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Although everyone is comparing the current shock with what happened in 2008-09 during the financial crisis, I think the appropriate benchmark is the 2001 terrorist attacks.

For one, 2008-09 was a financial-market shock that hit Main Street. The 2001 shock was one that hit Main Street first and then the financial market. Of course, the two are inextricably linked and, either way, there are negative feedback loops. But 2008-09 was about the banks; this is about the public debt markets, which is where the bubble and illiquidity is this time around.

Corporate bonds, made worse by high-yield bonds leveraged up in exchange-traded funds (ETFs), are a huge problem. And 2008-09, as scary as it was, was about wealth effects only, not about health dangers and mortality rates. It’s one thing to protect your portfolio or guard against a run on the banks, but it’s a completely different thing when it comes to protecting your family’s health.

In the aftermath of 9/11, the general public was full of fear as to whether another set of terrorist attacks was coming our way. The anthrax envelopes and onset of the second Iraq War exacerbated those concerns.

How do consumers respond to fear? They withdraw from economic activity. They avoid crowds. They hunker down and focus on essentials as opposed to discretionary items. As was the case then, and as we see today, air travel and all industries associated with it took a very big hit.

We also have to keep in mind that despite all the monetary and fiscal easing at the time, it took many quarters before the economy fully healed, and both bond yields and equity markets did not bottom until the spring of 2003, roughly 18 months after the initial shock and 16 months after the technical aspect to the recession came to an end. The example of 2001 is that there is no V-shaped recovery even after the recession ends. The healing process takes time. Growth is weak and lumpy and deflationary forces prevail.

So, there are lessons from the “fear factor” and how this affects consumer spending behavior. Of course, we have to layer on how social media today can feed on these fears, and the government’s decision to shutter conferences and events and travel and the pressure on everyone now to shut things down and self-isolate. It could well be a ton of prevention for an ounce of cure, but the reason the coronavirus “curve” has to flatten out over the near term is to prevent the supply- and bed-stretched hospital system from becoming overwhelmed.

So, let’s get into what got hit hardest during that multimonth “fear” that gripped the household sector back in 2001-02 (these are all year-over-year percentage changes in spending volumes from the pre-shock peak to the lows):

  • Air travel: 14.3 per cent to minus 31 per cent
  • Hotels/motels: 10.8 per cent to minus 23.9 per cent
  • Live entertainment: 10.7 per cent to minus 20.4 per cent
  • Package tours: 7.1 per cent to minus 14.9 per cent
  • Movie theaters: 23.8 per cent to minus 13.8 per cent
  • Delivery services: 5.3 per cent to minus 12.7 per cent
  • Sporting events: 9.1 per cent to minus 10.3 per cent
  • Jewellery/watches: 12.4 per cent to minus 9.0 per cent
  • Amusement parks: 2.2 per cent to minus 7.9 per cent
  • Financial services: +15.8 per cent to minus 4.3 per cent
  • Clothing: 8.9 per cent to minus 3.8 per cent
  • Casinos/gambling: 23.7 per cent to minus 3.5 per cent
  • Restaurants: 6.6 per cent to minus 1.4 per cent

The areas of the household budget that did not go down in that “fear-based” downturn were autos, furniture, appliances, home improvement, video-audio equipment, computers, personal-care products (sundries), groceries, alcohol, legal services, accounting services, education, health services, pharmaceutical products, games/toys, telecom services, the railways and rent.

Investors, avoid the former and lean into the latter, especially those areas that are more immune to the “fear factor” on spending that has corrected with the recent move by equity investors to “throw the baby out with the bathwater.”

Autos, home builders, home improvement, appliances, computer retail, pharma, health services, REITs, electronics retail, drugstores and the railways have all corrected far more than the negative fundamentals warrant from my lens.

David Rosenberg is founder of independent research firm Rosenberg Research and Associates Inc.