Giving Thanks . . .

November 20, 2020

Imagine being told in late December 2019 that the world would be hit by a global pandemic on a scale not experienced for 100 years. Imagine being told the world would suffer a sudden and sharp recession, including the largest single-quarter decline in economic activity since the Great Depression. Imagine being told there would be government-imposed lockdowns and quarantines of businesses, schools, and social venues; and that the US would suffer more than a quarter-million deaths. Imagine being told that the US would also face a historic test of its democracy; that social unrest and protests would sweep the country; and that life as we know it would inalterably change.

As an investor with that knowledge, what would you have done? It is a sobering thought.  

As I write this, the S&P 500 is up 11% year-to-date and the All-Country World Index (ACWI) is up 10% — both not including dividends.  And just ten days after the most bitter and contentious US Presidential election in memory, the S&P 500 closed at an all-time high.

Yet, also as I write this, case counts are again soaring, hospitals are straining, and cities and states are ratcheting up restrictions and closures. The “second wave” that was predicted is just beginning to manifest as we head into the most social of holidays, Thanksgiving, and begin the “long, dark winter.” Headlines will once again turn dire. The internet and media will once again swell with Armageddonist predictions.  In his 2011 book, “Thinking Fast and Slow,” Nobel Prize winner Daniel Kahneman described how human brains and our perceptions are evolutionarily hardwired toward a negativity bias. Less well known, but even more fascinating than Kahneman’s work, is research by social scientist Stuart Soroka who: 1) Demonstrated the inverse relationship between magazine sales and the positivity of a magazine’s cover; and, 2) Authored a 2014 experiment in which a city newspaper lost two-thirds of its readers on a day when it deliberately published only positive news.

So, as we head into the holiday and begin the race toward 2021, here are some different angles to consider for which we can give thanks:

  • Our adaptability, resiliency, ingenuity, and indomitable spirit is awe inspiring. In record time, two vaccines with more than 95% efficacy have been developed – with dozens more certain to follow. The synergy of technology, science, and medicine has reached new heights. When C19 is in the rearview mirror, expect this new, paradigm-shifting engine’s attention to turn to other diseases – changing the future of healthcare and humanity.

  • The 2020 elections yielded the highest turnouts in history and unequivocally demonstrated that Americans of all political stripes treasure our democratic process and the rule of law. Much of the uncertainty plaguing the nation’s consciousness (elections, Supreme Court, policy) has now more or less passed. An incumbent President was defeated (a rarity), a “Blue Wave” did not materialize, and “unaffiliated voters” are now the largest swath of the electorate by a HUGE margin. The message of all this is unambiguous. Americans are centrists, skeptical of politics, and desperately want their elected officials to stop bickering, lead, address the challenges of the nation, and to do so in a bi-partisan manner. And keep in mind that, based upon performance data from 1936-2019, US markets averaged +6.7% per year (total return) during the 1st year of a 4-year presidential term. Next year (2021) will be year #1 of a 1st-term Biden administration.

  • The US and world economies continue to heal. Payrolls continue growing, unemployment claims are trending lower, and key measures of retail sales and industrial production continue their upward trajectory. Yes, thousands (163,735) of businesses have closed their doors, many (97,966) permanently (source: Yelp Economic Average). Yet, 3Q20 also saw an epic surge in new business creation, with over 1.5 million new business applications in that 90-day period alone (source: KC Federal Reserve).

  • Finally, a double-dip recession, while always possible, is unlikely. Think about businesses built around people commuting to work or leaving the office and going out to lunch; those operations have already shrunk substantially, putting another decline of that magnitude virtually out of the picture.  Meanwhile, consumers have shifted their spending, generating jobs elsewhere.  For example, home improvements are on track to hit a calendar-year record high in 2020.  Housing starts will be the highest for any year since the 2008 housing crash more than a decade ago. Warehousing & storage jobs are at a record high, as are courier and messenger jobs. We have learned new ways to live, work, and connect that will transform business and society.

Back in Spring 2020, when markets were reeling and dark clouds seemed all around us, I posted blog updates on March 1, March 12, March 18, March 22, and April 1 underscoring the general message that, “Optimism is the only true realism. It’s the only world view that squares with reality and the historical record.” We took some heat for those posts and understandably so. The fear was palpable and the situation ominous – not unlike today.  The discussion above is not intended to downplay the gravity of these situations or dismiss these concerns. Fear, uncertainty, and anxiety will always be there and rightfully so.

But we can still be thankful and give thanks. As Marcus Aurelius said, “You have power over your mind, not outside events. Realize this, and you will find strength.” We can give thanks for progress. We can give thanks for resiliency. We can give thanks for real patriotism. We can give thanks for first responders, front line workers, our families, neighbors, friends, and communities. We can give thanks for pulling together and knowing that better days are ahead. We at BSW give thanks for our teammates and for our clients – who stuck with us during these strange days and trying times. It is a privilege to work with such remarkable people. So on behalf of all of us at BSW, our sincere and warmest regards to you and yours this Thanksgiving.

David Wolf, CEO