February 25, 2021
“Sometimes I think it’s a sin, when I feel like I’m winning, when I’m losing again.” Gordon Lightfoot
I had a hard time finding the appropriate balance in writing this piece. I have felt let down by the actions of friends, strangers, our education system, and government, and it has caused some depression. Although I believe people might be well intentioned, and they do not intend to cause others harm, I am not confident that enough reflection takes place on the motivation for actions to counter pain from the pandemic. Humans need humans, and the more we isolate ourselves, the more damage we are doing to each other.
Well, you know.... COVID!
A friend of mine coined this phrase, which I find humorous and sad at the same time.
What this phrase sums up is that COVID has become the perfect rational for: an excuse for not being there for a friend, for not providing a service, for handing out tons of money, for saying that it’s only temporary, for furthering a political agenda, for not smiling at one another, and many other reasons. Almost a year ago, August Wealth looked beyond the fear of COVID and suggested that we would come up with a vaccine, we would all help and support our friends, the government would provide needed support, and that markets would recover strongly.
We had no more knowledge than anyone else, but we stepped back from the fear and reflected on what reality would probably look like when people overcame their emotional paralysis.
With the benefit of hindsight, we can see what we got right and what we got wrong. I want to focus on what we got wrong. Please understand that none of these observations is meant to diminish the pain and suffering people feel. Primarily we were wrong on:
I thought the risk of death would have been higher in younger people (thank God for being wrong on this). The death rate below 50 years old was close to zero. The pandemic impacted primarily older people and those with pre-existing conditions.
The magnitude of government assistance far exceeded and continues to be far greater than we ever could have expected. Support for many is of course needed, but it creates perverse incentives. Incentives to collect unemployment instead of working and incentive for companies to take money that may not be needed are high.
I thought that once risks of overwhelming the health care system subsided, and people were aware from the data, the low risks associated with COVID for most of the population, that the behavior of individuals, educational institutions, and state and local government would change more rapidly.
Knowing the risks and knowing that much of our older population is now vaccinated, I am particularly vexed by point number 3. I am constantly asking myself the question: Why are people not changing their behavior more quickly to mitigate the damage being done to themselves and others? Why do we not go back to full time in-person teaching, knowing that we are hurting our children? Why do we not go back to work if our risk factors are low? Why are we willing to sow the seeds of future emotional pain and suffering on a disease that presents almost no risk to the young healthy population? Why are we continuing to spend so much on transfer payments to people and businesses instead of opening-up our economy faster. Why is the Federal Reserve unabashedly accommodating government policy support to an economy that may not require it? Well, you know... COVID.
Watching and living through many of the behaviors of friends, families, strangers, teachers, school boards, and government policies, causes me emotional and actual physical pain. Some of my friends (unfortunately for them) tolerate my exasperation when I try and point out the irrationality of some of their (and our societal) behavior. I often hear the phrase: “I can’t wait until this (COVID) is all over” and THEN we can go back to normal. My advice is to be careful what you wish for; life is happening right now. Your neighbor needs you now, your work needs you now, your family needs you now, your students need you now. In the words of Apollo Creed in Rocky III, “there is no tomorrow”.
As I have mentioned before, the real pain from COVID is likely to come in our collective response to it. I believe this more firmly now, and because of the aggregate behavior, and the acceptance and magnitude of such behavior, I am highly concerned for our future. As my friend Cameron Crise (Macro Man on Bloomberg) points out in his podcast on Feb 24: “There’s no such thing as a Free Lunch.”
For me personally, I know that I must let go of the pain I feel from the actions of others. People are not intentionally trying to hurt me, my children, family, and friends; they are just operating out of fear. Deep down, I know everyone must accept reality and truth at their own pace; it is not my place to judge, and God knows, I have more faults than most (just ask my wife Michelle).
However, I have a job to do. My job is to assess risks and probabilistic outcomes as best as I am able. I need to be the best husband, father, friend, and advisor I can possibly be. I cannot apologize for living my life as fully (while mitigating risk) as possible in 2020 and the start of 2021; that is my duty, and I am grateful for the past 12 months. I teach my children to utilize all the gifts they have been given, and that they should not waste time or talent. Life will deal you unfair cards; some will have more struggles than others. Success, joy, peace, and happiness will come from how you cope with adversity. Yes, you should humbly and graciously accept help (when needed), but ONLY to get you to a point where you can help yourself and others. Pay it forward and give credit to the friends that supported you when you needed it. Be kind and respectful to all humans, support those in need, and then you do not need to feel guilty about which groups societal trends tell us are treated unfairly. Be able to recognize when the crowd is making a mistake by reflection and discussion. Are you being shamed? Guilted? Is the government sowing fear into the narrative? This wouldn’t be model parenting behavior, so perhaps there is something wrong with these methods even if well intentioned.
I worry that the characteristics that bring joy and peace are not currently on display across much of society. Perhaps that makes me a cranky old man? I am open to that judgement. When I see people avoid one another and look away outside in the open air (on hikes or walks) it depresses me. If we are young and healthy and outside in open space, shouldn’t we be smiling andsaying hello? If you have a chance to support a friend while you are young and healthy, do you wait for the COVID risk to go from extremely low to non-existent with a vaccine? Would you tell a friend you couldn’t help them because you were afraid to drive to them knowing that your risk of dying in a motor vehicle accident is about 1 in 103 during your lifetime (according to NYTimes Jan 14, 2019 by Patricia Mazzei)? Do you accept money from the government even when you do not need it?
These are questions, not judgements, but they are important considerations because our actions impact one another, and these behaviors obviously impact the economy and financial markets. While it is easy to say: Well, you know.... COVID!, a minority of people may be hurt, offended, or feel taken advantage of by a system with policies geared seemingly only to mitigate the risk or damage of COVID.
My views on the financial markets remain mostly the same. Quite simply money continues to be pumped into many parts of the economy. Mainly through transfer payments and not for investment purposes. We have kept our exposure to the United Kingdom, Real Estate, and energy. We added some consumer cyclicals at the start of the year in certain areas to take advantage of the slowly changing behavior toward the economy opening. We have been positioned for the pickup in asset and price inflation in the economy, but at this point we are not concerned about rising prices forcing the hand of the Federal Reserve in the next year. This story will take more time to play out in our view. Therefore, we are not overly concerned about the recent rise in long end government bond yields. We do continue to believe that current policies will reduce the US Dollar’s value over time against many real and financial assets. The Fed continues to go out of its way to say rates are not going up.
Markets will always deliver truth more quickly than the population is willing to accept it. We have made a strong case all year to be fully invested, and we maintain this view. Our view continues to be to grow wealth as much as possible while these unique market and societal conditions exist. Fear is still pervasive in society because of COVID, and fears that we are in a bubble and financial markets are devoid of reality still appear prevalent to us. The fear, the unemployment, the lack of opening in the economy and schools are all reasons why money is likely to be continually pumped into the economy through government support programs. People are likely to start spending more of the money they have been provided. In my opinion, this will accelerate market growth and financial assets further in the near term.
However, I will continue to monitor behaviors of people and market participants closely. I am concerned that we have sown seeds for pain down the road. I am particularly concerned about education, mental health (lack of resiliency), and lack of work ethic (feelings of entitlement). These are not the traits of a robust and productive economy. This primarily stems from the government and the Fed being in a unique position (presently) to spend money in a nearly unchecked fashion (as was our rational for being positive in March of 2020). This will not last forever.
When everyone feels more relaxed, COVID fears subside, and the majority are ready to embrace life and risk more willingly, I suspect I will be increasingly concerned. When the next crisis comes (and it always does), will we have the resources and resiliency to provide support? I am not confident that the central bank nor government will have the tools available. Perversely, just when most people feel most comfortable that most risks are behind them, is when you need to think about being most concerned. The market will never care about your emotions. Your “fear” or your “comfort” are not relevant to the reality of the market. Nor are they relevant to reality in a general sense. I hope that from experiencing pain (economic and emotional) and figuring out how to pick myself up with the help of friends and partners (refine my process), that I will be able to continue to navigate the realities and risks that others are not able or willing to face. I hope that August Wealth will continue to help our clients increase their wealth into the future so that they have more time to spend on living life and their relationships.
I am so grateful for the clients and friends of August Wealth. You afford me this opportunity to write, and you trust in our ability and process to help navigate an uncertain world.
Thank you, Joe
Joseph Cardello, Principal August Wealth Advisors, LLC The Loft, 101 Franklin Street, Suite A
Westport, CT 06880 Direct (916) 461-9451
toll free (800) 985-9477
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