Cratering
The markets reacted predictably,
and violently, last week to a slew of economic data, including a continuing
expansion in the unemployment figures. Tens
of thousands of workers are being laid off or furloughed, millions more are
permanently out of work. Clearly, the
global recovery is stagnating and the reason is an inability to control
hotspots and outbreaks of the Corona virus.
But the issues that govern market responses are larger and more
pronounced than the immediacy of weekly data.
Long before we arrived "here" there were underpinnings
indicating that confidence was waning
and valuations were bloated.
More succinctly, history creates
seminal periods and moments in which the impact of current events becomes
indelibly etched upon our brain.
Everyone remembers where they were when the Twin Towers fell on 9/11;
what they were doing when President Kennedy was assassinated; the horror of the
fateful attack on Pearl Harbor.
Similarly, no one will forget the psychological, medical, and economic
impact of the past 8 month's "once
in a lifetime" global pandemic.
Without exaggeration, the current
effects of our economic and political situation have altered behavior and
perceptions inexorably.
The loss of norms and structure
affects the sustainability of economic priorities, many of which were the
foundation of confidence and direction within global markets for
generations. Not only is the current
decline in valuations a shock to our system, it is a manifestation of
underlying inequities that defined corporations, government, and social
institutions during our lifetimes. When
those values are shaken, behaviors and beliefs are robbed of their legitimacy.
And
yet, while those "norms" are being questioned, our quantitative data
analysis also sees an historic economic and social opportunity to hit the reset
button, to innovate structure and custom, to reshape capital gains
opportunities for decades ahead.
It is true that we are currently in
the throes of a short cycle capitulation.
Despite the value "hawks" who swoop in to buy almost any
security in distress, there is noticeable deterioration in relative strength
integers throughout the sector landscape.
This is because of intense levels of anxiety about corporate
profitability and consumer spending. I
won't say the breach is "unprecedented", but we must go back to last
century's Great Depression to find comparables.
Recovery
The interruption of capital flow
and consumer confidence explains only that
a recession occurs, not why.
We observe that even as fiscal stimulus
and monetary policy is directed at the public, until the pandemic/disease is
contained or eradicated altogether there is a high probability that uncertainty
will persist. More disturbing, though,
is that the gaps between those directly affected by economic dislocation and
those who are not is widening. The
percentage of the population teetering towards poverty is expanding while the
wealthy have "benefitted" mightily from the Summer's stock market rebound. In addition, brand name companies are closing
stores, going into bankruptcy, or laying off employees in record numbers. The economy appears to be in a tenuous
position.
Further, the lack of correlation
between the virus and "wealth" is the great equalizer. Deadly diseases are nondenominational,
regionally agnostic, and politically neutral. No matter one's financial station, they are
not immune from sickness or death. I
wrote about the definition of wealth in this month's Quarterly commentary....how
the accumulation of financial assets does not necessarily, or sufficiently, define a household or corporation's health or
well-being. But, clearly, as the
disparity between those who have "money" and those without grows
globally, the future ramifications will exacerbate a dilemma and must be
considered as economic and social obstacles.
Traditional avenues of wealth-creation
are being eviscerated and exposed as unfair by the virus crisis. Now is the time to think about innovation,
social inclusiveness, economic revitalization, and political reason. The poor, the hungry, the socially disenfranchised
and, yes, the wealthy will depend on these new "laws" of commerce.
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