“There come a time, Kemosabe, when a good man must wear mask.”
The Lone Ranger,
I write this as I sit in my home office. It’s not really an office so much as a corner of our master bedroom. I’ve been in this room for the last five days with a few ventures outside – but that’s it. Why am I telling you this? Bear with me. I had a fever, body aches and other symptoms that are early Covid-19 indicators. Of course, I didn’t have many of the others, my lungs seemed fine and I could smell and taste with no problem. I took the online symptom quiz, got qualified to take get a free Covid-19 test and got one late in the afternoon the day after my symptoms first showed up. Other than learning how deep our nasal cavities are, it was a miserable day. I felt really terrible and had convinced myself that I had the Coronavirus and this was just the beginning of a couple weeks of serious illness, if not hospitalization. But then a funny thing happened; I got better. So now here I sit, quarantined in the Master Bedroom until I get a negative test result. Now I know I’m okay, I’m sure I don’t have the Coronavirus but out of an abundance of caution and concern for both my family and those they come in contact with I’m staying put until I know for sure. Could I say the heck with it, shave off this five-day beard and go to lunch out on the water somewhere? Of course, I could, in fact many people are doing just that, and that’s why the economy isn’t going to be able to fully recover. Because too many people, by only thinking about themselves, are actually harming themselves and everyone else.
I really don’t care what you think about mask wearing and I’m not going to get into the argument about it’s “Constitutionality.” Instead let’s pretend for a second that masks, social distancing and the other precautions mandated by various state governments don’t work at all and relate that to this story:
In Paraville people are afraid of killer monkeys that roam the streets at night. In fact, about 70% of the population thinks if they set foot outside after dark without a blue shirt on, the killer monkeys (invisible killer monkeys – everyone knows they’re invisible) will murder you. But it’s not just you that has to wear a blue shirt, if anyone isn’t wearing a blue shirt, that person can attract the killer monkeys who will then, in a feeding frenzy, attack anyone nearby. Now this is preposterous. You know it’s preposterous so you and a group of your friends start going out at night wearing orange, yellow, white and black shirts. The establishments you frequent don’t want to let you in without a blue shirt on, but the hostess at the restaurant is just a pimply-faced teenager and the clerk at the convenient store is making $11 / yr. and just wants to get home without any trouble, so mostly they leave you alone. You also come home every evening, you’re absolutely fine, no monkey attacks. But word gets out about what you are doing and those people afraid of the killer monkeys, the invisible killer monkeys, stop going out after dark. You scoff at these idiots and continue to go out with your friends, for a while. But then you notice the bar you like to go to is closed, so is your favorite restaurant, and then the movie theater. Since you and your friends, who are totally 100% correct about there being no invisible killer monkeys, started going out without your blue shirts the other 70% of the population stopped going out after dark and all the businesses that need 100% of the population to patronize their establishments couldn’t survive on you and your friends alone. And Scene!
I know, not subtle. But this wear a mask/ I don’t have to wear a mask cultural or political divide is really hurting the economy. Most people will not go places unless they feel safe to go. Massachusetts has just opened back up indoor dining with restrictions and expanded some retail stores. If people drive by a store they’d like to visit and see everyone wearing masks and staying as far away from each other as logistically possible, they might stop and go inside. If half the customers aren’t wearing masks those same people are likely to keep driving by and order online. Same with these newly opened restaurants. The recovery of the economy is dependent on people feeling safe to go back to these reopened businesses. You can see it in every commercial; the shoe store, the hotel, the car rental, the window installers – every company wants you to know they’re masked, sanitizing, contactless and everything else. They know you’re not having their service people to your house if they aren’t masked and you’re not going to their store if they’re not sanitizing. But if the other people at that store, or that restaurant don’t do the same thing, it’s all for naught. Every news story about someone’s mask-less face screaming at a grocery store bagger, restaurant hostess or flight attendant is another week or two longer that a vast majority of Americans will wait to go back out to eat or even think about booking some travel. In the very states were the majority of these incidents have been occurring we’re seeing spikes in Covid-19 cases, and those spikes are causing stores to shut back down, cities to reimpose some closures and even in the places where the officials are doing nothing in response, it’s causing people to continue, or reimpose, self-isolation. Even if deep in your heart you believe the invisible killer monkeys are not real, the most patriotic thing you can do is wear a mask right now. Because our businesses depend on everyone getting back to their normal spending habits, which includes those who feel the least safe.
And that’s why I took a Covid-19 test and why I am still sitting here, staring out the window, feeling perfectly fine and being 99% sure I don’t have Covid-19. Because I owe it to everyone else. I owe it to my co-workers at Keeling Financial not to go into the office unless I’m sure my fever wasn’t caused by the Coronavirus. I owe it to my wife and kids not to make them sick, and to the people they come in contact with. I owe it to my Mom, who I was supposed to visit on the day I started feeling ill. I owe it to society, because I am important and I have rights, but I’m no more important than anyone else and as John Locke famously said, “Being all equal and independent, no one ought harm another in his life, health, liberty or possessions.” I do believe wearing a mask and taking other precautions lessens the risk of passing the Coronavirus around and I’m sure most of you agree with me, but if we’re wrong then all wearing a mask does is help the economy recover faster and that’s still worthwhile.
The Economy vs. The Stock Market
Imagine you’re driving down the highway at 70 miles an hour and suddenly a huge storm hits. You find a bridge and park under there for a little while as the storm passes. When the worst passes there’s a lot of debris on the road and the weather while much improved is still a little wet and dark. So, you make your way back to your destination starting out at only 25 miles an hour, then slowly it gets a little brighter and the rain keeps letting up so eventually you’re cruising along at 45. Driving along at 45 miles an hour is much, much better than cowering under an overpass, there’s no other way to describe it but good news. But it’s not flying down the road at 70. No matter how much of an improvement it is over being stopped, it’s still much slower than you were going before.
This is our economy right now. Compared to April, things are substantially better and we are accelerating in fits and starts toward a more reasonable speed – but compared to January we are still going very, very slow. If an economist had been in a coma since December and just woke up and you told her we had over 13% unemployment and GDP growth for the first quarter was -5% she would probably assume we were attacked by aliens (or invisible killer monkeys.) Of course, we have no idea what the second quarter GDP number will be, but it wouldn’t surprise anyone if it was the worst quarter in history. In fact, if it’s only the worst quarter in history by a small amount that would be a great victory, it is estimated in some places to be multiple times worse than the previous worst quarter. (They didn’t measure GDP quarterly during the Great Depression, so the current worst quarter was in 1952.) Our economy by any conventional measure, except measuring it against two months ago, is very bad. Yet the stock markets have brushed this all off like it’s nothing; why?
There are really three reasons in my opinion why the markets have come back so strong. First, “the market” hasn’t come back as strong as it seems. A microcosm of the past couple years has repeated itself in an even more concentrated way over the last six months, something I’ve spoken about before. A handful of stocks, overrepresented in the indexes, are making the whole market appear to have recovered when the majority of stocks are still down about 10% for the year. The five largest stocks in the S&P 500; Microsoft, Apple, Amazon, Facebook and Google, account for over 20% of that indexes’ performance. They count more than the bottom 100 stocks. As mentioned, with these stocks the S&P is only down about 2.5% year to date as of this writing but closer to 10% without them. Even being down only 10% when the economy may be producing at 60% of it’s previous capacity seems like quite a bounce, and that brings us to reason number two:
The market is a leading indicator.
If you remember the first big drop of this spring happened on February 20, as of today the market hit its lowest point on March 23 and started back up soon after. Schools in Massachusetts didn’t close until March 16 and the stay at home order by Governor Baker for non-essential businesses didn’t take effect until March 24, the day after the stock market bottomed. The markets go up and down in anticipation of the economy not in reaction to it. The markets have recovered in advance of businesses opening back up and in anticipation of medical treatments for the Coronavirus. If those openings do not go smoothly, or if the medical advances are slower than hoped we could certainly see some reversion of this bounce, but it will likely be tempered by the third factor: The Federal Reserve.
The Fed is flooding the markets with money, buying not just government and mortgage bonds like in the financial crisis, but corporate bonds as well. These purchases keep interest rates down and help companies find a market for their bonds, helping them stay in business and therefore making the companies and their stock more valuable. But it also creates money. A bond they purchase was owned by somebody else who now has cash. That cash didn’t exist until the Fed purchased that bond. The bond seller now has to do something with that cash, if they wanted to be in a bond they just would have stayed where they were, likely the lower interest rates drove them out. So where is a lot of that money going? Into a stock market that has a dividend yield of almost 2%, which is higher than most high-quality bonds are paying in interest, and of course you have the possibility of price appreciation. Because the Fed is creating money out of thin air for these purchases, that means there is suddenly more dollars chasing the same number of stocks – more money chasing a stagnant or dropping number of goods is what causes inflation. If the goods in this case are stocks, rather than consumer products or services – where the demand is down regardless of how much money you might have – then the stock price goes up. This is the reason why even if the markets are ahead of themselves regarding the economic recovery, I don’t believe they’ll go back to those March lows. The Federal Reserve is effectively backstopping the markets to a certain extent. Is this a good thing? Probably not in the long term, but that’s another issue for another article.
So that’s kind of where we stand, apart but together. It’s our responsibility, collectively, to do what we can to make things as safe as we can make them, even if some things are just window dressing. Only that will inspire enough confidence to keep our friends and family with businesses in hard hit industries up and running. There is some talk of another round of stimulus this month, but now that the election is so close and the panic has subsided, I fear the partisan bickering that delayed the generally good stimulus package passed in late March might derail a new one in July. If that’s the case, the only thing that will keep the economy growing is the confidence by the public to go out and spend their money. So, wear a mask for your friends, family, community and wallet.
I wrote this article the week of June 22nd. It took a whole week but I got back a negative Covid-19 test as expected. We've been back in the office for over a week and under phase 3 of the state reopening, we will be having in office meetings for those who want them - we will still do meetings via phone and zoom for those who want to remain more distanced.