1/As we progress through the COVID19 pandemic and we get enough information to speculate what the world looks like moving forward I find myself growing increasingly bearish on the economy and equities. I wanted to share my thoughts in case anyone finds them of value

2/First I should say my model will flip into bear mode when 1Q NIPA corporate profits are released, but this is not about that but about how I see things playing out. The 1st observation is obvious, nothing can be the same until a vaccine is available

3/The earnings power of companies are and will continue to be impaired from precovid levels for some time. Company's will react and restructure to the new world and the process will take some time to work it's way through the economy. Even sectors that appear immune will suffer

4/Travel and entertainment of all forms will suffer huge fall out. For example businesses just will not authorize travel and large gatherings pre vaccine, even as the economy opens. Huge amounts of capacity will need to be removed and that means job losses of a permanent nature

5/Commercial real estate will suffer as corporations permanently adopt greater WAH as they have to keep expenses lower to reflect the new lower level of economic activity. Any business that depends on people to people contact will find less demand

6/The process of adapting will take some time, multiple Qs and risks a negative feedback loop taking hold as investment is cut back and existing capacity curtailed, infrastructure or people. consumption will drop across the board, particularly in the face of asset re pricing

7/I would not be shocked to see an extended period of stop/start growth with double or multiple dip recessions over the next few years, due to the extended process of re sizing and the knock on effects rippling through the economy

8/Growth will return but from a lower base and a lower trajectory, ie a reverse check mark recovery. It is outlandish to expect a V recovery, peoples behaviors in the face of a persistent risk just will not be the same, corporations as well.

9/What company is flying 200 people together for an in person conference and risking illness and death? Do company's get sued if they do? If you havent had COVID are you going to a stadium, a concert, anything?

10/I know this sounds apocalyptic and the weird thing is that I am inherently an optimist so it was hard getting to this point of view. What changes this? two things a Vaccine and/or enough testing capacity to catch infection early AND a rock solid treatment protocol

11/that diminishes the impact of the illness to make it tolerable and survivable if you came in healthy. So what does this mean for the market? Markets were well over valued heading into the pandemic. They got to reasonable levels based on PRE covid 19 earnings power

12/ If earnings power is impaired for multiple years then equities are VERY expensive right now and this bounce is a gift to sell into and as the market adapts to the new reality the March low are very much in play to be breached

13/A multi year period of rolling recessions and margin compression as company's adapt to the new reality will make equities a truly hated asset class and multiples will compress off lower earnings. I did some scenario testing on my model

14/Even in a reverse check mark recovery where nGDP drops and then recovers, the impairment and readjustment of margins could drive my model FV to 1800 or below in 2022. A downside overshoot of prices can be expected, putting 1600 in play

15/A double dip scenario extends the timeline for equities to be a buy into 2023. My apologies for the downcast view and I am NOT trying to induce anyone to take action on these views, one must come to one's own conclusion on the proper road forward

16/BTW I hope I am very wrong and I'd love alternate views as to how this can turn out better than this

17/One more anectdote to illustrate the core issue. I have a very good friend who is a partner in a large accounting firm. pre COVID he travelled ALL the time, like in Manhattan 20% of the time

18/He literally laughed at me when I asked if he could tolerate the travel when it starts up again. He said what travel? no one in my company is going anywhere any time soon, even post lock down. That will be the norm for some time. There will be huge gaping holes in industry's