recovery

The Pain Up Close and the Big Picture

© Can Stock Photo / PongMoji

This is personal.

I was visiting with a client the other day about the inevitable rebound to come in our economy, and the opportunities that are developing now. The conversation turned to concern for those we know who might not survive a COVID-19 episode, and the grim scenes and stories from tragically overburdened hospitals.

It was a reminder, again, of the duality of our existence.

On the big scale, it is almost mundane. Demographers estimate that 108 billion humans have been born in all of history, and 100 billion of us have already died. Death comes to us all. It happens to everyone.

Yet when you get down to cases, what could be more unique or personal than our experience of the loss of a friend, lover, parent, brother, sister?

It may seem impersonal or cold to compare a projected death toll from our current troubles to some past pandemic, to talk about economic recovery and market rebounds. But we have to think about the big picture in order to make plans for living. We need to avoid emotional reactions to issues which would benefit from reasoned consideration.

I am only going to say this once. I feel the pain up close, intensely. Less than a year ago I learned first hand what happens when the ventilator loses the battle to keep a person alive.

I’ll not be apologizing for trying to figure out how to make the most of what we have to work with. Cathy wrote me a note in her last hours. It said “You have a lot of wonderful life left.” That’s the big picture. 330 million of us will survive the virus in this country. We have a lot of wonderful life left.

We need to feel our feelings about the pain up close. But we owe it to each other to think our thinking in the big picture.

If you would like to talk about the big picture or anything else, please email us or call.

The End of the World Portfolio

© Can Stock Photo / twindesigner

We live in trying times, a recurring feature of our existence.

Our entire investment philosophy is underwritten by a simple fundamental belief: tomorrow will be better than today. We can’t know that this will be true of every single tomorrow, but we’re pretty sure about the long term trend.

Though they say that “past performance does not guarantee future results”, human civilization has a track record thousands of years long of resilence, rebounding from crisis to do better than before. We expect it will continue. Without this belief the idea of investing for the future is meaningless.

We know that there are troubles in the world, with the news full of the virus, death and disruption. People sometimes feel that the latest bad news signals imminent total catastrophe. This isn’t anything new–people have been predicting the end of civilization for the entire span of human history. Yet somehow we’ve always rebounded all the same.

If the most dire predictions ever do come to pass, it isn’t going to matter what investments you own. Your meanest neighbor will be trying to steal your canned goods. So the ideal portfolio for the end of the world is the one that will serve you best in the event that the end of the world fails to show up—again.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

What Comes Next? Three Paths

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Psychologist Shawn Achor wrote about crisis and adversity, recurring features in both the markets and life. Stuff happens, as they say.

Achor says there are three alternate mental paths in the aftermath of crisis.
The first one leads nowhere. We simply expect the crisis conditions to continue. The second one leads downward to more trouble, a continuation of the trend. We humans do tend to believe current conditions or trends will continue.

Finding the third path is difficult when times are tough. Many people do not see it because they do not believe it exists. The third path leads from the challenging conditions to greater strength, capabilities, opportunities and success. Think of it as falling forward.

Studies show those who conceive of failure as an opportunity for growth are more likely to find the third path, and experience that growth. Others have talked about the same concept with words like resilience and grit, or more vividly, post-traumatic growth.

We see this pattern in the investment markets. Although historically the stock market has recovered sooner or later from every downturn, some investors do not recover. Those who can only see the first two paths have a hard time staying invested. If they sell out at low points, believing the crisis conditions will continue or worsen, what might have been a temporary loss becomes permanent.

By the time they see the third path, the market may have already recovered. Their diminished pool of capital can only get reinvested at higher prices, perhaps to repeat the cycle of crisis and loss.

Fortunately, here at 228 Main you clients tend to have productive attitudes toward investing. You can see the third path, which is a big advantage. If you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

About Those Good Old Days

© Can Stock Photo / Chuckee

A client recently expressed a desire to return to the good old days, when we didn’t have all this turmoil and trouble. Wouldn’t we all like that?

But we human beings have some quirks. One of them is the universal sense that, back in the misty past, things were normal, or stable. This idea may not stand up to scrutiny.

If we confine our study just to the economy and markets, the history we’ve lived through has this to say:

1. In the early 1970’s, a mania centering on big blue chip stocks hit the market. It was thought that you could just buy them at any price, and own them forever while they went up and up—“one decision stocks” they were called. Prices ballooned to extremely high levels. The major stock market averages peaked, then sold off more than 50%1.

2. The 1970’s also saw a pair of Arab oil embargoes that resulted in spiking gasoline prices, shortages, gas stations out of gas, and rationing. Over the course of the decade, inflation rose, eventually going over 10%. Unemployment went over 10% in the mid-decade recession2.

3. The early 1980’s began with back-to-back recessions, 15% mortgage interest rates, and inflation at unprecedented levels. The unemployment rate went over 10% again. Long term bonds declined in price as interest rates rose. A mania in oil stocks that began in the 70’s ended badly early in the decade3. The biggest one-day plunge in the Dow Jones Industrial Average ever—22% in a single day—happened in 19871.

4. The 1990’s began with the cleanup from the savings and loan crisis. The Federal deposit guarantee fund had gone broke, along with thousands of financial institutions. The value of housing, which began to fall nationwide in the late 1980’s, didn’t recover until 19924. The bond market suffered its first annual loss in seventy years in 1994.

5. Clients, most of you remember the bursting of the tech bubble in 2000, the attacks on 9/11, and the so-called Great Recession of 2008-2009. You already know the fine points; it was not good fun for investors.

6. The current decade, free of recessions so far, has had a lot of ups and downs. The downgrading of US Treasury debt and the recurring Greek financial crisis were two of the main events. The zero-interest-rate policy of the Federal Reserve distorted prices in some sectors of the investment markets, some observers believe.

The resilience of the equity markets over these many decades is astonishing to us. We had all these challenges and issues, and somehow the country came out on the other side, every time. We suspect this general trend will continue. The problems of today will give way to solutions– and new problems–tomorrow. That seems to be how it works.

In the meantime, financial strategies that have worked through the decades may be the best way to approach the future. There will be winners and losers in every change and challenge. We may not be able to get back to those mythical good old days, but we can make the most of what we have to work with.

Clients, if you wish to discuss this, or your situation, please email or call.

1S&P Dow Jones Indices, https://us.spindices.com/indices/equity/dow-jones-industrial-average

2Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Unemployment and Inflation

3Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Oil Prices

4Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Housing Prices


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

Slow Burn

© Can Stock Photo Inc. / cafaphotos

We are now in the 7th year of economic expansion and recovery since the last recession. Many commentators insist that after such a long stretch, the next recession must surely be right around the corner. Of course, they’ve been insisting this for the past 7 years–remember the term “double dip”? The recovery didn’t make it a full year before people started predicting its demise, and now here we are seven years later.

Part of the longstanding skepticism surrounding this market cycle is grounded in the weak performance of this expansion. It’s been a long, slow recovery since the recession started in 2008. In a lot of people’s minds, those two things don’t go together. They think, “The recovery is going slowly, so it must not have enough fuel to keep going for very long.” There is a certain intuitive appeal to this way of thinking. We tend to see something moving quickly as having more momentum, so it would take longer to come to a stop.

The economy doesn’t really work in terms of “momentum”, though. Instead, market cycles tend to be driven by sentiment. In a normal expansion phase, optimism feeds into faster and faster growth, eventually creating a bubble. When the bubble finally pops at the height of its exuberance, values plummet and the economy is likely to plunge into recession.

You can think of it in terms of an out of control fire. The bigger it gets, the stronger it gets—but the faster it burns through its fuel. A raging conflagration will consume its fuel and die down to embers faster than a more contained fire.

In this analogy the current economic cycle has been a slow, cautious burn. The fire is burning away quietly but hasn’t really erupted into a general blaze—pessimism is widespread and we haven’t really seen the kind of manic stampede that marked the last days of the previous few expansions.

We never know how much fuel there is left for our “fire.” The expansion must eventually run itself down, but this may be a matter of months or days or years—we can’t be sure. However, we view the slow pace of recovery as an indicator that there may be a good bit of fuel yet untouched.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.