In the US in the past, major economic intervention by the Fed and the US Treasury and a spike in the money supply such as we are having now have led to inflation. For example, the “Guns and Butter” policies of the 1960s resulted in increased inflation in the 1970s. Will this $4 to $5-Trillion expansion we are seeing now lead to inflation down the road? Gold buyers seem to believe so. The spot price of gold in the futures market has risen from about $1,500 per ounce in late March to over $1,700 currently, and the Gold ETF (Ticker symbol GLD) has risen from under $140 to over $160. What do I think?

The Financial Crisis

When was the last time the Fed intervened in a major way and what happened with inflation then? You need to look back only a scant 12-13 years to the “Great Recession” caused by the MBS unraveling in 2007-2008. As a result of that crisis, the Fed expanded its balance sheet by over $3 Trillion and kept it there until it started slowly to reduce its balance sheet during the past couple of years. Did inflation result? Not at all. In fact, Deflation may have been a larger issue. Inflation remained in check because, at the same time the Fed was adding to its balance sheet, the global supply chain was in expansion mode and more and the supply of goods to consumers remained inexpensive. In addition, microprocessor power continued to expand and so people and companies could purchase more power for less cost. Today’s iPhone has 1 to 7 million times more memory than did the computer on Apollo 11. The growth in international trade as well as in computer power is deflationary and so the segments of the economy that drove the recovery from the Great Recession kept inflation in check.

This Time It’s Different?

Will this time be different such that we will have inflation where there was none after the Great Recession? Let’s look at the aspects that I outlined above that kept inflation down the last time. The growth in computing power doesn’t seem to be slowing down. Not-too-distant future trends are projected to include 5G WiFi access and quantum computing, both of which will speed up and improve our ability to access information on the internet. True, iPhone prices go up but the capabilities of smart phones continue to improve. I believe that the growth in technology will continue to be a headwind that will work to keep inflation low.

However, I do think that the global supply chain is in the process of at least a big hiccup. The reputation of China is at least a big loser in this COVID pandemic. Companies have been and will continue to look for alternative sources of manufacturing, and there could be a period of disruption as this adjustment takes place. In addition and related to supply chain issues, we have meat shortages projected due to the closing down of some meat processing plants and also due to the shift from supplying to restaurants vs. supplying to grocery retailers. If the supply of restaurants diminishes through the closure of some restaurants and the reduction in the number of seats available in the restaurants that remain open, what do you think might happen to the cost of going out to eat? There is a good chance that it will cost significantly more.

IMO

So I do think there is some validity to the inflation argument this time, at least for the short term, meaning the next few years. Then again, if it is harder to get a dinner reservation and it costs more to eat out, perhaps people will adjust and eat at home more, thereby keeping prices lower. Don’t forget, we have 14% unemployment which could be headed higher, and so there may not be the disposable income available out there to pay for higher restaurant prices even if and when they do open up again. I think this is a more disruptive and deeper recession than we had after 2008 and we could see higher inflation at least for a short period. Don’t bet the farm on it, but it is always good to have a portion of your portfolio invested in inflation hedges such as Gold or even real estate (particularly residential real estate this time). Perhaps there is some merit to the rise in the price of Gold.

The S&P 500 Index fell about 35% from late February 2020 to March 23, 2020, when it reached its recent low point. The Index has since recovered such that it is currently down about 15% from the late February high. The Nasdaq 100 index has fared somewhat better, losing 28% during March and since recovering to be down only about 6%. As of yesterday’s close, the Nasdaq 100 index is actually positive for 2020, despite the roller coaster ride it has been on during these 4+ months. Why the disparity between the performance of these two major indexes? Because the Nasdaq 100 is much more heavily weighted toward the mega-cap FAANG stocks plus Microsoft. While most other sectors are getting killed with shuttered demand, personnel layoffs, and even bankruptcies, the high-tech FAANG stocks are still rolling down the highways at top speed with only light traffic in the way.

FAANG Components

Here is the performance of the individual FAANG components (plus Microsoft), which, together, comprise about $6.5 Trillion of market cap and 47% of the capitalization of the entire index:

• Facebook: 5% off of highs and even YTD.
• Apple: 6% off of highs and up about 1% YTD.
• Amazon: Up almost 25% YTD and just off last week’s all time high.
• Netflix: Up 34% YTD.
• Google (Alphabet): 10% off highs but up slightly YTD.
• Microsoft: 4% off of highs but up 14% YTD.

Based on these results, one probably would not conclude that we are in the middle of a worldwide pandemic wherein perhaps a quarter of the world’s population has been and/or remains on lockdown in their homes. Most of these companies have commercial applications (especially Microsoft) and rely on ad revenue and therefore need businesses and the economy to be open in order to generate revenue and profits. How is it that these companies have seemed to absorb the gut-punch of the shutdown only to move forward and prosper?

Working At Home

The FAANG companies have a number of things in common that have allowed them to prosper and lead through the shutdown:

• All were well-capitalized prior to the shutdown with oodles of cash on their balance sheets. None of them have had to seek new financing.
• All are somewhat oriented toward people either working at home or in their personal or family lives.
• Some, and I am thinking about Netflix and Amazon, which are the best YTD performers percentage-wise, have been able to take market share away from competitors as a direct result of people’s fear of getting sick. People are increasing their percentage of shopping on Amazon because they don’t want to risk sickness at the grocery store and/or traditional retail stores are completely closed, and people are watching Netflix because, well, what else is there to do?

Fallback After Reopening?

Will these high-flying stocks fall back as states and other segments of the economy reopen for business? We will see, but just because some states reopen doesn’t mean citizens will revert to pre-Covid habits. People will remain fearful of getting sick, and that’s the main reason why I think the US economic recovery will take several months or years.

IMO

Earlier this year I wrote that stock indexes have become too concentrated on these few stocks. If I thought so then, I believe it even more now. 47% of the Nasdaq 100 Index’s market cap contained in 7 stocks (including 2 Alphabets) is an unprecedented (in modern times) level of concentration. It is undoubtedly a risk that investors face. That said, all of these companies are on a strong financial footing, and it could be argued that some (especially Microsoft and Apple) are not outrageously expensive on a Price to Earnings basis. I guess my conclusion is that I had better learn to love this paradigm and the level of market cap concentration that we have because it doesn’t look to be abating any time soon.

Though I am not hearing anyone explicitly state so, with some US states starting to reopen for business, on a macro level, the US is moving to the Sweden model of dealing with the Covid-19 pandemic. Sweden never totally closed their country for business and never enacted a stay at home order. Instead, Sweden allowed businesses, including retail such as restaurants, cafes, and bars, to remain open at reduced capacity, and allowed their citizens to maintain “life as usual” with some restrictions. Thus, Sweden has so far avoided a lot of the economic pain and layoffs associated with the economic shutdown here in the US and most other developed countries.

Flatten the Curve

The purpose of the economic shutdown in the US was to “flatten the curve” of the rate of Covid-19 infection so as not to overwhelm our health care system. Part of the shutdown included postponing “elective” medical procedures including surgeries so as to free up hospital capacity for the projected flood of Covid patients.

The shutdown so far has achieved its purpose and then some. The flood of Covid patients has not yet materialized and the postponement of elective procedures has resulted in many empty hospital beds. In addition, it appears that “run of the mill” stroke and heart attack victims are not going to the hospital as admissions for those afflictions are down significantly. As a result, many hospitals, particularly those in rural areas, are suffering financially and are faced with layoffs of medical personnel.

The Sweden Curve

Sweden, on the other hand, decided that it would flatten its curve at a higher level. This meant accepting more Covid-related sickness and even deaths, but few enough such that it would not overwhelm their hospitals. They did so while at the same time trying to spread the misery around to the rest of its economy. The result? According to PolitiFact, Sweden’s Covid infection rate is about the same as neighboring Denmark and Norway, but its economy is still open, whereas Denmark and Norway are closed. Sweden’s pre-Covid unemployment rate of about 7% is projected to jump to 10% in 2020 – not good for those unemployed workers but not bad compared with US projections of 20% or higher unemployed.

States Re-Opening

Some US states are now starting to reopen with differing restrictions. Among the first restrictions to be lifted in many states are those on elective medical procedures. (“Elective” doesn’t mean the patient can choose not to have them. It just means the patient can select the date of the procedure.) That they are doing so doesn’t mean the Covid-19 threat is over; on the contrary, US Covid daily deaths are at their high point right now. Rather, it means that the medical systems in these states are able to take on the marginal Covid cases that the reopening will cause as well as to deal with “normal” medical business.

IMO

While it is not explicitly stated, the US, particularly some US states that are starting to reopen, are beginning to follow the Sweden model. We have flattened the curve a little too well, and so now we will attempt to flatten the curve at a little higher level if necessary so as to allow some people to get back to work while allowing citizens to have a more normal life. This means we citizens should take even more precautions now than before, especially if you don’t want to get sick with Covid-19. The stock market will like it that there will be an uptick in economic activity but won’t like it as Covid-19 infections and even deaths will continue to rise. My thought is that market volatility will remain high as all of these phenomena play out. Short-term volatility-based trading is a loser’s game, but a disciplined dollar cost average-based approach to buying into this volatility could be a good way to build your portfolio.

According to the SBA.gov website, the Paycheck Protection Program loan program has been re-funded and is open for business again as of April 27. The process is the same as the first tranche of funding:

• Loans are up to $10 million;
• Meant for small businesses with under 500 employees;
• 75% of the funds are for payroll;
• The loan doesn’t have to be repaid if you don’t lay off employees;
• Interest rate is low – in the 1% neighborhood; and
• Apply through an SBA Lender.

Apply Soon

This being Friday, May 1, if you haven’t yet applied for a PPP loan and want one, you had better get moving soon. The first tranche was quickly depleted and likely this second tranche will as well. How might you do that and even perhaps make up some time on others who are ahead of you:

• Use a Smaller Community Bank or even an Online SBA Lender: Anecdotal evidence from the first tranche is that the smaller SBA Lender banks had much better success in processing these loans through the SBA system, and borrower got their money sooner. Perhaps this is because smaller banks are more aware of the nuances of the SBA system and/or because smaller banks might have more motivation to complete these loans and hence may pay more attention to borrowers applying through them. The larger banks – the Bank of Americas, Wells Fargos, and JP Morgan Chases – were so overwhelmed with PPP loan applications that they prioritized helping existing profitable borrower relationships first before any one-off PPP loan applicants. I’m guessing that these PPP loans are not a high-profit center for large banks but they are more so for smaller banks.
• Go to sba.gov, click a few icons, and find yourself a smaller SBA lender. The lender doesn’t have to be domiciled in your region or in your state. The SBA is a national program and so any SBA lender can handle your application. Once you identify an SBA lender or five that might work for you, ask them how well they fared during the initial funding tranche. Another option is to Google “best SBA lender for PPP” and see what pops up. On this, make sure it displays the best lender in terms of performance, not just the most prolific PPP program lender.
• Before applying, make sure you aren’t already a publicly-traded company, a venture- or hedge fund-backed company, or a business that might otherwise take some political heat for accepting US Government loan proceeds. If you are any of these, don’t bother to apply. The PPP program was designed for privately-owned mom and pop businesses – think about local one-off restaurants, salons, and any other business that has been directly affected and forced to close by Covid-related restrictions. That publicly-traded and venture-backed companies, as well as apparently the Los Angeles Lakers, qualified under the stated restrictions doesn’t matter because these companies have been publicly shamed in the press and have in many cases returned the funds that they qualified for and received.
• The initial application is relatively easy to complete, and then there are stages in the application process that applicants need to complete. Hopefully, you will have a good SBA lender contact that can hold your hand through the process. I recommend that you have the mindset of, “This is a government lending program. What could go wrong?”, then your approach should work. Expect the worst but hope for the best with respect to the process.

IMO

If you want or need a PPP loan and think you qualify and should avoid political heat and/or public shaming, then get to it. Time’s a wastin’. The SBA lending window is open now, so it is in your best interest to focus and complete the task. Hopefully, you will get your needed money in due time. Also, hopefully, the “2 months of payroll” concept of the PPP program is indicative of how long the government believes the shutdown will last, especially now that we are 1 month into it. We can only hope there is light at the end of the tunnel.

Author Nassim Nicholas Taleb is topical again due to the Covid-19 pandemic. Taleb is the author of several books. The best known among his books are “The Black Swan”, published in 2007, and “Antifragile”, published in 2012 as an extension and culmination of his thought processes that included those outlined in “The Black Swan”. I have read both books. Both are pertinent to the Covid-19 pandemic, but which book has more to offer as we sit here now with the pandemic having hit and as we are debating the merits of reopening various states’ and ultimately the national economy? I argue that we should look to “Antifragile” as a guidepost for reopening.

The Black Swan

The Covid-19 is being described in the media as a Black Swan, meaning a once-in-a-century or so event that nobody could have predicted. This is convenient because the pandemic that Covid is being compared to is the Spanish Flu, which was just over 100 years ago, right after the end of World War I. I disagree. There have been several diseases, including many that originated, as Covid has, in China, in the years since the Spanish Flu. What sets Covid-19 apart is that it seems to be more communicable than the previous flus, and also that someone infected can remain asymptomatic for several days while they are out there infecting other people. A bad flu epidemic doesn’t seem to be that unusual. What is unusual is the economic shutdown that we have forced ourselves into. I agree with Wall Street Journal columnist Holman W. Jenkins on this point. It would have been very difficult to predict that the governments of the US and many other developed countries would have voluntarily shut down their economies.

Taleb’s lesson in The Black Swan is that Black Swan events aren’t really that rare, and that while you might not be able to predict the specific details of a Black Swan event prior to its happening, you can predict and should be prepared that a plus or minus 3 standard deviation event will occur, perhaps when we least expect it.

Antifragile

Taleb’s lessons in The Black Swan may have been useful prior to the onset of the pandemic (say 6 months ago?), but now that we are here and “already pregnant”, so to speak, I think we need to look to Taleb’s magnum opus “Antifragile” for how we should proceed henceforward. “Antifragile” gets to the heart of the debate about the economic shutdowns, the shelter in place orders, “flatten the curve”, and how quickly or slowly we should reopen restaurants, entertainment venues, stores, and the remainder of the economy.

In “Antifragile”, Taleb argues that attempting to shelter people and other organisms from the daily phenomena of the outside world results in them becoming more fragile and less able to adapt once they are set free and launched into every day life. Think about a child who stays with their mother and close family for 5 years before going to Kindergarten. Do you think that child will be more able or less able to adapt to their Kindergarten classmates than will another child who has had a lot of prior interaction with other children their own age? Taleb argues that isolation makes one more fragile, not stronger.

Instead, Taleb writes, the way to strengthen a person over time is to launch them and expose them to all that the outside world has to offer, diseases included. A person builds up immunity to diseases they are exposed to at school or work so that the next time they encounter the disease, they will have some natural resistance to it and are able to avoid getting sick. A child who plays and interacts with a variety of other children will not only gain immunity to disease but will (hopefully) learn how these other people act and think and (hopefully again) learn some social skills. Exposure and interaction is the way one gains strength, not isolation and sheltering inside. Taleb couldn’t find an antonym for fragile so he made one up and called it Antifragile.

Shelter or Open?

Given this very general overview of Taleb’s two most famous books, how do you think Taleb feels about the debate as to how much longer to shelter in place? I think he would say “Antifragile” should be the blueprint and that the economy should open up sooner rather than later so as to allow people to acquire some level of immunity to this new virus. “Flatten the Curve” is saying a similar thing in a different way. “Flatten the Curve” was intended to slow but not stop the spread of the disease so that the medical system will have time to deal with all of the illness. Implicit in this notion is that people will continue to get sick with Covid, albeit at a slower rate, until either a good treatment or a vaccine is developed. By the way, a vaccine is not a sure thing. The common cold is viral and there is still no vaccine and this is the year 2020.

IMO

Parents cannot completely isolate their children from any bad things out there in the world, and if they try to do so, they are failing by not developing their childrens’ social skills. Likewise, governments cannot forever keep their citizens isolated. Citizens will abide for a short time but not for very long. We are social animals, and if we are bound (collectively) to acquire some form of Covid-19, let’s get on with it. With a few limited exceptions, “Flatten the Curve” has succeeded in keeping demand for medical services at reasonable levels, even below normal levels. Let’s hope that governments heed Taleb’s advice and undertake an “Antifragile” method of opening up our nation’s businesses, even if it is at a slow pace.

You may have read or heard that the price of oil went “below zero” earlier this week. Before you get too excited, this doesn’t mean that your local gas station will be paying you to fill ‘er up, instead of the other way around. Instead, the “below zero” relates to the oil futures market, and specifically to the futures contract that was to expire the next day. For all of you procrastinators out there, it means that those oil producers who waited until the last day to sell their product ended up getting screwed.

Oil Futures

Oil producers substantially sell their oil through the futures market. The New York Mercantile Exchange (the NYMEX) provides the major market for oil futures, and their futures mature every month. One futures contract is for 1,000 barrels or 42,000 gallons of oil. If you are “long” on a futures contract at maturity, you will take delivery of however many contracted barrels you are long.

The futures market functions so that oil producers have a market mechanism they can rely on to more smoothly sell their product and to lock in a price ahead of time so that they know what their revenues will be. For buyers on the other side of the transaction, through the futures market, they can book their price and quantities so as better to plan the amount of oil they will have in storage at a given time.

May Contract

With respect to the May contract, which is the contract that matured earlier this week and went below zero, the reason it went below zero is that there is very little excess storage capacity right now. Big oil storage tanks stateside and oil supertankers out at sea are mostly already full. Buyers of the May contract would have to take physical delivery of the oil in May, but with storage capacity already full, there was no place to put the oil, so sellers had to pay buyers to take it off their hands. My point is that the “below zero” aspect was a very short-term phenomenon due to the lack of storage capacity.

Coronavirus

Why is storage capacity so chock full? The Coronavirus shutdown, of course. With so many businesses closed down, and particularly with airline travel way down, meaning jet fuel consumption is way down, daily demand for oil is down about 20% by some estimates, from about 100 million barrels per day pre-Coronavirus to perhaps 80 million today. As a physical product with long production and storage periods, oil has difficulty with a demand shock such as we are in today.

Investment Opportunity?

The opportunists among us might look at an upside-down below zero oil market and think that there might be an opportunity to invest and make a lot of money right now. They might be right particularly if they have an empty oil tanker or land-based tank system that can accommodate upwards of 42,000 gallons of oil and can hold on to that oil for a year or more before reselling it. As to other ways to profit from this anomaly, they are hard to find. Unless you are either a genius or lucky short-term trader, the only way for the ordinary investor to make money through this specific anomaly is to buy an asset now and holding it for the long term. The problem is finding an asset that you would own for the long term that was beaten down consistent with the “below zero” May futures contract. You could perhaps look at the USO, which is the US Oil Futures ETF, which has fallen to under $3. If you think it could soon return to say $5, that would be a nice return, and maybe worth a play. See the chart here:

Majors

What about your major producers such as ExxonMobil and Chevron? While they have of course taken a hit due to the Coronavirus economic shutdown, they did not seem to react badly to the “below zero” May contract. No big deal, say XOM and CVX investors. See the charts here:

You can certainly make the case to buy XOM, CVX, or any other oil-related company now at beaten-down prices and hope to sell higher as general economic activity improves. After all, if you by XOM now at $42-ish and it returns to the mid-$60s, where it was just 4 months ago, that would be a 50% return. However, my point is that the majors didn’t seem to be significantly affected by the “below zero” May contract issue.

IMO

As with most situations, it is better not to speculate short-term but to invest long-term. As long-term opportunities go, investing in major oil companies or other oil-related businesses may be a good one if you can see your way out of the downturn we are currently in. Then again, there are other economic segments that you might say the same thing about. If you have patient money and you can stomach an eventful ride, there are opportunities out there.

The S&P 500 fell about 35% from its late February high to its late March low. Since hitting the low, it has gone back up by 25% but is still 17% below the February high. Question: Are you encouraged by the partial rebound and hopeful for more in the future? Or are you still upset that the market and your net worth sold off and won’t be happy again until it recoups its losses? Similarly, new unemployment filings are at record highs. If and when this trend reverses itself and companies start to hire again, will you be hopeful when the trend is upward or unhappy until the unemployment rate reaches its previous lows?

Hopeful

I believe most people fall in the category of being hopeful if the trendline is upward, even if things in the recent past weren’t so good. People don’t like the sense of continuing to fall, but they are ok once they have fallen and the situation stabilizes when they head back up again. They don’t have to reclaim the previous heights as long as they are moving in the right direction from their own perspective. If my belief is true, then optimism should return more quickly than expected and perhaps as quickly as the Coronavirus led to the shutdown of the economy. Once a few jobs reappear and maybe a few restaurants reopen, even perhaps on a limited scale with restrictions in place, I believe we will collectively be hopeful about the future even if it is perhaps not as good as it looked even 60 days ago. I realize I am venturing into the realm of Behavioral Economics in which I have no training other than personal experience and a couple of books I have read. Yet, I am an optimist, and so I am hopeful that others will share my optimism.

IMO

With respect to investing, the trick will be not to get too far over your skis and be too optimistic. Make sure you temper the level of optimism you might have with a sense of reality. In other words, go ahead and buy, but try to make sure the price you pay is reasonable. Use my advice or that of another trusted financial planner or investment manager to judge if you are jumping in too deep too soon. Conversely, if you are more of a Debbie Downer, run your thoughts by your advisor to see if perhaps you are too gloomy or if your gloom is justified and fits with your investment goals. As a whole, the stock market looks more to the future and future earnings potential than it does to the past. Use this Coronavirus situation to think about if you also look toward the future.

How much risk are American citizens willing to accept in order to go back to work again and to re-start the economy? This question will be debated a lot over the next days and weeks and will determine what our economy will look like.

Americans and Risk

Americans have historically been risk-takers. Think about the early settlers. 45% of the Mayflower Pilgrims died during their first winter in Massachusetts. Only 60 of 500 Jamestown colonists survived the winter of 1609-1610. Then think about those who ventured westward to settle the continent. Survival was anything but guaranteed. While we are probably less likely to undertake these levels of risks, we recall this part of our country’s history and understand that risk is part of life. Nothing ventured, nothing gained.

Coronavirus

Fast forward to today and the Coronavirus epidemic and related economic shutdown. The difference between the Early Settlers and today is that, while you might not believe or even care that you might get sick, you might infect someone else who does care, so these are not apples-to-apples comparisons. However, let’s do the exercise anyhow. How do you feel about reopening the economy? The completely risk-averse position is not to want to leave your house until there is a vaccine. The risk-accepting position is to go back to the way things were 60 days ago, with no restrictions – no “social distancing”, no facemasks, no required testing. Most people are probably somewhere in between. The exact point of where in between will be the result of the ensuing debate.

IMO

I think most citizens will accept more risk than the government and most political leaders will allow. Over time, our citizens have been regulated and lawsuited into accepting less and less risk. Safety has taken precedence over accomplishments. My concern is that this trend will accelerate with respect to this pending economic reopening. It would be nice to have a vaccine in place and know a lot more about the behavior and traits of Coronavirus before reopening the economy, but the unemployment rate is exploding and the task is urgent. We also don’t necessarily have to establish all of the rules on Day 1 prior to reopening. As the rules have changed as the Coronavirus threat has worsened, so too can the rules change as the threat lessens. Also, let’s not forget that the purpose of “flatten the curve” was to keep the healthcare system from being overrun, not to prevent everyone from being infected. Don’t move the goalposts on us. The curve seems to be flattening. Moreover, non-Coronavirus medical usage is down, so parts of the healthcare system have a lot of capacity. If the curve is flattening and remains so, then let’s get on with life. If most citizens agree with this thinking, then the future will include economic growth, and people can cautiously step out into the working and investing minefields again.

I believe the battle to reopen the economy that we will all see and hear discussed during the next several weeks is going to be among the biggest, most high stakes political battles in recent memory. While it will be partisan, there are reasons for hope. Governors, in particular, should be very motivated to get their states back to work. The Media, particularly the national media, are perhaps more motivated to keep the current shutdown in place. It will be up to the American people to sift through all of this information and arrive at a consensus as to what is the best way and under what parameters the economy should reopen for business.

Nirvana

The current shutdown, however temporary and however devastating for those who have lost their jobs, is Nirvana for two groups: those who are advocates of greater central planning in our economy, and the media. For advocates of central planning, you have the bulk of the US economy shut down by Federal and State order. It’s not Communist China or North Korea-level control, but it’s more central control than we have ever seen here in the US. Citizens, afraid for their own health, are willing to go along with the government mandates for the time being. How long will they put up with it? As long as those in charge of the shutdown can keep the citizenry convinced that there is more danger in going out and going to work than there is in staying home.

As for the media, since everyone is staying at home working or not, what else are they doing? Watching the news. Viewership of all levels of broadcast news media is way up. The news media is central to daily life in the US more now than it has been in many years, particularly since the dawn of the internet age. For the media, keeping the economic shutdown in place is good for their viewership and good for their business. Why should the media be motivated to put forward stories that might cause the shutdown to relax or the make viewers more confident that they won’t get sick if they return to work and other semi-normal activities? The answer is that ad revenue could decline if advertisers remain closed, but I’m guessing that process would take a long time to play itself out.

Back To Work

That business owners (including owners of publicly-traded stock) want the shutdown restrictions to end and to get back to work goes without saying. People would rather get back to work than collect unemployment. People sometimes want to go out to eat in some capacity rather than eat at home every day. People need social interaction with other people.

Also, think about this: States can’t print money. The Federal government of course wants to continue to collect income taxes, but if tax revenues slow, the Federal government can make up for its shortfall by printing more money, which means borrowing more from the public including the rest of the world at historically low interest rates. The CARES Act shows that the US Government, including the Treasury Department and the Federal Reserve Bank, is not afraid to force the printing presses to work triple shifts.

States, however, can’t make up for budget shortfalls by printing money. States need tax revenues. Many states have balanced budget provisions in their state constitutions, and so tax revenue shortfalls necessitate cuts in state outlays. States, and the governors of those states, Democrat and Republican alike, should be motivated to get people earning taxable income sooner than later.

Who Turns On The Switch?

On Monday 4/13, a new potential front arose regarding whether it is the Federals or the States who have the authority to make the call to open up again. President Trump says it is the Federal Government’s role to do so, but the states mostly beg to disagree. There is hypocrisy on both sides of this battle. President Trump says it is his call to reopen the economy but he previously and repeatedly left the “closing” decision up to the governors. Many of those who now think each state should have the right to make its own decision previously argued that President Trump was wrong not to close the entire country down or to have uniform stay at home policies throughout each state for fear of spreading the virus into previously less-infected states. So it looks like we will see a battle even for who gets to turn on the switch.

IMO

I am optimistic that there are enough states, governors, and US citizens of any ilk that the back-to-work signal will be given in due course. Most people are sufficiently afraid of getting sick that they won’t take undue chances. How to address mass transit in big cities will be a tough challenge. If you have ridden the NYC subway system, you know at least that it is not conducive to social distancing. Perhaps employers in NYC will have to continue to allow work-from-home to continue. I believe state and local governments are much better equipped to sort this all out, just as I believe state and local governments are better equipped to make most decisions that impact their own states, cities, and counties. If I have to guess, we will go back to work in a limited capacity sometime during early May – Monday, May 11 is a good bet. Restaurants will be allowed to open with limited seating for a period of time. Same with retail stores – grocery stores are already doing this. Entertainment and sports venues are going to be difficult to reopen to paying fans. All sports leagues need to move forward with plans that involve playing for broadcast only with no (or very few) fans present. We will have to live and work under these parameters probably for the next 12 months, as more and more people acquire immunity and perhaps as a vaccine gets closer. Wish us all luck!

With respect to businesses large and small, one of the biggest issues if not the biggest issue is that we don’t know when the economy or at least large segments of the economy can be opened up again. If we knew that business could start up again on May 1 or May 15, then people and businesses could lay low during the shutdown and make it through to the other side. However, we are not being told anything like that. The end of the shutdown remains open-ended, and we are getting told things can start up again anywhere from Easter (President Trump, later modified) to 18 months from now (Ari Emanuel, an Obama advisor). That’s a large time frame to have to plan for.

Uncertainty

Uncertainty drives people and businesses to idleness. They don’t know where to go or what to do so they don’t do anything. Tension builds. Even people and companies that ordinarily take leadership roles can’t do so now because of the government-mandated shutdown. The only thing that is certain is that we are shut down now and likely will be for at least a few more weeks. Yet, the stock market is showing signs of life, especially during the past couple of weeks. Why is that? Stock investors are looking at daily Covid-19 infection data from around the world and trying to discern the rate of infections. The jump in stock prices has reflected that we are “beating the curve”, meaning the number of infections and deaths have been well below what was originally projected, and even the revised projections. The shutdown and other measures have worked thus far, but an abrupt return to normalcy means infections will spike again. The uncertainty is what the governments’ (plural) policy will be as to how and when the economy will be opened up again.

IMO

Uncertainty has been a part of the human fabric forever. Google “living with uncertainty” and see how many links pop up. I believe that the current generation is less able to deal with uncertainty than earlier generations. As forecasting and forecasting tools have improved, the current generation has become accustomed to a more certain level of belief as to what might happen in the future. Yet, Black Swan events such as Covid-19 still happen, and these wreak havoc with the forecasting models. As difficult as it is for many people, we need to accept that there is a level of uncertainty out there that we cannot enumerate or control, get comfortable with that, and go on with our lives. Better to move forward in more uncertain circumstances than to be rendered idle and unable to act because we don’t know when or how we can have a life again. With respect to our government, especially national and state governments, people and businesses really need a time framework as to when we think we can reopen the economy in whatever capacity. The current open-ended situation must end sooner rather than later.