Stocks closed up about 11% today. The “reason” is that it looks like the chances of a significant stimulus package being approved by Congress soon, but really there’s no good reason. There’s no good reason that it was down 5% yesterday either. An 11% move feels nice in the midst of all this but I would prefer a few days of normal activity. We’re in a period of extreme volatility, and even when we are through the current crisis, the next one will bring more of the same in terms of extreme swings.
Not even three months ago, it seemed like the US economy was an unstoppable juggernaut. Low unemployment, low interest rates, low inflation. We were long into an economic expansion, and there were whispers of a recession coming, but it was difficult to get a clear picture of the situation as the data was mixed at worst, so warnings went largely unheeded. We had been hearing about a pneumonia-like virus starting to cause problems, but we’d also seen SARS before and thought we knew what to do. The reality was very different, though.
Now: we have swiftly (so swiftly!) pivoted to a very different, very sobering reality, one in which we face ever grimmer news from Europe as they foretell our future by two weeks, and a severe shortage of equipment needed to handle the expected onslaught of patients with severe Covid-19 symptoms.
Beyond the immeasurable human cost, there will be a staggering economic cost, with possible Depression-era levels of unemployment, at least temporarily. But what has changed from three months ago, in a fundamental sense?
The good news:
By all reports, the things that need to function are functioning. If you need to go to the bank and withdraw cash, you can. If you need to sell stock (whether it’s a good idea for your portfolio in the long term or not), you will find a buyer. The market dropping isn’t in and of itself a problem - it would be a much, MUCH bigger concern if the transactions weren’t able to be executed in an orderly fashion.
The lights are on. The internet hasn’t collapsed under the weight of all the kids suddenly home playing Fortnite.
There aren’t actually food shortages. People hoarding and buying a large amount of goods at once has led to a logistics problem, but the supply chain is intact.
The bad news:
The crisis is making it undeniable just how tenuous so many people’s circumstances are, both in terms of healthcare and also employment and savings. Losing a week or two of pay, and/or being faced with big medical bills (directly or indirectly stemming from the crisis) will spell disaster for many, many households, and that reality can’t be ignored any longer
US companies, large and small, were also not well positioned to weather a storm like this, despite a very friendly environment and a long run of expanding profits
There continues to be a distinct lack of true leadership and long-term thinking among many of those in power
The thing to keep in mind about all of those bullet points above is that they were true before and they are still just as true now. The focus now is on the bad news (and it’s bad, no doubt), but that news isn’t new. The impact of the crisis will still be felt long after the outbreak is controlled, but none of these are different because of the crisis. Too many people were living paycheck to paycheck before, and our regular supply chains were strong before. The crisis didn’t cause any of that, it is just making it impossible to ignore.
My second hope (the first being a way out of this with the least damage possible) is for us to learn a lesson that it’s easy to tell ourselves a story, but that story is rarely true, and reality is probably somewhere in between the good and the bad. Some longer-term thinking, and rational assessment of what’s possible and what’s not, and the obstacles that might stand in the way, are sorely needed.
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