The Great Reopening Begins, And It's Going To Be Messy
Summary
- With some states starting to open, how will the economy rebound? Let's take a look.
- The new normal might be more adopted than you think.
- While the data is grim right now, we might have an equal surge at the end of this.
- I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »
Modern economics is a set of formal models and equations purporting to fully determine human behavior, at least in the economic realm. And there is no way that uncertainty can be compressed into determinate mathematical models.
– Murray Rothbard
This week, we will start to see some state economies begin to open, for better or worse. The big ones to talk about are that some retailers are set to open in Alabama and Texas with capacity restrictions in place. Simon Property Group (SPG) is preparing to open 49 of its malls and outlets alone. However, the psychological effects of this are going to be immense and need to be considered. While there will be many citizens who opt to stay home instead of going to the malls, there will be plenty of others who are mentally anguished at home and will not be able to stay away. Why, in the face of a pandemic, would those risk their health to go shopping? The answer might be ingrained into our brains far deeper than once thought. 
Source: CNBC
Before we get into the psychology of being together, while there are some reasons to be worried about a slow restart, adaptation may be faster than expected. This is probably adding to why economists are projecting a massive rebound as the economy restarts. The Federal Reserve is at our backs here, noting that it will not pull back stimulus and that the recovery can be "quick" and "robust." With fiscal and monetary spending at incredulous rates, not just locally but around the world, the gas pedal is to the metal right now. And it's not going to stop, even if things return to a semi-normal state, until full employment and/or inflation increases unexpectedly. Don’t underestimate this Fed – it has taken steps never taken before, in doing things like buying junk bond ETFs in order to provide liquidity. There may be more up the Fed’s sleeve. This could give a boost to stock markets and the economy. But, mostly stock markets, especially if it considers buying stock-based ETFs, an idea floated by former Fed Chair Janet Yellen recently.
I came across a great research article that I won’t be able to do justice to. On TRENDS in Cognitive Sciences, “Why rejection hurts: a common neural alarm system for physical and social pain” talks about how “in mammalian species, the social-attachment system borrowed the computations of the pain system to prevent the potentially harmful consequences of social separation.” They argue that physical and social pain overlaps in the brain, causing some of the same effects. I recommend reading the report in full instead of taking my word for it – I'm not a scientist. My takeaway, however, was that humans adapted over time to overcome pain by being social creatures, and things like a lockdown can be harrowing for many people. They used the example of having “hurt feelings” or a “broken heart” as part of the evidence that humans are, indeed, feeling pain from non-physical activity, but much in the same way. Evolution’s solution to this pain was, essentially, to hang out with friends. A social connection, as they put it, will help ease these pains. So much so that it may have “unintentionally produced a lifelong need for social connection and a corresponding sense of distress when social connections are broken.” Economists should take note. While some are expecting behavioral reactions to reopening to be slow, it might be faster than expected to adapt to the new social norms. That's why I updated my profile picture in several of my social media places to have a facemask – not to be glib about the pandemic, or to poke fun. Because I genuinely think this will be a new normal, and I want society to start adopting the new normal so we can get back to it, and as soon as possible. My social connections are broken, and I'm in distress! I think most feel the same.
Look, the economic data right now is grim. The stock market is not, but that's a fiscal and monetary stimulus boost more than anything. In total, 3.8 million more people just filed for unemployment claims, bringing the rolling coronavirus total to over 30 million people, or 12.4% of the U.S. workforce. GDP shrank 4.8% in Q1, ending the longest economic expansion in U.S. history. Q2 might not be that much better. There's light at the end of the tunnel, and it might be brighter than most think. We are social creatures, and we have a lifelong need to be with others. Having a facetime (AAPL) or Zoom (ZM) chat only does so much neurologically, as does a fleeting purchase on Amazon (AMZN). We have an underlying need to connect with people in person.
Given the psychological factor, it will be interesting to see how fast everyone gets back to work, back to consumer spending, and if we get the snap-back in economic activity that many predictors are making. I think it will be remarkable to see how strong people can be. Look at what happened after major crises in our country. People came together, and we came out stronger on the other side, more united. The Fed also is clearing a ton of runway right now. The government is keen to keep companies from failing, for better or worse. The adage of “don’t fight the Fed” is clear, and has a great track record – so why bet against it now?
Until conditions in the market change, I think you must be invested here in the stock market. It is one of the assets that provides upside in this environment, even with a sharp recession. At the end of the day, this is going to be a battle. There have now been more deaths from the coronavirus this year than in the Vietnam War. There will be more ugly comparisons like this every day. Warren Buffett said it best at his annual shareholder meeting, which took place online this year: “I remain convinced, as I have – I was convinced of this in World War II, I was convinced of it during the Cuban Missile Crisis, 9/11, and the Financial Crisis – That nothing can basically stop America.”
I think this is a great challenge for our economy, but one that we will overcome. And if you are an investor, buy companies that have come back to levels that you wanted to buy them at in 2018 or 2019. Or buy a passive index fund that gives you exposures you want. Selling them, or shorting them, is betting against science, a Fed that's using its monetary cannons, and a government determined to support its citizens. That's not something I am about to do. Once the momentum comes back into the stock market, it's hard to stop as everyone else starts to pile in. I would say a rally of 26.5% off the lows constitute some good momentum. I think the conditions are right for this to continue over the short term, and long-term investors need not be worried – America and the world will come out more innovative, more efficient, and stronger on the other end of this.
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Comments (74)
2. carry hand sanitizer.
3. maintain practical social distancing.
4. stay home if you have symptoms.
5. stay home if you are high risk.Otherwise, GET BACK TO WORK, AMERICA!
1.- You don't have family members sick in the hospital.
2.- You don't have family members who work in the medical industry.
3.- You lack of empathy.
reckoning. I can afford to miss out on a little upside. I can’t afford a 35% loss .
I get that stock market right now is almost unstoppable or it may continue to have that bias in the short term. But make no mistake about it that payback will come in a few months when the true extent of global damage is revealed maybe during July/August timeframe. Just think the common sense, entire monetary and fiscal bodies in the developed world have thrown everything and kitchen sink at this problem. Are they that stupid to not know that this will be a painful and slow recovery? In the end, it may not be enough actually and the global financial system will take a structural hit due to EM/Europe/Asia issues.
I don't blame the initial excitement though. Spring is in the air and people are fed up of monotony, I personally made some trip to the grocery store and carry out place. People definitely seem excited and eager and some over-eager and ready to get past this "bump" in the road especially young ones. But we just can't just wish away this problem I am afraid. Another fear I have is, did the fed/treasury react too quickly with too much? What if this is just the beginning? spine chilling thought that no one wants to think about. If things were this rosy the greatest investor of our time will not be sitting idle at this time.
But with all that said, hopefully young ones and hopiumist can pull us out of this crisis.
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Low death rate.
.
Fines for breaking mask laws.
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In schools clear acrylic sheets separated students
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Each and every person temperature checked before entering schools.
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Work continued.
.
Unemployment
of millions avoided.
I think I've heard that somewhere before. I just can't place where it was.First it was a deja-vu moment then it became deja-vu all over again. Now I don't know what to call it. "The third time's the charm"?
this will be more like your room got BOMBED!
just wait until all the infection and death counts start rising.
politicians will play the "blame game" and the public will be scared
to death and not TRUSTING doctors, media, government.
come to think of it, WHY should anyone trust any of them now???
