for the free webinar that my colleague Enrique Abeyta and I are hosting tomorrow night at 8 p.m. Eastern time on the coronavirus crisis and its implications for investors.

I've given hundreds of presentations over the years, including many in which I warned investors about the great financial crisis long before the storm hit.

But I think this presentation is the most important of my life.

It's absolutely free to attend – we'll even be giving away two of our favorite stock ideas, just for watching – but you must sign up in advance. You can do so right here.

During the webinar, we'll explain, in great detail, why we've come to the firm conclusion that this is the absolute best time to be an investor in more than a decade. To borrow a phrase from one of my friends, "we're trembling with greed" right now.

There are five main reasons why. I've been covering the first one for the past few weeks already...

My in-depth analysis – most importantly, studying how China, Japan, South Korea, Taiwan, Hong Kong, and Singapore have managed to beat the coronavirus – tells us that we too are likely to stop the rapid spread of the virus much sooner than investors are anticipating.

I'm optimistic that the measures we started taking a couple of weeks ago – and especially the stronger measures in the past week – are working. When we look back months from now, we'll see that the number of newly infected people across the U.S. has already slowed down dramatically and will soon plateau and then start dropping, as the latest measures kick in – exactly along the lines of what happened in China two months ago.

But I believe that the expectations built into stock prices today are that the virus will keep spreading at a high rate for another one or two months at least, and that hundreds of thousands of Americans die from it this year.

If this doomsday scenario doesn't come to pass, stocks will likely go nuts.

Tune in tomorrow at 8 p.m. Eastern time for the whole story... as well as the rest of the reasons why I'm so bullish today. I'm also giving away two of my favorite stock ideas on the webinar as a thank you for watching. Again, reserve your seat here.

2) Tom Friedman wrote a brilliant op-ed that was just posted on the New York Times website: A Plan to Get America Back to Work. Everyone should read this piece... It's exactly what I've been advocating. Excerpt:

These are days that test every leader – local, state, and national. They are each being asked to make huge life and death decisions, while driving through a fog, with imperfect information, and everyone in the back seat shouting at them. My heart goes out to them all. I know they mean well. But as so many of our businesses shut down and millions begin to be laid off, some experts are beginning to ask: "Wait a minute! What the hell are we doing to ourselves? To our economy? To our next generation? Is this cure – even for a short while – worse than the disease?""

I share these questions. Our leaders are not flying completely blind: They are working off the advice of serious epidemiologists and public health experts. Yet we still need to be careful about "group think," which is a natural but dangerous reaction when responding to a national and global crisis. We're making decisions that affect the whole country and our entire economy – therefore, small errors in navigation could have huge consequences...

A lot of health experts want to find a better balance to the medical, economic, and moral issues now tugging at us all at once.

Dr. John P.A. Ioannidis, an epidemiologist and co-director of Stanford's Meta-Research Innovation Center, pointed out in a March 17 essay on, that we still do not have a firm grasp of the population-wide fatality rate of coronavirus. A look at some of the best available evidence today, though, indicates it may be 1% and could even be lower.

"If that is the true rate," Ioannidis wrote, "locking down the world with potentially tremendous social and financial consequences may be totally irrational. It's like an elephant being attacked by a house cat. Frustrated and trying to avoid the cat, the elephant accidentally jumps off a cliff and dies"...

[David L.] Katz wrote an Op-Ed in the Times on Friday [I linked to it in my last e-mail: Is Our Fight Against Coronavirus Worse Than the Disease?] that caught my eye. He argued that we have three goals right now: saving as many lives as we can, making sure that our medical system does not get overwhelmed – but also making sure that in the process of achieving the first two goals we don't destroy our economy, and as a result of that, even more lives.

For all these reasons, he argued, we need to pivot from the "horizontal interdiction" strategy we're now deploying – restricting the movement and commerce of the entire population, without consideration of varying risks for severe infection – to a more "surgical" or "vertical interdiction" strategy....

"Use a two-week isolation strategy," Katz answered. Tell everyone to basically stay home for two weeks, rather than indefinitely. (This includes all the reckless college students packing the beaches of Florida.) If you are infected with the coronavirus it will usually present within a two-week incubation period.

"Those who have symptomatic infection should then self-isolate – with or without testing, which is exactly what we do with the flu," Katz said. "Those who don't, if in the low-risk population, should be allowed to return to work or school, after the two weeks end."

Effectively, we'd "reboot" our society in two or perhaps more weeks from now. "The rejuvenating effect on spirits, and the economy, of knowing where there's light at the end of this tunnel would be hard to overstate. Risk will not be zero, but the risk of some bad outcome for any of us on any given day is never zero"...

Katz's approach is both sober and hopeful. He is basically arguing that at this stage there is no way of avoiding the fact that many, many Americans are going to get the coronavirus or already have it. That ship has sailed.

"We missed the opportunity for population-wide containment," he said, "so now we need to be strategic opportunists: Let those who are inevitably going to get the virus, and are highly likely to make an uneventful recovery, get it and get over it, and get back to work and relative normalcy. And, meanwhile, protect the most vulnerable"...

Once transmission rates are down to near zero, and herd immunity has been established, concluded Katz, we can think about giving the "all-clear" to the most vulnerable. This could take months. But Katz's plan offers the majority of the population the prospect of normalcy in some relatively small number of weeks, rather than indefinite number of months.

And all the while, of course, there should be brisk work on effective treatments and vaccine. These should be deployed – globally – as soon as reasonable...

I am certain that we need to broaden the debate – I am certain that we need less herd mentality and more herd immunity – as we come to terms with our hellish choice:

Either we let many of us get the coronavirus, recover and get back to work – while doing our utmost to protect those most vulnerable to being killed by it. Or, we shut down for months to try to save everyone everywhere from this virus – no matter their risk profile – and kill many people by other means, kill our economy and maybe kill our future.

3) The only area in which I may disagree with Katz is this:

There seem to be two trains of thought for how this will play out:

No. 1: We take very strong measures up front, which, if successful, will limit the spread of the coronavirus to only a tiny fraction of our population. This is what China, South Korea, and many other Asian countries have apparently done successfully.


No. 2: We fail to limit the spread because we're unable or unwilling to take strong enough measures (perhaps because we don't recognize the gravity of the situation until it's too late), in which case 40% to 80% of our population eventually becomes infected and, through this, we develop herd immunity. Under this scenario, the objective is to: a) try our best to make sure the most vulnerable Americans (elderly, sick, and immunocompromised) never get it... and b) reduce the mortality rate by flattening the curve, so our hospitals don't get overwhelmed.

Some would argue that, regardless of which outcome you think is more likely, the strategy should be same: take the strongest measures in an attempt to achieve No. 1 because, even if we fail, we've at least done our best to reduce the infections among the vulnerable and flatten the curve.

Where people would differ, however, is the question: at what cost? Those who think No. 1 is possible might be willing to pay a very high cost to stop the virus because they think the strongest measures might only be necessary for a short period of time (as appears to be the case in China).

In contrast, those who think No. 1 isn't achievable here would likely argue that, since the virus is going to be with us for an extended period, slowly spreading throughout our population until we develop herd immunity, we should not take the strongest measures because of the economic and social damage. Rather, we should do just enough to flatten the curve enough to avoid overwhelming our hospitals, but nothing more.

I am firmly in camp No. 1. I think there will be no more than 1 million to 2 million confirmed cases in the U.S. by the end of this year and no more than 10,000 to 20,000 deaths – meaning I'm assuming a 0.5% to 1% mortality rate (likely at the low end of all of these ranges).

4) The single biggest unknown that's crippling our ability to make good decisions about how to deal with this crisis is that we don't know how many Americans are infected, and where they are. One of my readers has a simple, quick way to get a decent answer:

Why aren't we randomly testing 1,000 healthy people in each state to get a baseline as to the prevalence of the disease? It's critically important for us to know if there are hundreds of thousands (or even millions) of infected Americans who could be spreading the disease without knowing it because they don't have any symptoms. Conversely, if almost nobody has it, it's critical to know that as well. We do "polling" for everything else under the sun – why not here?

5) It's good to see that the Federal Reserve listened to two of its former chairs, Ben Bernanke and Janet Yellen, who called for it to take even stronger action, including buying investment-grade corporate debt, in this op-ed in the Financial Times last week: The Federal Reserve must reduce long-term damage from coronavirus. Excerpt:

Central banks, like the U.S. Federal Reserve, also have a useful role to play. Some of the actions recently announced by the Fed, including cutting the short-term policy rate nearly to zero and preparing to buy at least $700 billion in Treasury debt and mortgage-backed securities, are superficially similar to those taken by monetary policymakers during the 2008 financial crisis.

However, the underlying challenges today are quite different. Back then, the near-collapse of the financial system froze credit and spending; the goal of monetary policy was to restart both. Now, the problem is not originating from financial markets: they are only reflecting underlying concerns about the potential damage caused by the coronavirus pandemic, which of course monetary policy cannot influence.

In the near term, public health objectives necessitate people staying home from shopping and work, especially if they are sick or at risk. So production and spending must inevitably decline for a time.

So what are the Fed's objectives today? Its recent actions have been aimed at stabilizing financial markets, which have been highly volatile and have not functioned normally. Communications difficulties among teleworking or siloed traders and selling from leveraged traders who are having to post additional cash to meet margin calls as share prices fall may have contributed to the market's illiquidity. The most important financial markets, including those for U.S. Treasury debt and mortgage-backed securities, must work properly if lenders are to feel confident about extending credit to households and businesses in such unusual times.

However, the Fed and other policymakers face an even bigger challenge. They must ensure that the economic damage from the pandemic is not long-lasting...

To avoid permanent damage from the virus-induced downturn, it is important to ensure that credit is available for otherwise sound borrowers who face a temporary period of low income or revenues.

Best regards,


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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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