Black and white. No shades of grey allowed. Color? Don’t even think about it.
Well, it’s ok to think about nuances, but be careful with whom you discuss them.
So, I’m taking a chance here, because I see lots of subtlety in the world. In fact, I believe that most important issues are far too complex for sound bites and memes.
The world’s economy?
Yea, it is a bit complex. And it is experiencing its greatest disruption, probably since the last World War.
Fear of spreading the virus, along with travel bans and tariff rhetoric, force businesses to develop more localized supply chains. While that is not good for international trade, it creates opportunities for companies adapting to meet those needs.
Jobs
Unemployment remains high, higher than anyone would think during an expansion. How could the economy be in expansion, probably already out of the recession, when over 10% of the working population is unemployed?
Ronald Reagan, in his debate with incumbent President Jimmy Carter famously quipped, “a recession is when your neighbor loses his job, a depression is when you lose your job, and a recovery is when Jimmy Carter loses his.” Reagan won in a landslide.
The point is that while 10% of the workforce is unemployed, 90% is not only employed, but spending a lot less on the things restricted by social distancing. And spending a lot more making their isolation more comfortable and their remote workplace more productive.
We all went into lockdown mode in the Spring, spending only on necessities. Then, began discovering our individual new worlds: the kitchen, the garden, the exercise equipment, the home entertainment systems.
The cruise industry’s loss became the RV industry’s gain. The construction trades are booming. Appliance and hardware stores’ shelves look like the grocery shelves did at the beginning of the mess.
Those who adapt are more likely to thrive than those locked into a pre-Covid mindset. And by the time we emerge from the pandemic, many displaced workers will see new career paths, too.
Policy
Government stimulus money gets a lot of airplay. Behind the scenes, too technical for sound bites and memes, is the work of the FED creating and maintaining liquidity.
Economic activity requires liquidity. For you and me, liquidity means having emergency reserves covering three to six months’ worth of your bills. For businesses, it is making the payroll.
But it also means having the ability to invest to take advantage of opportunities.
Make no mistake about it, this crisis will sink many companies. But others, mom and pop’s and multi-national alike, entered the pandemic with good balance sheets and banking arrangements. In red-hot growth environments, those companies look like laggards. But during times like these, their bulwark balance sheets absorb the initial shock and provide a base from which to go on the offence within their industry. Or outside it.
Some smart people estimate that the pandemic accelerated technological transformation of many industries by five years or more. And I believe that may be conservative.
Government services are not known to be forward looking. Just a month or two after switching to all remote working, a friend of mine who works for an LA County agency, did a study of his department workflows. He reported a solid 20% improvement in productivity.
Bureaucracy is often controlled by forces without regard to outcomes, so if bureaucrats can maintain the pace of work remains a mystery.
Markets
Businesses on the other hand will squeeze every ounce of productivity.
People buy common stock to participate in the profits of the companies they buy. And company earnings reports are very strong this quarter, in many cases far outstripping even the most optimistic estimates.
Alan Greenspan said: “I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.”
If the former FED chairman is right, the market portends good times ahead. It took the S&P 500, a broad index of the market, less than six months to hit new all-time highs after shedding one-third of its value in record time between February 19 and March 23.
And it looks like the gains could continue, in part, because the new catchphrase in fixed income is “lower for longer.” That applies to both interest rates and inflation. With virtually no opportunity to make money by lending it (buying bonds), investors have little practical choice other than the equity markets.
Low interest rates stimulate large purchases, as evidenced by one of the biggest home purchasing booms in recent history. Second homes and recreation vehicles are a great way to escape the prisons of our primary residence.
And while we simply don’t know how the coronavirus pandemic will end, we do know that it will end.
Society
Lots of people are very concerned about the upcoming election, for a lot of good reasons. But from an economic standpoint, competent business managers pivot with governmental regime changes. But the stock market, which is generally good at predicting those adjustments, isn’t signaling new leadership.
Finally, social unrest isn’t going away anytime soon, because people are human and want simple, soundbite directions. But the world is not just black or white, it is filled with billions of unique individuals who need to co-exist despite their differences.
So, in summary, while a lot of people are out of work, much of the economy is booming or adapting. Our social mores are changed for the foreseeable future, and life can be very hard.
But it’s getting better as we adapt to this strange new world.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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