Thoughts from the Frontline

This is a short midweek note, something I haven’t done for years. But as we all know, these are very special and difficult times.

I write this letter early Friday morning after a week in New York visiting with many fellow market participants. And lots of phone calls, both to analysts and medical experts. I had originally planned a completely different letter but circumstances changed.

In baseball, there is a kind of pitch called the “changeup,” designed to look like a fastball while actually going slower. The deceived batter swings too soon and misses. Strike, you’re out. The world has thrown a wicked biological changeup at the global economy.

For the last 3+ years, I have maintained it would take an “exogenous” event to send the United States into recession. Historically suboptimal growth? Sure, but sub-3% growth isn’t a recession.

As I write this, a self-proclaimed “democratic socialist” is leading the race for one of our major parties’ presidential nomination. The fact that so many Americans (especially young Americans) support Bernie Sanders ought to tell us something. A Quinnipiac poll out this week showed Senator Sanders with 54% support among Democrats age 18–34. Meanwhile, 50% of adults under 38 told the Harris Poll last year that they would “prefer living in a socialist country.”

The welfare of a nation can scarcely be inferred from a measure of [GDP].” —Simon Kuznets (who developed GDP), 1934

Economists and investors are rightly obsessed with growth. We always want more of it. We worry it won’t come or, worse, might turn into contraction. Economists of all stripes, from Paul Krugman to Lacy Hunt, recognize economic growth cures all manner of ills.

Regular readers know I often criticize so-called “experts,” usually economists or central bankers whose flawed decisions are punishing the rest of us. I find their expertise is not nearly as reliable as they seem to think.

The human brain excels at taking shortcuts. Processing all the information our senses collect takes a lot of energy, so repetitive data gets lower priority. Things we see often fade into the background so we can notice new stuff.

We haven’t had a lot of good news lately. Or, more precisely, we haven’t seen a lot of good news lately, though it does exist. We don’t see it because both regular media and social media usually focus on the bad.

If living dangerously is your goal, just keep adding reasonable, manageable, prudent risks. Eventually they’ll add up to serious danger.

Welcome to the 2020s. Some weren’t sure we would make it this far, but we did. Now we face a new decade and new challenges. How we handle them will determine what kind of conversation we have in 2030.