I keep running into variations on the “quick in and out” economic scenario. Most disturbingly among professional investors and other people who should know better. Per prior posts, I think this reflects a consensus that hasn’t moved past the “Denial” phase of the stages of grief (followed by Anger, Bargaining, Depression, and Acceptance).
I see a long, sluggish recession as the most likely scenario after so much economic disruption.
Consensus seems to expect a quick in-and-out. I think that is insane. The economic equivalent of WW1’s “The war will be over by Christmas…
1914 1915 1916 1917 1918.” Here’s a reality check you can try at home.
When Do You Think Disneyworld Will Re-Open?
Keep in mind the park only works with a certain (very large, continuous) volume of people flowing through it. My answer is either:
- After we have a widely available vaccine – so 2021 at earliest given production ramp-up times etc…
- Shortly before we go through another massive resurgence of the virus (sparking and another economic tailspin). Maybe after a “Economic Grand Re-Opening” in late summer keyed to a desperate effort to re-elect Trump.
Neither scenario above solves for getting back to normalcy in the next 6-12 months. Which also doesn’t solve for a return to prior valuation levels – the Fed’s dollars be damned.
Of course, the investment professionals might be (cynically) forecasting the false dawn of that Trump re-election gambit in mid-summer. I’m less convinced. Why? I don’t think the little people are quite that stupid or desperate.
The “Stupid People” and Little People” Hypotheses
Implicit in the v-shaped recovery are also two morally suspect but, more importantly, factually suspect hypotheses.
The “stupid people hypothesis.”
I’m smart enough to stay home until we have a vaccine, but “those people” are so dumb they will go out the first chance they get. And stay out when reinfections start up again…
The “sacrifice the little people” hypothesis.
I can work from home. The little people in services jobs can’t, but they don’t have savings. Poverty will force them to go out and start working again. Sure we’ll lose a few million of “them” to the disease, but [emerging elite dogma phrase here] we can’t make the cure worse than the disease. Especially as I’m making the comfortable assumption me and mine won’t be doing the dying in service of preserving
my wealth(ahem) the economy…
Both rest on assumptions that don’t stand up to common sense.
- They aren’t that stupid. They love their elders/children too. Yes, people will go out “more” after a total lock-down. But they are going to stay pulled-back until we get a vaccine. Which translates into sluggish economic activity. And no Disney World.
- If “you” don’t go out, “they” won’t have jobs to go back to. Top 10%’s spending is what creates many of those little people jobs. Waiters without customers don’t stay employed for long. The guy who plays Mickie Mouse won’t get re-hired until Disney re-opens. Our (massive) service economy is heavily weighted towards many less-affluent people (the presumed stupid and desperate) providing services to a much smaller slice of affluent people (the presumed smart, work-at-home, still employed, socially distancing people). If “they” go back out and “you” stay home, the equation doesn’t balance.
So far, however, comfortable v-shaped assumptions seem to be winning out over logic. Because Denial.
I’m guessing the rosy scenario will die a death of a thousand cuts sometime by late April. We start quarterly corporate earnings season next week. That will replace assumptions with facts. Massive economic damage already done in March and a total lack of visibility into the months ahead.
What Will the “Anger” Stage of Grief Look Like For the Affluent Class? Not Sure.
It is pretty easy to envision the “Anger” stage of grief for the masses. They will get (even more) angry at the elites. See this piece here for a model and a well-argued case for how the Left should harness it. https://theintercept.com/2020/04/05/coronavirus-american-politics-democratic-party-biden-sanders/
But I struggle to see what “Anger” will look like for the comfortable classes. Because they are (or were) pretty comfortable. Not much given to anger. And they can’t well get angry at the elites because they ARE the elites. I’m guessing there will be some sort of scapegoating (probably of Trump). But I’m not sure that is going to really suffice.
We live in interesting times.