The virus did not cause this recession, government policy did. Federal, State, and Local governments picked winners and losers, selected activities that could be undertaken by individuals, and effectively rendered entire livelihoods illegal citing public health. The primary function of the vaccine, in our view, is that it gives no excuse for policy to remain in its current form past the spring. Regardless of vaccine take-up, at risk individuals have a medical solution to a disease that has very limited effects on other age groups and there should be no justification for an extension of existing policy. While the virus has been devasting for many, the recovery both physically and economically is now gaining traction.
The greatest stimulus possible is a reopening of the economy and a recession of the economic limitations would do substantial good for the near-term recovery. We see this year being a “Tale of Two Halves”, the first half revolving around stimulus from the government and the second half being a realization of what is likely to be a high level of pent-up demand. Stimulus is necessary and good, for the first half of the year it will come from the government, for the second half of the year it will need to come from the populace. We anticipate this year to have some headline volatility but in general the economy and markets should be improving throughout the year. Our fundamental 2021 outlook is positive.
As you know, part of our investment analysis focuses on significant short- and long-term trends in human behavior and while the economy has begun the process of healing, the societal effects of the lockdowns and government curbs to activity may not be realized for years. 2020 is likely to go down as one of the largest transfers of wealth in modern history and the impact on Americans in other ways should not be discounted. We are not entering a post COVID world but rather a world post COVID – there are things that will change and effects that will be felt for a long time.
Just as the Great Depression or the Vietnam War shaped the psyche of the American Public for years, COVID-19 will have created long-term changes in human behavior and leave behind some significant scars that we should not discount. Economic stimulus and thoughtful navigation of the markets can allow us to help keep your finances in order and recovering. It is, however, important for us to point out key elements of the world around us that we should all be attentive to. We are a multi-generational firm serving multi-generational families. It is time for everyone to pay attention and embrace each other, physically and emotionally. There are scars that need help healing.
In what is likely one of the first examples of the non-financial toll of COVID -19, the Clark County School District – which serves Las Vegas and other cities in Nevada – is now formulating a plan to allow some elementary grade and struggling youth to return to classrooms following 18 suicides amongst its student body between March and the end of December last year, The New York Times reported. That number reportedly was twice the amount the district recorded in the entirety of 2019.
San Francisco Office of the Chief Medical Examiner, San Francisco Department of Public Health, Pence Financial Group
This is unlikely to be an isolated incident and in June, just after the first lockdowns, 11% of American adults seriously considered suicide – including a full 25% of men aged 18-25. A shocking 40% of adults reported struggling with mental health or substance abuse in June, which surely has some correlation with the fact that through November of last year 621 people died of drug overdoses in San Francisco. That represents an increase of 41% relative to last year and well outpaces the city’s COVID-19 death toll of 173 through the same period.
Between the protests over the summer, the events at the Capitol, and the performance of GameStop this year there is a real level of angst in the general population that is starting to make it to the mainstream. The GameStop trade was a rare moment of retail victory that caught many hedge funds flat footed, however much of what is being missed in the analysis of the GameStop phenomenon is that the cause of it has been over a decade in the making.
The events of 2008 and 2009 still resonate with a majority of Americans and they shaped the fortunes of an entire generation. With the Great Lockdown, the Millennial generation has now experienced two once-in-a-generation recessions within 12 years and came of economic age in one of the worst job markets and slowest periods of economic growth in recent memory. As a result, Millennials are the most educated generation in history, the most indebted generation in history, and today a majority of young adults live with their parents – a higher share than even during the Great Depression.
It is important to pay attention to the health of Main Street – which just saw its largest increase in poverty in 60 years – even if there is little to no correlation with the fortunes of Wall Street at present. The lockdowns have touched everybody in the country but America’s youth indisputably bore the brunt. Children have lost a full year of their K-12 schooling, skill building, and social development. For young adults, a quarter of their college experience has disappeared with no reduction in cost. Those in their mid-twenties or thirties have lost a year of developing relationships or taking advantage of their youth in any real capacity. These things matter when you are talking about an inclusive and sustainable economy over the long run – without even considering the fact that prior to COVID-19 Millennials were already forming households at only two-thirds the rate the Boomer generation did at the same age. From a societal standpoint, COVID-19, the lockdowns, the stimulus, and the ongoing affects thereof will be statistically, economically, and socially relevant for decades. We will remain vigilant and considerate of these long-term issues.
For our clients, economically we see things moving forward, your accounts should be of relatively little concern and we have a long history of navigating market cycles and volatility. We will focus on your accounts, so you can please focus on your health and the ones you love.
For all of our readers, we would encourage reaching out to those around you because what is visible may not be reflective of the actual damage. Human beings are social creatures and the lockdowns have led to substantial stress, isolation, loneliness and depression in wide swaths of the population. As we approach the one-year anniversary of “15 Days to Slow the Spread” we are also facing what is likely to be a major challenge – flattening the mental health curve.
While we expect a robust year of economic growth and a positive year for equities, these societal factors – as difficult as they are to hear – need to receive adequate attention. While the stock market is not the economy, the economy is a function of those that reside within it. A failure to address the personal, social, and emotional costs of the lockdowns could have long term ramifications that hinder the economy’s return to potential. Either virtually or in person, hug those you love.
For our clients with Strategic Asset Management (SAM) accounts where we manage with full discretion. Depending on your individual situation, objectives and type of accounts, we may lean towards building slightly higher cash or near cash equivalent positions as we evaluate both volatility and values in line with our current outlook. This will give us an opportunity to mitigate volatility and take advantage of opportunities around our generally positive outlook for the second half of the year.
For our clients who hold brokerage accounts, if you are interested in a similar fee-based strategy, please contact your advisor.
If you are not yet a client and are interested in learning more about our services, please contact us at email@example.com to schedule an appointment