The Final Puzzle

As I alluded to last week, I wanted to go down the rabbit hole that is on everyone’s mind in terms of the economy:

What does a recovery look like?

More than likely, you have probably heard references of V, W, U, or L shaped recoveries on news programs over the past couple of months. Perhaps so much so that at any moment you expect Pat Sajack to appear and ask for 3 more consonants and a vowel…

No folks, its not the Wheel, but rather how the economic recovery is being described.

In fact, there is even a case being argued that the recovery will look like the Nike Swoosh symbol. And no, this wasn’t influenced by watching the Last Dance-Michael Jordan documentary over the last 5 weeks.

My hope is to try to make a little sense of it all for you.

So for your viewing pleasure, the charts:

The opinions voiced in the attached articles 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.

What do the charts show us?

Essentially, a prolonged shutdown will increase the likelihood that it takes the economy longer to get going.  For instance, if states stay in Stage 1 for most of the year, I believe a U shape is more likely.  Starts and stops are as good for the economy as your neck while driving with a first time driver – the results in that scenario lending them towards more of a W-shape.       

Which shape do I think our recovery will look like?

Honestly, that’s the million-dollar question.  My personal opinion is that we are somewhere between a W and U.  However, Campbell Harvey, Professor at Duke University, lays out some interesting points and ones that I am not inclined to necessarily disagree with.  According to Professor Harvey, he ranked the following scenarios during a recent presentation to the Darden School of Business at the University of Virginia:

V= Optimistic

U= Base Case

L= Pessimistic

With his ultimate conclusion that he believes a combination of the U and V shape (a skinny U, think of a test tube) will be most representative of the recovery ahead.

So what is going to dictate the type of recovery the economy enters into?

This is not necessarily in order of importance:

• Consumer Confidence.  This is a two headed animal.  First, it will be driven by your job security.  Second, health.  Once we start seeing Phase 3 re-openings and whether or not cases increase and the severity of them, this will go a long way in easing people’s minds. As Dr. Harvey alluded to in this article: “The point is that you can see a credible scenario for the end of this,” he said. “Even if it’s a partial deployment, even if people just understand, OK, we’ve got the vaccine, that’s going to change behavior. The psychology of this is pretty important.” 

• A Vaccine or Robust Treatment Toolbox.  If medical professionals and researchers are able to increase mortality rates, this will help #1.  This week has been another example of the hope a vaccine carries with it.  I was as shocked as anybody to see the data emerge from Moderna’s phase 1 clinical trial, but I view it with guarded optimism. Below shows some of the major partnerships that have been established in the search for a vaccine, of which there are over 100 in development.  However, with that optimism comes the reality that only 19% of all infectious disease vaccines make it from Phase 1 to full development, based on data from a 2015 study, .

• Government spending. The government has poured what feels like a ton of money into the economy.  However, when you look at our response compared to Germany’s, it is only a fraction of what they have injected.

Why do I feel this way?

This is really a two-pronged answer: First, the tribalism that exists in our country right now is downright scary.  I believe that there will be constant pressure on elected officials to re-open areas before they have necessary precautions in place and this could lead to flare ups in cities and strain medical systems, which could result in stopping things again.  Second, if a vaccine is developed, I will equate it to a match being lit in a fireworks factory, and the impact it will have on the markets…in a good way.  There is just so much money being poured into the economy, the propellent is there, it just needs a spark.

Professor Harvey may have identified that spark, (and one I am keeping a close eye on now because of his insights), which is the partnership between AstraZeneca & The University of Oxford Jenner Institute.

When I corresponded with Dr. Harvey about why this particular partnership showing more promise than say the Moderna program, he shared with me some interesting information.  Specifically, that the Jenner Institute has worked on coronaviruses before, and that their vaccine in trial is similar to another vaccine they have already had in trial.

Putting this all together…

As you can see, the data surrounding this topic is plentiful and can easily overwhelm anybody.  That’s why I wanted to dedicate some time to this post, to really try to break it down, and share the information I have learned through various sources.  When put together, I think it paints a picture that, while we are not out of the woods yet, there is, as I have been telling you for weeks now, reason for optimism.

And while we have this veil of uncertainty still lingering over us, there are steps you can take in order to take control of the situation.  A few of them courtesy of Drs. Brad & Ted Klontz:

  1. Remember the Past. For some, this may be your first bout with this type of uncertainty.  Think of how you felt in March and look at where we are now.

2)    Spend 5 minutes a day visualizing your goal: Doing so equates to a 25% savings rate increase.

3)    Automate your savings: Those that automate their savings have a 30% increase in their savings compared to those who do not.

Wishing you all a Happy & Safe Memorial Day!

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