Optimism is not naïve

By David B. Armstrong, CFA | Apr 03, 2020 | Weekly Market Commentary

Cheering is nothing more than false hope…it’s usually accompanied by denial, pretending, and sunny language.

“Everything is fine!”

But no amount of cheering can change the fact that we have seen the biggest contraction in payrolls since March 2009…which was at the last crisis’s economic and market bottom.

Today’s Employment Situation report shows job losses were heaviest in the leisure sector – think hospitality and lodging. What’s interesting is that the same report in February was really strong and was actually revised UP (more positive) in this morning’s report.

That just goes to show that how strong the economy was coming into this crisis.

While it is a widely held thought that we are now in a recession, it is a highly unusual shock-driven one–one where the quickness and rapidity is outside of everyone’s experience.

Seriously–no one reading this has lived through ANYTHING like this. And that makes it scary.

It is this “felt intensity” that is driving many people to think that this will be difficult to recover from.  People are using the “depression” word more than ever.

We have not seen the end of bad reports like we saw today. MORE ARE COMING. There will be more bad news on the economy, jobs, etc., but since everyone is already expecting them, I’ll argue that the bad news is baked into the current market.

What I’ll argue is there is not widespread optimism.

BUT…I’M OPTIMISTIC.

And that’s different than cheering.

I think this recession will be intense, but I also think it will be short-lived. Its brevity, combined with the pre-emptive measures taken by the Fed, Congress, and other authorities around the world will likely preserve the human spirit and financial capital necessary for a sharp recovery.

So I’m optimistic…

I’m optimistic…that a recovery will begin swiftly once we see progress being made against the virus, which is becoming increasingly evident world-wide.

I’m optimistic…that this pandemic will look much different (better) three weeks from today.

I’m optimistic…about the eventual recovery because the economy was doing well going into this mess.

I’m optimistic…because we would NOT be having a recession were it not for this virus.

I’m optimistic…that the country will get back to work very quickly.

I’m optimistic…that as we get to a peak (most reports predict that is around April 15th) and the risk shifts lower, we will see a lot of public pressure to lift these safety-based restrictions and shift towards economic revitalization.

If you are optimistic too…this is an opportunity.

An opportunity to be making good decisions about your wealth and invest in the future you. No one can predict where the bottom is or when we will see it–trying to time the market bottom is not a worthwhile exercise.

Recognizing opportunity is a worthwhile exercise. If you are optimistic that this crisis will end and this country will get back on its feet, this is an opportunity to be smart.

Being cheerful is naïve. It’s something you hear in a football locker room before a game where there is a 100% chance that one of two teams will lose.

Being optimistic sounds different…”I think we have the best chance of winning this football game because we are bigger and faster than the other team and their best player is hurt.”

Best chance…that’s key. That’s about odds and probabilities.

My optimism is based on the odds that we will eventually have a recovery.

And I think the probability of being right about that is very high.  I’m optimistic that investors who stick to their plan, use their cash to avoid selling out of their portfolio holdings, and keep their strategies aligned for a recovery are going to come out of this okay.

Keep looking forward,

Dave

 

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