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Reasons to be Fearful, Reasons to be Cheerful, Part 1

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Reasons to be Fearful, Reasons to be Cheerful (in three parts)

Aug 17, 2020


With all the fearful events of the last six months it was refreshing the other day to hear Ian Dury come onto my Amazon playlist singing, “Reasons to be Cheerful, part 3”.  Here is a man who contracted polio aged 6 forcing him live in a body cast for six months and went on to become an international rock star and actor.  I’d like to take some of Mr. Dury’s advice and, with your indulgence, find some Reasons to be Cheerful.*

Part One: Reasons to be Cheerful regarding the US economy.

A Reason to be Fearful:  We are in a Depression

Below is the Sahm Recession Indicator (created by economist Claudia Sahm when she worked at the Federal Reserve) data series from 1960 to present.  The spike is dramatic and the June measure of 9.5 is the highest ever.  

Source: https://fred.stlouisfed.org/series/SAHMREALTIME

Note: The July print of 8.0 is a 16% retracement of the high, this indicator has never retraced this quickly from its high print (a vote for the “V” shaped-recovery and a reason to be cheerful).

A Reason to be Cheerful:  Consider the Marshall Plan

It’s always useful to draw general parallels in times of great uncertainty so how about a period when economic output was absolutely depressed?  Post World War II Europe was in dire straits when the Marshall Plan was enacted.  In 1948 the US created $15 Billion in recovery programs which was equivalent to 6% of Total US Economic Output at the time.**

Three years later each participating country had Gross Domestic Product (total economic output) higher than before the war started.

The current US government economic support programs (this is not stimulus, it is support) are close to $2.5 Trillion or 15% of total current US economic output.  This is almost 3 times the size of the Marshall plan with room to grow.  The size and speed of this rescue plan should not be underestimated.

Having said that, a second CARES bill is essential to address the needs of those suffering most in this uncertain time and to send a message to markets that the fiscal authorities will not play politics and dampen any budding economic optimism essential to a recovery.

A Reason to be Fearful:  Viral spikes could hinder this recovery.

The summer of 2020 is on its way out and I’ll hazard a guess it will not be missed.  Covid-19 has wreaked havoc upon the economy and upon this society.  Below is the graph of reported daily US infections for the year 2020.

Source: Johns Hopkins Coronavirus Resource Center: https://coronavirus.jhu.edu/map.html

We could post all kinds of graphs about this indicator and that indicator but Jim Bianco of Bianco Research (an excellent Chicago-based analyst) said it best in late July:

“The best economic indicator is the number of Covid cases”. ***

A Reason to be Cheerful: Viruses tend to dissipate, and economic activity can then return.

With that in mind I’d like to take you back to March of this year when scenes from another Covid-affected country were particularly distressing; Italy.  What’s happening in Italy today?

Source: Johns Hopkins Coronavirus Resource Center: https://coronavirus.jhu.edu/map.html

From a high of 6500 per day in March, infection rates have plummeted to below 1000 per day in May, below 500 per day in June and have stayed near that level since then. Did that coincide with a pick-up in economic activity?  Here’s Italian Retail Sales (month-over-month change):

Source: https://tradingeconomics.com/italy/retail-sales

March and April Italian Retail Sales were down 21% and 11% respectively, then along with viral dissipation came a strong rebound of 24% in May and 12% in June.  This leaves June sales at only 97% of February’s gross number but that is quite a respectable climb back.  That’s a recessionary, not a depressionary, level of economic loss.

In comparison the societal lockdown in Italy has been super-stringent and there is no certainty that US infections will taper off as quickly, but this does illustrate that, over time, viruses dissipate and with that downturn, economies have tended to bounce back rather quickly.

Already US personal consumption, a wider measure than retail sales, bounced from annualized rate of $14.8T in February to $12Trillion in April and back to $13.8T in June.  That’s an impressive rebound, but we are still 7% below February’s PCE which is still a depression-level loss of economic activity.  But considering if the infection trend shown in Italy proves out in the US we could see an impressive rebound in consumption.

Source: https://fred.stlouisfed.org/series/PCE

Is there any certainty to this prediction?  Quite frankly no, and anyone who claims to know with certainty how the next chapters will unfold is lying to you.  There are tremendous dislocations in the global economy and real distortions in financial markets, the question is what to do about it?

Haddam Road operates with a Three Question Focus:

  • What is going on in the economy?

  • What is going on in the financial markets?

  • How do current economic and financial conditions affect HRA clients’ lifestyle, investments, and well-being?

Reasons to be Cheerful part One touched on the first question, part 2 will look to address general financial conditions, and part 3 will ask, how does this all affect your money and is there potentially a Cheerful time ahead?

Remember the Spanish Flu Pandemic started in 1918 in the middle of a World War; three years later the war was over, the pandemic was over, and (after a post-war recession) the stage was set for the Roaring Twenties.  I’m not saying run out and buy a flapper dress but, in the midst of this current distress, realize that things happen in cycles, and good can come after bad.  

Change Happens.  

I enjoy working with clients who want to understand their finances and be actively involved in shaping their future.  Please contact me if you have any questions or comments.


Brian Kearns, CPA
 Haddam Road Advisors
Financial Planner / Portfolio Manager
 1603 Orrington Ave  Suite 600
 Evanston, IL  60201

Ph: 312 636 3067

NOTE:  This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing.  One cannot invest directly in an index.  The views expressed are those of Haddam Road Advisors and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates.

Investment advisory services offered through Mutual Advisors, LLC DBA Haddam Road Advisors, a SEC registered investment adviser. 

 * “The juice of a carrot, the smile of a parrot, a little drop of claret, anything that rocks….why don’t you get back into bed?

** https://www.britannica.com/event/Marshall-Plan ; https://fred.stlouisfed.org/series/GDP

*** Bloomberg TV July 24, 2020

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