Three Things I Think I Think – Wear A Mask (Please!)

Here are some things I think I am thinking about.

1) The Mask Controversy. 

I manage risk for a living. It’s something I obsess about every minute of every day. Understanding risk helps you optimize risk and reward by understanding when things have an asymmetric payoff. We all want to do things that have a high payoff and low amount of risk.

COVID is obviously a very high-risk virus. We don’t know exactly how to stop the transmission of the virus, but it is becoming clear that mask-wearing is consistent with reduced rates of transmission. Mask wearing is also a very low cost and low-risk act. It is, in the current environment, one of the perfect asymmetric trade-offs. So, there’s your trade of the year – if you want life to return to normal and the economy to recover then do your part and wear a mask when you might expose other people to the virus and ignore all the political bias around this issue. It’s just silliness.¹

2) Stressed Banks

The Fed capped bank dividends and banned buybacks after the recent results from the stress tests. This leads me to believe that the Fed is somewhat concerned about bank capitalization going forward. Makes sense in my view. The way the virus seems to be playing out I think we’re very likely to see the economy remain under pressure into year-end. Without another big stimulus package, it’s likely that we’ll start to see rising real estate defaults (especially in the commercial space) in the Fall and Winter. There’s just no way all these commercial spaces can remain empty with falling aggregate incomes and not begin to experience stress. And this will inevitably filter into the banking system.

All that said, I think it’s wrong to look for the next crisis in the last crisis. The Fed was a bit caught off guard by the financial crisis. They’re not making the same mistake here. The Fed is on top of this one, perhaps even to a fault. They’ve made it very clear that they’re willing to do whatever it takes to make sure the banking system doesn’t collapse and impact the real economy too much. So we might experience a bank panic at some point assuming the virus and economic weakness linger but don’t expect a repeat of 2008.

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Kirk Sheffield 4 days ago Member's comment

I agree on all points but especially about masks. At first I felt that people have rights, but we have plenty of other laws forced on us to help save lives. We make people wear seat belts for example. What's the difference? Even more so, why should I die because others are too lazy to wear a mask?