It was always about the alphabet. We just seemed to have forgotten, because the letter we landed on turned out not to exist, unless you had real bad handwriting.
I am talking about the letters that we used to describe what kind of recovery we could have when we were in the midst of the early part of the pandemic, a little more than a year ago. This period's been so odd that many of us have lost track of time, the seasons even, but I want you to try to recall the facts of life as we knew them.
First, we knew that, like that seminal Stephen King work, "The Stand," we were all going to get the disease. We thought that because most of us have no natural immunity to the illness. We thought if we touched a surface that someone with it had touched we would get the disease as surely as, "tag you are it." We were told masks don't help, even as it turned out that most people got COVID from talking to other people with COVID.
For me, it was the morgue truck. They seemed to be everywhere. You see right about this time in the Northeast you began to know victims and you knew people who died. It seemed a lot like India in the New York area.
I had been early to the disease and spent a lot of time warning people. But by the time May came around I became confident that science, or, more likely, the scientists at the big pharma companies would come up with something to stop it. I didn't know when; it's novel, it's complicated, we don't know enough about it. However, I had talked to enough scientists at big pharma that I knew there would be a vaccine for it, developed much faster than other vaccines were.
I was uniformly lambasted for my view, including by a New York Times article that compared me to Otter from "Animal House" when he made an impassioned plea about something stupid in the mock courthouse at Faber U. The consensus? Science just wasn't up to the task.
Hence the letters, the letters that spell out, or stand for, what could happen with the economy if things go well or go badly. Things were pretty darned ugly back then, so the most likely course seemed like the "L," just a huge decline and a flat line. Some thought we could have a "W," down, then up on and down again, before a later recovery. The optimistic sorts believed that we could have a "U" recovery with the bottom part lasting, 10 to 20 months before the turn. Finally there were people like my who said we are going with a "V," because we believed in science as, after all, it was a public health emergency not one created by bank collapses or Federal Reserve tomfoolery.
One thing we know about Washington: the Republicans and the Democrats just despise each other. It's not like the caning in Congress over slavery, when pro-slavery representative Preston Brooks attacked Charles Sumner, a noted abolitionist, back in 1856. But after the insurrection at the Capitol the analogy holds some water.
So when Treasury Secretary Mnuchin and House Speaker Nancy Pelosi agreed on an emergency rescue package for the American economy, hopes grew that we might be able to banish the "L" letter. Why not? You had a Fed chief who immediately recognized the gravity of the situation where you had 16 million newly unemployed. You had money being showered on the airlines, all of which were probably going to go belly-up, because of a belief that airplanes are COVID breeders. And you had special unemployment benefits and a novel paycheck protection plan that put money in entrepreneurs', retailers' and restaurants' hands to stay alive through what we were then calling the pandemic.
Once that money got into peoples' pockets, some chose to save it, but some chose to buy things to fix up their houses at the essential Home Depot (HD) or Lowes (LOW) , and still others bought stocks, chiefly younger people who were intrigued by the notion of investing especially when the chips were down.
Either way, the Fed backed up the bonds of big companies that were hurting, so the bankruptcies became contained to small- and medium-sized businesses, terrible for them, but not so bad for a reeling stock market. Instead of the "L," you started hearing a lot more people going with the "W," an economy boosted by stimulus that could expand until the stimulus ended and then slump back under either presidential hopeful who would most likely have his hands tied.
During the summer, though, we thought we could see our way out of the pandemic. It seemed to be losing steam. At the same time, though, we had an urban exodus and a work-from-home narrative that accelerated each week and was backed up by the wholesale spending by people to change their entire lifestyle. Returning to work was not an option. But there was so much money sloshing around and so much hope that things could get better that you began to believe in a "U" thesis. Sure, there were people getting sick, but there were people leading normal lives betting they would get it and live if they did. Many in the south even returned to work, business as usual.
But then the second wave came and we realized that perhaps the "U" was a pipedream. Businesses began hunkering down again, We had a ton of layoffs and whole companies, like the autos and aerospace companies, just shut down. If you weren't in the work-from-home stocks, you were nowhere.
Along this time, though, in mid-fall we started hearing about a vaccine that worked. The percentages of people who got COVID once they were vaccinated were astoundingly low. It was like nothing anyone has ever seen in that short a period of time.
There was a lot of disbelief, though, and the second wave, the winter wave, was devastating to the country. But, curiously, it wasn't devastating to the market, even though a Democrat not known for a pro-business, pro-capital stance, captured the White House.
The confusion in chaos and the stop-start nature of getting these marvelous vaccines where they could use them, took away from the "U" scenario and at times, ugly times, with the money from Washington running out, the "W" got back on the table. So there were still not a lot of new orders coming in, except for housing because of the urban exodus.
And then an amazing thing happened. Once Biden got it, the process of vaccination no longer seemed like some sort of cultural war the way masks had become. We began to realize a simple truth: Science was not only winning, science had won.
There was only one problem: A big "W" for science meant that the economy would have a big "V". We would have the least likely scenario come through and we were simply unprepared for it. The autos didn't have enough chips, because they had slashed orders during the bad old "L" and "W" days. The housing people had to build so many homes that they bid up all the commodities that go in a home. A freak winter storm took out almost all of our plastic capacity. Bizarre bottlenecks in California ports, so underprepared for the onslaught, jacked up the cost of all imported goods. Oil bottomed and went higher because of a president dead-set against drilling expansion. Travel came back to life, especially when we learned that planes were one of the safest places to be on.
It was then that we realized we didn't have an "L" or a "W" or a "U" or even a "V". We had some new animal, a "V" with the right side almost straight up and above where the left side began. That's where we are now, and we are woefully out of everything, because we had the wrong letters all along. Plus, we owned the wrong stocks, too. So the money shifted out of where all the stock kept being printed, the software as a service, total addressable market, cyber security, land and expanded junk and into the scarce industrials. And that's where we are now. The implications of the Super "V" are just being realized and with it, the gains are coming fast and furious, but only for one very small part of the market, where there's no new stock being created, just stock being bought back, making it so the scarcity creates the real value for the few who know the alphabet when they see it.
