Notes on the Week Ahead

There was a time, long before GPS or the need to select the accent of the artificial being that would bark driving directions at you, when people consulted road maps. On trips abroad, my wife, Sari, who’s more gifted with fast reflexes than geography, would take the steering wheel while I would unfold an oversized map on my lap, crinkling and tearing at the seams. However, as we buzzed along the road, no matter how urgently Sari would request information, there was always one unavoidable step in providing directions – namely, to first figure out where the heck we were.

A few years ago, just when I’d started training for a big race, I strained my Achilles tendon.  Being an Irishman, I couldn’t, of course, bring this evidence of age and infirmity to the attention of an actual physician.  However, I consulted the oracles of the internet and they were, for once, very consistent in their advice:  “Wait a few days until the pain has faded and then work steadily on ankle strengthening exercises.  Most importantly, lay off running for at least 3 weeks.”

It always requires discipline to look beyond the next few weeks and months and take a long-term view. In the short run, investors remain focused on election uncertainty and how the once-again worsening pandemic, combined with stalemate over further fiscal stimulus, threatens to dramatically slow the pace of economic recovery, following a strong third-quarter bounce.

Turbulence defines today’s investment environment, with great waves of uncertainty surging from the pandemic, the election, fiscal policy and a slowdown in what had been, to this point, a sharp recovery from a very deep recession. But amidst the tumult, investors should not neglect the crucial role of interest rates. The waves of uncertainty should fade in 2021 and, as they do so, the primary role of interest rates in determining asset class returns should reassert itself.

For most Americans, November 3rd can’t come soon enough. U.S. presidential election campaigns are always hideously long and this one has felt particularly painful, with such a deep divide between the supporters of the rival candidates.  However, recently there has been increased speculation about the grim possibility of the election outcome being contested.  Quite apart from the further division this would inflict upon our bruised democracy, many investors are wondering what this could mean for the economy and markets.

For most of the last 40 years, the United States, like most developed economies, has suffered from a lack of demand for goods and services. This has contributed to a steady slide in inflation. More importantly, it has indirectly triggered recessions by funneling money towards assets, feeding bubbles which have inevitably burst. A lack of aggregate demand has also slowed the recovery from those downturns, inflicting hardship on millions of workers and small business owners.

This week, I, like about 20,000 others, will attempt to complete the virtual Boston Marathon.  I had signed up again with the Dana Farber Marathon Challenge team to run it in April, after a rather ragged performance in 2019.  But then the race, like so much this year, first got postponed and then went virtual.  And so, next Saturday morning, I will nervously walk out my front door, turn left and jog off, on my own, into the dawn’s early light.

English, as spoken in Ireland, is full of colloquialisms, phrases which are plain and clear to the local population and entirely mysterious to visitors.  Of course, Irish people don’t realize this and, over the years, I’ve become used to the bemused smile of Americans who clearly hear what I say but, equally clearly, have no notion of what I mean.

Washington Hawks flourished in the late 1970s and 1980s, when deficits and inflation were seen as significant threats to the nation. However, their numbers have dwindled in recent years due to persistent low inflation and the rise of populism. The current pandemic recession appears to have dealt a death blow to the species and its traditional habitat has now been taken over by swirling flocks of red and blue doves.

The title of these weekly articles often starts with, “The Investment Implications of…..” This is usually appropriate since almost all big issues have investment implications and the focus of these articles has always been to see the investment environment with clarity.