Year Of The Gripping Hand

Further, the Fed is making the wealth and income disparity divide even worse. Their financial repression is crushing savers, almost forcing retirees to choose riskier alternatives at precisely the time in their lives when they shouldn’t be. And given today’s valuations, this could have disastrous effects.

Fourth, a lot of fiscal and monetary aid found its way into the stock market, driving share prices far above any remotely fair valuation. As I’ve said, these manias can continue longer than we expect, but eventually something triggers a collapse. We have multiple plausible candidates, too, not least of which is the prospect of higher corporate tax rates.

Biden and the Democrats basically want to reverse the 2017 tax cuts. If they succeed, it’s fair to expect some of the market gains since then to reverse as well. That, in turn, could have a “wealth effect” by making investors save their cash instead of using it to buy stocks.

So we’ve looked at one hand and the other. Which brings us to:

The Gripping Hand

That alien species with the third limb doesn’t have three equivalent hands. One of them is far stronger than the others. They call it the gripping hand.

In 2021, the gripping hand is the virus. It can sweep away every other concern and take control any time it wants. Now we have the beginnings of what we need: vaccines to deprive the virus of new hosts. If enough of us get vaccinated, it will have nowhere to go and recede to manageable levels. That’s probably this year’s most critical economic variable. The global economy will recover in direct proportion to our success in vaccinating people.

This is where the news is problematic. Bluntly, potential production of the vaccines approved so far is nowhere near enough to cover the most vulnerable in the US and Europe by the end of the third quarter, let alone emerging markets.

We desperately need the vaccine Johnson & Johnson (JNJ) is developing, with their enormous potential production capacity. We also need additional new vaccines. Without a great deal of new production, 2020’s lockdowns and restricted economic environment may continue long into 2021. The 100,000 small businesses we have lost? More may follow.

The World Bank’s annual forecast was very plain about this. They have four scenarios in which global growth ranges from 5% this year on the upside, to an unspecified below-zero number in their “severe downside” scenario. The primary difference between these scenarios is vaccine progress.

If it goes well we could bounce back quickly and strongly. If not, we will stay in recession. That’s the gripping hand, and it really isn’t complicated. And it’s why investors and business people ought to be very concerned about the slow start, though fortunately it is improving somewhat. We don’t have weeks to waste here.

Just to make matters more interesting, the virus is not waiting for us to get our act together. New variants are emerging that seem to spread faster. They may slow down progress when, as noted, time is not on our side, economically speaking.

What do I think, you may ask? Readers may remember I last used this gripping hand analogy 15 years ago in my 2006 forecast. That year turned out okay, but some of the issues I mentioned worsened considerably in the years that followed.

Timing is hard. A month ago, I was fairly optimistic. Even two weeks ago I was glad to see the new fiscal package pass, thinking it would at least keep GDP positive in the first quarter. Now, I really don’t know. On the one hand I’m confident. On the other hand, I’m cautious. But the gripping hand is strongest. It could go either way.

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Disclaimer: The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One ...

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