Cash is king

Everyone is asking the same questions about how to handle the coronavirus. Of course, I am no smarter than anyone else when it comes to prescribing medical precautions. But what we're hearing from the experts is that social distancing and self isolation is the key to keeping the virus at bay.

Although these precautionary measures are on everyone's minds—as they should be—I would like to suggest that we also consider the importance of cash during this crisis. If we follow the trends in not only Italy, but California and other American states, our neighbourhoods could also be ordered to “shelter in place.”

Once that happens, companies will be laying off staff in unprecedented numbers, and most will not be able to continue paying salaries. Last week a record 500,000 people applied for Employment Insurance—an all-time record. This upcoming week will be worse.

At the time of this writing, the Canadian government is prepared to offer just over $500 per week to laid off workers; unfortunately, that will only be a drop in the bucket relative to many people’s incomes. Additionally, a variety of surveys tell us that many Canadians live paycheck to paycheck, and the loss of their incomes due to Covid-19 could be devastating.

With this looming in our near future, here are a few tips for everyone, regardless of your income level. Withdraw some cash from your ATM and hide it away in a drawer. While credit cards are still working, and are likely to keep on working, we just don’t know what might happen. Having a little bit of cash on hand cannot hurt.

While companies will want to keep the salaries of their employees going, most will not be able to do so for more than a week or two. While it is likely that governments will be announcing more measures to offer people income supplements, the flow of cash to your bank account may not be seamless—there may be a gap period, and it could be significant for those delivered by mail.

I strongly suggest that you stop unnecessary spending and start conserving cash. There may be a credit crunch where banks will not be lending and will be reducing lines of credit. If you are waiting for your paycheck or government subsidy, having some extra cash in your bank account to buy groceries may be critical. Discretionary spending is just not a good idea right now.

Another sound reason for waiting to buy discretionary items is that they will all be on sale when shops reopen. Retailers are going to be facing cash crunches soon, as they sit on unsold inventory. When stores re-open, they will endeavor to turn their inventory into cash. They will have to clear out spring and summer items to get ready for next fall and winter. Having cash on hand will allow you some amazing retail buying opportunities.

For those of you brave enough to play the stock market after this is over, there will be opportunities to double, triple and quadruple your money overnight. I am not going to tell you what or when to buy, as I am usually wrong about these things.

But there are some great companies out there who have gotten caught up in the panic; they are still great today even though their share price is substantially lower. As my stockbroker likes to say: “Great Companies, Now On Sale!” However, if you don’t have the cash, you won’t have the opportunity.

On a macro level, there will unfortunately be people and companies who must jettison assets at bargain prices because they need cash sooner rather than later. Well-run and financed businesses and individuals will have the opportunity to buy great assets for pennies on the dollar.

Smart businesses have been converting inventory into receivables over the past two weeks, and every business should be working hard to collect monies owed to them before they are forced to shut down. When businesses re-open, the ones with cash in the bank will do best.

We will get through this. Those who practice smart medical practices, and smart financial practices will get through this better. While the COVID-19 virus is new to us, periods of risk and uncertainty are certainly not. The great lesson history has taught us is that in these periods, cash is king.