2020_06_05 — “Uncertainty: A Wide Range of Perspectives”


Uncertainty: A Wide Range of Perspectives


  • U.S. economists are more uncertain about GDP forecasts than ever before, which begs the question, why are stocks performing so well amidst a pandemic, business restrictions, global protests, national curfews, and countless doubts?
  • Stocks have ricocheted off their March lows for reasons that involve government largesse, economic trajectories, timing, bull market perceptions, a huge supply of investment capital, the market’s ability to climb a wall of worry, the sense that progress is good, and the fact that most economists don’t actually manage money!
  • Sage investors staring at this complexity understand that investment management is just one piece of a solid financial plan that guides families and businesses through novel times as well as current and future uncertainty


  • Governments and central banks have been a lot more decisive than economists and have increased their financial commitments to a post-pandemic recovery with a tsunami of money; trillions and trillions of dollars, yen, euros, renminbi, and so forth. As the saying goes, a few trillion here, a few trillion, there, after a while it adds up
  • — — — The U.S. Fed and the European Central Bank are not only buying government bonds, but have also started purchasing corporate bonds in a bid to support liquidity and lending. Japan’s central bank takes this type of market support a step further through outright purchases of Japanese stocks
  • National economies are past the trough of closures, and as bad as consumer and business spending was, it should improve from here. Businesses will reopen, hires will increase, unemployment will decrease, and as this occurs, some market participants will project positive expectations
  • Economies don’t need to stage a 100% recovery immediately or even in the next twelve months, they just need to solidly and convincingly move forward — this is critical
  • Interest rates are lower than ever with the perception that they will stay low for a long time — this too is crucial for asset pricing.
  • — — — All things being equal, assets are worth more in a low interest rate environment than in a higher interest rate environment; a portfolio of stocks or bonds, a pound of gold, an apartment building, or most any other asset will be worth more in a ½% interest rate environment than in a 3% interest rate environment
  • The bull market of the last ten years might not be over; the pandemic is an exogenous shock, like an earthquake or hurricane. The underlying drivers of the economy have not fundamentally changed.
  • — — — Technology and the globalization that comes with it, continues to produce efficiencies, improve productivity, and enhance education around the world
  • There is a vast amount of money across the globe looking for a home. The capital markets — investors, pension funds, sovereign wealth funds — face the same problem they have for the last several years; they need a place to invest and earn positive yield or return in a world where most developed market government bond yields are below 1%
  • — — — This supply of investment capital, combined with government support and low interest rates, pushes asset prices up
  • — — — Every day of positive GDP creates more capital to invest
  • Progress is good; there may be global protests and nationwide curfews, but they are there to make things better and improve the system, not to undermine it

— Technology and the globalization that comes with it, continues to produce efficiencies, improve productivity, and enhance education around the world —

  • China announced its largest ever economic rescue package in order to protect employment; approximately $560 billion of business costs reductions (e.g., tax exemptions, lower interest rates and social fees, utility supplements) and $280 billion of additional fiscal spending and government bond issuances (according to the South China Morning Post)
  • — — — Note: China’s stimulus may feel small relative to the U.S., but China’s average per capita income is also much smaller, about $4,300 per person, and 2/3 of the population has an average annual per capita income of less than half that amount
  • The European Central Bank (ECB) announced more easing this week (sooner than expected) on top of an already launched €750 billion Pandemic Emergency Purchase Program (PEPP) (which buys government and corporate bonds in order to lower borrowing costs and increase lending) and further eased borrowing terms under targeted longer-term refinancing operations (TLTRO III). In addition, Germany (Europe’s largest economy) announced another huge fiscal program. Not only will this help companies, but also hopefully boost the confidence of European households who have been fiscally stretched and cautious.
  • Japanese Prime Minister Shinzo Abe’s government doubled down and approved a new 117 trillion-yen ($1.1 trillion) stimulus package that includes 33 trillion-yen of direct spending and follows on the heels of another 117 trillion yen package introduced in April that centered on cash payouts to households. The new package takes Japan’s total spending to combat the sudden halt economy to approximately 40% of gross domestic product.




Avid traveler and art fan, also Partner & Chief Investment Officer @Running Point Capital, a multifamily office and ultra high-net-worth money-management firm

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Michael Ashley Schulman

Michael Ashley Schulman

Avid traveler and art fan, also Partner & Chief Investment Officer @Running Point Capital, a multifamily office and ultra high-net-worth money-management firm

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