Forgive me for indulging in a bit of nostalgia here. I reckon I was born that way, and I find, further, that such tendencies do not tend to abate with time.
One thousand eight hundred and twenty-nine days ago (five trips around the sun – two of which were leap years plus two extra days), they sent us home. Told us it would take two weeks to stop the spread.
They lied, of course. Or maybe they truly didn’t know.
But every now and then, I look back wistfully at those early lockdown innings, when we went nowhere but to the grocery store, and there in a hazmat suit, and, upon return, sprayed down the takings from this risky operation, and baked them in the sun. My daughter, pregnant with her third at that time, became our designated Lockdown Czarina, and she ruled her domains with an iron hand. But all good. My namesake was born healthy on Cinco di Mayo of that year. I suspect that he and all those born during that period will share a lifelong bond as Covid Babies.
Meantime, two weeks has morphed into > 5 years. Have we succeeded? In stopping the spread and with respect to other holy objectives? In some ways yes. In others, perhaps not so much.
Five years later, we can observe a few things. There’s a new boss, but he’s the same as the old boss. The virus has all but disappeared, as have those odious masks and (even worse) gators. And most of the rules embedded in the following set of lockdown protocols are no longer applicable:
We can perhaps all agree that a couple of these diktats transcend the test of time, and, unfortunately, they are the ones that display the least staying power.
No one, for instance and to the best of my observation will shut the F up. Few among us are drinking responsibly. I am indifferent to the fate of legal tender that individuals choose to carry in their socks but will cop to being pleased at the re-emergence of the divine ritual of titty money.
“You cough, you die” was always a little harsh from my perspective – even for the times.
In general, a half-decade later, we have recaptured most of our freedom of speech, assembly and movement, but, I believe, considerable after-effects linger.
Many of us still don’t leave the house. There are fewer parties (or maybe it’s just that I don’t get invited to any), fewer weddings. fewer Happy Hours. We avoid the office like the plague. In short, we shelter in place –not due to government decree, but rather of our volition
We undertake most of our interactions through digital forums and even those must be scheduled. Truly, I never anticipated living within a business/social construct under which one must first reach out to arrange a friggin telephone call, which, even then, must be scheduled a week or more in advance.
Politically – and here we have none to blame but ourselves – we are no longer treated as adults, but rather as little tykes that need specialized parental supervision. There’s the Mama Bear Construct, under which we assured that the bad guys who are out to hurt us will be disappeared and punished, that our boo boos will be kissed away, that we are wonderful, that we have a divine right to do anything we wish with impunity, and that our problems are the fault of others, who will be dispatched with quickness. Then there’s Papa Bear, who can be forgiven for lacking patience for any of this, because all he cares about is to secure and expand his own authority.
Both options are, shall we say, sub-optimal.
And our inertial loss of mojo seems to me to have infected the investment universe.
We still invest, in fact energetically. But only on near sure things. The Gallant 500 is indeed up ~200% over the past 1,829 days, but could this possibly have happened without the printing and distributing of untold trillions of newly minted Benjies? Hardly.
But the Fed ain’t printing now or buying Treasuries. In fact, quite the opposite.
On the other hand, as was the case back then, we have impeded trade flows. In ’20, it was transport restrictions. Now, it’s punitive tariffs. Each is dilutive to earnings and economic health. The cost of goods and services increase. Economic agents spend less. Corporate profits drop.
And always prescient prognosticators are noticing. Here, I’ll must bust out yet again those GDP models, but just to mix things up, I’ll post Q1 earnings projections by its side:
I don’t have much faith in these figures and would hasten to point out that the Street Consensus for GDP (depicted by the blue line in the graph on the left) is stable at 2% and if anything, rising.
I would certainly not be surprised if earnings are a tad dinged up when reporting begins (not until April 11), but, given the pullback which I am sure most have observed and experienced, much of this may already be priced into the markets, What worries me more is guidance, as, at present, it is difficult to envision a preponderance of CEOs stepping to the podium to joyfully foretell of business surges they anticipate across the remainder of the year. And God help any who attempt to do so, only to find, down the road, that their articulated expectations to have been overly optimistic.
It’s clear that some ominous factors are driving these Gloomy Gus metrics, and, if one casts about, it’s not difficult to imagine what forms they might take. With diminished mojo as an embedded motif, the specter of enhanced risk aversion in an increasingly risky economy is difficult to ignore. Short term, tariffs and DOGE are likely to diminish economic activity. Which will take a bite out of earnings. Which, in turn, will take a bite out of equity valuations.
Meantime, I fail to see much of a framework for platitudinous Middle America to recapture the economic fortitude they have lost these last 5 years. Is there anything on the horizon that will ease their burdens at the grocery store? In the cost of air travel (when even the iconic Southwest Airlines has caved with respect to baggage charges)?
And, unlike 2020, it is highly unlikely that the Fed will be there to bail us out. I’d in fact be shocked if they do. 5 years ago, they felt they had no choice. But our Central Bank, contrary to long-embraced narrative, is a political organism. Powell has always hated Trump. And the feeling is mutual. The former’s term ends next year, and his chance for re-appointment is about equal to that of Mike Pence landing back in his VP slot.
So, if matters do deteriorate (and I’m not saying they will) as described above, I think the political winds shift back leftward – just as they did in 2020
And if this happens, all this Washingtonian bluster is going to get old fast. I believe, even now, that dozens of Republican Congress members are freaking out, begging the administration to chill out a bit. Because they see that they are at greater political risk than the current narrative would suggest. If negative contingencies manifest, the begging will stop, and the pitchforks will come out. I shudder to contemplate what the markets, and the broader environment will look like if the 2026 election is a 2018 redux.
And this is why I think the environment is so risky and urge my minions to act accordingly.
But I revert to my introductory query: 1,829 days later, have we stopped the spread? Well, one measure of this is the relative performance of the Gallant 500 (SPX) vs. that same army equal weighted, implying no chain of command (SPW). I keep reading that this spread has narrowed, but I don’t see it in the graph:
It looks to me like the new spread is the same as the old spread – if not wider. So maybe it’s time to embrace it. The spread, that is. Yes, it’s taken new forms, but – God bless us – it’s still there.
I will strive to live with it – under one condition.
That titty money remains a valid unit of transfer everywhere business is transacted. Because, while so much of our world is transient, titty money is eternal, and I, for one, will thank Got that it be so.
TIMSHEL