c) is more or less a 100% certainty right now. We know that central banks have already acted on interest rates & QE and that fiscal spending is coming soon. The US Fed has already hinted at unlimited QE for as long is needed and the fiscal stimulus bill will get passed one way or the other. All across the world, liquidity and QE taps are on in a manner never seen before.
As for (a) and (b) - I don’t think the answers to these matter a lot. What is the assurance that the thing won’t surface again in 3 months time?
I question I ask myself is - What can remove the fear and uncertainty surrounding the health situation? What is the probability of that happening?
If the medical authorities across the world were to come out next week and say - “we have a drug that can make the situation far better for those who contract the virus, take XYZ course for 10 days and there is a good probability that the virus will not affect you too adversely…”
Do either of (a) or (b) really matter to investors in this situation? At the risk of sounding very insensitive, investors will treat the 3.8 lakh people affected as of today as a decimal error and get on with their lives very quickly.
In my view the probability of some workable drug combination coming out over the next few months is high, till they figure out a vaccine that can put the issue to rest 12-18 months down the line.
If you buy this hypothesis, you just hunker down, keep doing what you have been doing over the years after ensuring survival and eliminating potentially big mistakes
If you don’t buy this hypothesis, the best thing to do is to exit totally and come back if/when the uncertainty is addressed
Why are we having so many discussions now? It is because history and probability tell us that it pays to be an optimist. All the accumulated wisdom from investment gurus tells us that we should not sell out and go away for the reasons of uncertainty we are faced with right now. That is the discomfort that each one of us needs to reconcile with - in one’s own way. In such times borrowed conviction does not work.
Humanity has survived natural calamities, asteroid strikes, world wars, depressions, other pandemics and what not. Our forefathers just 100 years ago dealt with 10X the health uncertainty that we are dealing with today on a daily basis.
Going back to what John Templeton said - “The most dangerous words in investing - this time it is different”. Will that continue to hold or will he be finally proven wrong by this new virus?
It is his reputation and wisdom at risk and not mine 