Toilet Paper, Stock Market, and Coronavirus

What do the hoarding of toilet paper and stock market investors decline have in common?  They are both afraid. Personally, I do not think they need to be.  Here's why on both and what we can do.  

A few days ago, I noticed an individual walking out of Target with a cart full of toilet paper.  This person may have got the last roll as when I was in there a couple of days later to buy some other stuff, noticed the TP shelf was empty.  I did not count the total TP packages in the cart but let's guess 10 which assuming all had 6 rolls per package, there were 60 rolls of toilet paper.  

What is the average number of TP rolls used in a week?  Of course, like anything else, there are variables, sheets per roll, number of plies per sheet.  For the record, 2-ply is considered to be the "working man's" TP while 3-ply is for those who need luxury.  There have been studies on this, seriously, there have.  Though research varies, the most credible information I found was an average one roll per person per week.  This means if our TP buyer is a household of one, there is enough TP for 60 weeks or well over a year.  On the other hand, if for a household of four, there is sufficient TP for about four per week or almost four months.  Though no one knows how long the coronavirus will affect the overall economy, I am hopeful it is less than four months.  

It is possible the person was planning to keep two and sell the rest on the black market for toilet paper.  First of all, where does one find the black market for toilet paper?  Does one walk around and ask, "Hey, do you know a guy".  Or maybe bartering will start taking place in local parks.  For example, a roll of toilet paper for 10 of Clorox cleaning tissues.  Or one roll for a six-pack of beer.  That seems low to me.  

Why are some, maybe the majority of stock market investors afraid?  They are afraid the economy will slow down, we will have recession and businesses will have to lay off employees, reduce inventories or services, and become less profitable or not profitable at all. 

There are two types of stock market investors, the average individual investors which are the largest group number wise but own only a small share of the stock market.  The other group is wealthy stock market investors which are a small percentage of the total population but control a large percentage of the stock market.  A recent study found the top 10% of the wealthiest in America control 84% of the total stock holdings.  
   
The very wealthy hire equity managers and pay these equity managers a lot of money to make profits for them in the stock market.  These equity managers are also afraid as they do not want their rich clients to see declines in market values. They often use algorithms to project the future and supercomputers to trade, buy or sell large blocks of stocks in nano-seconds.  Though I have no idea if this is true, I have often thought many of these equity managers are using the same algorithm designed by a junior high student attending country school in SW North Dakota.  

One day the algorithms tell the money managers the economy looks bad, people are buying and hoarding toilet paper, and executes a huge sale of stocks leading to a substantial decline in the stock market.  The next day, the algorithms tell the money manager, maybe the economic outlook is not as bad as the algorithm predicted the previous day, and there are waves of buying and the stock market increases. 

There are other factors such as short-sellers.  Short-sellers are to the stock market what the coronavirus is to the economy.   

This will continue until people are back to working full time and no longer buying and hoarding extra toilet paper, and economic prospects are on a positive trend.  It is also important to understand not all businesses will be affected equally.  Some are going to have difficult times.  Others will be minimally affected and some may actually prosper.  Ultimately, I believe there will eventually be a full recovery of the stock market and new highs reached.  This could take months or years.  

In summary, I would make the following random comments:

I have been through several substantial stock market declines, 1973-74, the crash of 1987, 2000-2002 and 2008 into 2009.  They all were unique at the time and all followed by recovery.

• I am not worried about my stock market holdings. I have a long term asset allocation strategy that makes sense to me.  Since I have no plans to sell my equity holdings, it does manner to me their current market value.  I will make some adjustments to take advantage of the stock market's inefficiency. 
• For all those who are not invested in the stock market, but are worried how the decline will affect their social security and pension income or low-risk investments such as CD's, bonds and fixed annuities, I understand the concern, but again, I believe the economic pain will be short-term and though it is likely we will have a new normal, there will be a normal.  

On a different note, Individuals working on Wall Street generally make a lot more money than employees of the CDC.  Though I have never seen at a study on this, I would not be surprised if the least intelligent person at the CDC quit and went to work on Wall Street, the average intelligence of both groups increase.  My opinion, but may provide some perspective.

• The more intelligent people we have working in the CDC in specific and public health in general, the better off we are all, both economically and health-wise.  We need nationally elected leaders to understand and commit to this. 

We may need to kick start the economy.  One option quick option is a simple cash payment of several thousand dollars to all wage earners who paid social security [FICA] taxes in the last year.  I would guess the vast number of individuals receiving such payment will spend it very quickly to buy consumer goods which would provide a quick stimulus to the economy.  This could be financed by a special tax on incomes above a certain level.  This is not the time to worry about the very wealthy paying taxes.  It is time on making sure all workers can get back to their jobs, recover lost earnings and resume paying taxes.   

• Keep in mind, according to a Federal Reserve study at the end of 2019 found the top 1% own about $34 Trillion in financial assets and the next 9% own about $40 Trillion for a total of over $70 Trillion in financial assets. Assuming 100,000,000 FICA taxpayers each received $5,000 in tax-free cash, the total cost of $500 Billion would be less than 1% of the total net worth of the top 70%.  Another way of looking at this is 5% of earnings on $70 Trillion is $3.5 Trillion.  Compare that to an estimated cost of $500 Billion.  This is very doable.  Finally, as the cash is spent, it likely most if not all will end up back in the hands of the top 10% through the increase in the market value of equity financial assets. 

Finally, we will get through this.  Our TP person will eventually realize that the economy is back to normal and hoarding toilet paper or anything is not necessary.  The economy will resume growth and markets will recover. When we get through this, it is very important we learn from it. Intelligent learning will not come from cable news shows, talk radio or social media, but engaging with and learning from professionals in the health care industry and long term economic planning.