imagining the rest of 2021 (iii)

It seems to me that there’s enough fiscal and monetary stimulus in the air to trigger a substantial economic upsurge as/when reopening occurs. There’s also presumably a lot of pent-up demand in the US from stay-at-home families who have been saving simply because they have either not been able, or not been willing, to leave their dwellings to do in-person transactions–like shopping, dining, exercise, entertainment.

The first-order questions about recovery revolve around its timing (when does it start, how long does it last) and strength. My initial thoughts: it’s already underway, and we don’t have to worry about duration just yet. More important from a stock market point of view, I think,, we should try to figure out, if we can, what aspects of adaptation to lockdown will endure (home delivery of groceries?) and what aspects of pre-pandemic life are going to come back in surprisingly weak fashion (urban high-rise office space?, business travel?, international vacation travel?).

There’s also the possible complication, which I’m choosing to ignore for the moment, of the number of people in the US who may refuse to be vaccinated, for whatever reason, and the economic and health threat they may pose. A much wider issue is the lack of vaccination so far in poorer parts of the world, leaving them open as potential breeding grounds for of new, vaccine-resistant, variants of covid. Again, I think these are not here-and-now issues for financial markets.

There’s an issue, as well, with pandemic-beneficiary stocks, like makers of building materials, gym equipment, comfort food, masks and hand sanitizer…, whose earnings may well weaken as shortages abate. For me, these are easier to come to grips with, so identifying–and avoiding–“pure” pandemic stocks is a priority.

A second, not so widely noticed, I think, set of influences on the economy comes from the change in administrations in Washington. It’s not clear how deeply Trump’s white racism and encouragement of violent race extremists has hurt the ability of domestic universities and businesses to recruit competent foreigners. His refusal to supply US-made products, from agriculture to tech, to China, however, is having an effect. The most straightforward investment idea is that the present multinational supply chain for computer chips is broken and will be replaced as quickly as possible with competing China-centric and US-centric supply chains. This means sustained high demand for semiconductor production equipment from both camps. A less clear, but still possibly important, result is the not only his tariff-induced loss of the soybean trade to Brazil but the rainforest destruction this has induced.

more tomorrow

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