Is April the Pivot Month?

by JDH on April 4, 2020

Last week I asked When Will We Hit Bottom? I posited the theory that the key is to watch the death rate:

Here’s a test: How many deaths are occurring?  Obviously the number of cases will increase exponentially over the next week or two, as more people are infected, but if there is an effective treatment, those people will recover.  Here’s the number of deaths, per day, in New York (from this data source).

  • March 22 – 42
  • March 23 – 37
  • March 24 – 59
  • March 25 – 107
  • March 26 – 107

What does this prove?  Nothing, yet, but if the death rate going forward is around 100 or less each day, that means that the virus is treatable, and if it’s treatable, we win.  We may all get sick, but we take the pills, stay home for two weeks, and we are good to go.

Here’s the update, from the same data source:

  • March 27 – 103
  • March 28 – 247
  • March 29 – 183
  • March 30 – 259
  • March 31 – 326
  • April 1 – 391
  • April 2 – 712

Clearly, based on this data, we are not at a bottom.  (I don’t know why April 3 data is not yet posted).  The data is interesting in that the numbers do not increase each day, having dropped from March 28 to March 29 before resuming the upward trend; clearly it will be another week before we have a better idea if the trend is accelerating or peaking.

New York state has a population of 19.4 million people.  The province of Ontario has a population of around 14.5 million people, the death numbers (from this source), are far less than New York:

  • March 27 – 18
  • March 28 – 19  +6%
  • March 29 – 23   +21%
  • March 30 – 23 +0%
  • March 31 – 33 +43%
  • April 1 – 37 +12%
  • April 2 – 53 +43%
  • April 3 – 67  +26%

These are scary numbers, but at least they are not showing exponential growth, and while yesterday’s 67 deaths is the highest ever, the 26% increase is less than the 43% increase from the day before, so perhaps a top is approach.

We can all hope.

The markets were relatively flat this week, compared to prior weeks, more down than up, but not another crash.  Perhaps they are finding a bottom as well.

Other than the obvious medical tragedy, the problem now is “freeze up”.  Businesses are closed, and it will take some time to reopen.

The real estate market, the source of much “wealth” creation here in Canada over the past decade, is frozen.  If you are selling your house, are you going to have an open house, where a bunch of random strangers come into your house, and potentially spread the virus?  Are you able to disinfect an entire house after the open house?  And as a buyer, if you are in self isolation, as most of us are, how can you tour a house before buying it?  Real estate will remain stuck for the next few months.

And, when it becomes “unstuck”, it will crash.  There is no other option.

Bookings at Airbnb in Ontario are down 95%.  Do you want to rent a condo where someone might have been in quarantine yesterday?  You aren’t travelling, so why are you renting a place for the night? All of those “investors” who bought condos for the express purpose of renting them out on Airbnb are done.  They are over-levered, and will have no choice but to sell, at a loss, to stop the cash flow bleeding.  That is not good for the real estate market.

The strategy is simple: conserve cash, and be ready to deploy at the bottom.

The trick is to pick the bottom, which is impossible, but the hint will arrive when we retest the lows.  If they hold, we may be at the bottom.

Until then, we wait, in our homes, and we try to stay safe.