MoVing Targets...

It goes without saying that the past three months have been Crazy Train as we “safe-distance” through the pandemic. Add social protests and unrest and election year politics to negative oil prices and jaw dropping unemployment numbers and this year continues to be one for the record books.

Through all of this, much of the March Madness market collapse was erased during April and May, as the economic pullback appears to have avoided the worst predictions. We may even get some sports back. As we move into July, matters continue to improve, so far…

That is right. So far. The prognosticators are trying to hit a moving target. Markets are down, then they are up. Then they are down again. Same for COVID-19 cases, depending on where in the country you are talking about. At a time when cases appear to have leveled off in some locations, new cases emerge in other areas less punished by the foul plague. So far.

Expect the target to keep moving. V may be for virus, but in the world of markets it stands for Volatility. Markets will likely make exaggerated moves in direction both up and down, depending on the news cycle. What can be counted on is that we will emerge from the present situation. Combining improving treatment options, potential herd immunity, and an eventual vaccine, at some point the virus will become last year’s news.

I have recently been making a habit of looking to the sky daily. When the pandemic took hold four months ago it was notable that the sky had no jet contrails – it was like something out of a science fiction movie and reminiscent of non-existent air travel after 9-11. I have started listening for the sound of jet take-offs from the airport beginning at 5am and can report that there is a slowly growing number, with a few more contrails in the sky, every day.

The Federal Reserve Bank of the Galaxy

A frequent question we have received regards the long-term implications of the recent Federal Reserve Bank monetary actions in support of the economy and the COVID-19 spending programs. I wish this were a joke, but until we find Buzz Lightyear and the alien banking syndicate, the US Federal Reserve has proclaimed itself to be the First Bank of the Galaxy. To support government spending to infinity (and beyond) the Fed is buying Trillions of dollars of US Treas-ury and non-government securities. Deficits are of no consideration when we must save the universe.

Fear and politics will continue this digital dollar spree. Let there be no illusions here, this money was not sitting in a vault somewhere – it is “issued” by the Fed. What that means is they send dollars to a seller in exchange for the bond. I call it Dialing for Digital Dollars, backed by the full faith and credit of Uncle Sam, of course.

So, what may be the long-term implications of this? There is a deep unconscious unease that this cannot be a good thing in the long run. The entire world of central banks is addicted to digital-dollaring, with no end in sight. Until now, technologically induced deflationary pressures have limited the impact of inflationary monetary practices.

At some point deflation may be yet be overwhelmed by inflationary forces. A scarce labor force is being asked to support a growing retired population. As recently as this past January the US unemployment rate was 3.5% in a full employment economy. Many of those jobs are now on hiatus, and some will be eliminated. However, the baby boomers are also hitting maximum retirement years, and at the same time US
deficits are exploding.

Labor costs will eventually have to rise, as will taxes. This could take several years depending on the severity of the present downturn, but it will happen, especially in a world with a declining birth rate. Technology will keep commodity prices down, but labor scarcity and lack of monetary discipline have the power to drive inflation resulting in real income and wealth destruction. We remain focused on identifying the change in these competing forces and investing around them.

And everyone expects interest rates to remain very low, for a long time.

Feverish Implications

The COVID-19 recession has accelerated many long-term trends in the economy. The most glaring of these is the consolidation of retail industries, as older firms (the dinosaurs) declare bankruptcy at a faster
pace. More warehouses and fewer stores, as Amazon, Wal-Mart, and Target take over the retail world.

Work from home edicts have introduced millions of workers and their employers (including us) to the many advantages of more flexible work options. The use of videoconferencing reduces cost and stress of travel, requires less commercial office space, and smaller corporate headquarters, with related impacts on commercial real estate.

Online banking shuts branches and lowers costs for the industry, at the same time bank revenue is depressed in the low interest rate scenario. The implications for the financial sector are many, and uncertain. Expect consolidation and mergers.

Telemedicine, now a requirement in a plagued world, is evolving exponentially with more and better technological solutions being rolled out daily. Zoom your doctor!

40 years of globalization appear to be reversing. Trade tensions are rising and not just because of politics. The push is on to bring industries home as technology displaces workers from some sectors, and the advantage of local production becomes a defensive necessity. The production by China of 90% of our
antibiotics is just one example of this.


One of the biggest spreaders of the virus appear to be young people partying without masks. I say good luck with changing that. I remember being young, invincible, and knowing everything, decades ago.
Some things about humanity will never change.


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