Rich
man's crisis
Every event is unique. So, too, are market surges and declines. The exploration of these events is somewhat
predicated upon immutable laws that everyone agrees governs the science. For example, medical clinicians are looking
back at previous epidemics to discern guidance today about its magnitude and
probable duration. When we listen to
their study, it is incumbent upon us to draw our own conclusions about how to
proceed...economically, medically, and socially.
The analysis of
financial things is similarly predicated upon an accepted belief that vectors in economics behave in repetitive,
measurable ways. It is not the
analyst's job to legislate social contracts, only to identify them in an
attempt to measure their impact upon the economic setting.
"Crises", by
our definition, are not the same thing as that which governs each side of a cyclical parabolic continuum, up or down,
left side or right side. Rather, they correspond
to the rather drastic disintegration to a market cycle that occurs at the top with rapidity, contraction, and extraordinary
financial pain. They are so unusual, that crisis endings are not even
considered before they happen, in most instances. But we are in one now, and if you are old
enough to remember, you might recall the previous other two or three that you
have experienced in your lifetime (dot.com, for example).
What happens in each
instance is that some exogenous, unforeseen event triggers a drastic change in
people's outlook. The excessive nature
of that change leads to feelings of distress which, in turn, precipitates panic
selling in the markets. This behavior,
as noted above, is no simple correction nor a straightforward cyclical
resolution of a trend....it is sheer horror and calamity for those experiencing
it.
Each crisis is also
unique. It might be an industry
catastrophe, a regional conflict, a financial meltdown...or a health
pandemic. But they all follow a familiar
blueprint: a rush from owning tangible
assets into a craving to horde cash.
Havens
of last resort
One of the intrinsic
characteristics about this pandemic is how it has aggravated the perception
that the rich have one standard of care while the poor have another. It is explained by looking at the disparity
between rates of affliction in various communities, further exemplifying the
breach that existed between the haves and the have-nots that existed before the
virus struck. Of this we are certain: neither the epidemiological nor economic impact
of this global pandemic has hastened a solution to the problem of wealth access
and distribution. We are mindful,
too, that hunger, poverty, homelessness, and displacement are not limited by
border, geography, or creed.
A sharp decline in the
prices of certain commodities, like real estate and fuel oils, suggests that
there is little pent-up demand right now, even from those who have
discretionary cash to fritter. A
moratorium on spending is also something that cannot be "switched back on"
by decree. The hemorrhaging of portfolio
valuations, along with the drumbeat of lost wages and jobs in the economy more
or less seals the immediate fate of the economy. A "rocket ship" recovery is not
likely in the next few weeks or months.
Further, I believe that your expectations about replicating the returns
you've experienced in the recent past must be tempered as we enter the next
phase of market consolidation. The
standard benchmarks previously used to evaluate "success" must be
tempered by risk management and asset allocation.
Monetary theorists
think they know how to handle the crisis...throw money at it and see what
sticks to the wall. There are also
political leaders who believe that stimulus can pass for idea creation. But some of those solutions, themselves,
might be as disruptive to our societal balance in the short run as the pandemic
itself.
Look, I get it. This financial/medical crisis is nobody's
idea of a perfect way to solve our communal ills and financial aspirations. But taking those steps we need to now to
rebuild our social, political, and economic paradigms just might improve the
best possible outcome we could have imagined.
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