The United States and much of the world is entering a new phase of the Covid pandemic that looks like a marathon runner about to hit The Wall. We’re tired and getting sloppy while looking for excuses to drop our defenses, all while we are nowhere near the finish line of the pandemic. This attitude is going to cost lives, and while many want to restart the economy and engage in magical thinking about what will happen, the incoming president is correct to state that the only way we get the economy fully engaged is to defeat the virus.
After more than 20 marathons I know what it feels like to hit The Wall. That’s runner-shorthand for that moment somewhere between mile 18 and 23 where everything feels like it’s going to shit and you are strapped in for the ride. What once was simple becomes laborious, what was once enjoyable becomes painful and while your psyche is still determined to finish most of your body would like to stop and maybe take a nap. There are many theories about why runners hit The Wall but as usual the correct explanation is the simplest one: the only runners who hit The Wall are those who tried to out-race their training. You can’t train like a 4-hour marathoner and then expect to run a 3:15. (Yes, I’ve tried it.)
Our economy is the same: we failed to prepare for the pandemic and our responses have been tepid and short-sighted. The only comparable era was a century ago and we foolishly believed our nation had become collectively smarter since then. Perhaps we have, but not when it comes to infectious disease.
Our government’s economic response was to prop up asset values by signaling that the Federal Reserve was prepared to spend whatever it takes to keep markets buoyant. To some extent, that part has worked. The stock and bond markets have been fairly robust since then. Who would have guessed that unemployment numbers unseen since the Great Depression would only lead to the market being down for two whole months?
The transition to a new administration and finally some good news (however modest) on the vaccine front have spurred on the markets to new highs. While ultimately we always believe that stocks are good things to own for decades we are urging discipline to those inclined to jump in with both feet. Here are some common themes from client discussions:
1. Be prepared for this to last another year.
Whatever you’re doing with yourself right now, it needs to be sustainable for another 50 weeks. It’s entirely conceivable that we will still be facing major restrictions on movement and activity into the fall of 2021. If there’s any surprise on the duration of the pandemic you want it to be a positive one.
2. Small things repeated frequently become big things.
These impacts can help or hurt. Getting outside and moving every day has a positive impact that compounds over time. So does not paying attention to physical contact and failing to wash your hands, or to wear a mask. You have to avoid the virus all day, every day. You only need to catch it once for it to ruin (or end) your life.
3. Adjust your expectations.
Markets are a present reflection (that means “our best guess”) of what future profits will be. It’s ok to believe future profits (at least in the near term) will be slim or that *we have no idea* when future profits will return to something like historic levels. Consider the possibility that future profits will in fact be losses for some time and the idea of making *zero* return on your money seems quite reasonable.
We remain confident that the pandemic is a problem that we will solve collectively, we just don’t know exactly when or exactly how. It’s up to each of us to do that which is necessary to get past The Wall and on to the finish line.
What I’m doing right now
The United States and much of the world is entering a new phase of the Covid pandemic...