Both Sides Now

If I call myself an optimist, people who know me will laugh. Friends and family think of me as someone whose outlook is generally what you might call “dark.”

I disagree, sort of. I’ll acknowledge a noir streak (okay, more than a streak) but I think my default setting is to expect things to get better. Sometimes the two sides of my nature struggle with each other, which can make it difficult to make a decision.

When I first started investing in the stock market, which was about 40 years ago, that was often the case. I finally arrived at a solution, which was to let my optimistic nature win out, but I would only do so when most other people were being negative.

Financial people would call that a contrarian strategy, but most of us just think of it as “buying the dips.” So, did it work? Well, yes, but I have no real idea of how it would have compared to other strategies, and I’m certainly not here to give you investment advice. Consult your financial advisor, and all that.

What I am saying is that my optimism is conditional. By accepting something bad, I give myself permission to be hopeful about something good. It doesn’t always work out as neatly as it did in the case of the stock market.

Take the pandemic, for example. It was apparent in March of 2020 that the virus was lethal. Thousands of people were going to die, and the world economy was going to sustain a terrible blow. Having acknowledged that grim reality, I was able to say, “Yes, but at least it will be over relatively soon. This virus will sweep through the population in a few months and be gone.”

By the summer of 2020 I had realized that my optimism was misplaced, but by then I had a new hope. The world’s great pharmaceutical companies were pulling out all the stops and working at breakneck speed around the clock to develop effective vaccines. The project was being compared to the moon landing and the U.S. marshalling its industrial strength to fight the Second World War. They could have the magic bullet by fall.

This time it really looked like my expectations were going to be fulfilled, or even exceeded. Several outstanding vaccines were in trials by September, and in mass production by Christmas. What could go wrong?

The roll-out, as you may recall, was a little bumpy, but I was confident that the kinks would be worked out before long, and again it seemed to be happening. Through March and April of 2021, we ramped up injections into the millions per day. It looked like we were going to achieve some sort of mythical status called “herd immunity” by mid-summer.

Then something happened. Or didn’t happen. The balloon began to deflate as it became obvious that a lot of people were not getting in line. I couldn’t understand why so many Americans seemed to be “hesitant,” but I especially couldn’t understand why people who work in retail wouldn’t be anxious to protect themselves and their families from a mortal threat.

From what I could gather, though, small retailers were no different than anyone else. A lot of their employees refused to be vaccinated, for a wide variety of reasons. Some didn’t think they needed it, some were afraid of side effects, some had religious objections, some don’t believe in vaccines in general, some don’t like needles, some have health issues, and so on.

At any rate, we didn’t get enough people vaccinated by the early summer of 2021 to stop the spread of the virus, but by late summer it seemed to be dropping off anyway. Once again, I went for the fake and predicted to anyone who would listen that the pandemic would be over by the holidays. Then the variants started showing up.

At this point it would probably be wise to stop predicting when the pandemic will end and console ourselves with the assurance that it will in fact end sometime. Pandemics always do.

The question then becomes what will happen when it does. We all know that covid caused supply chain problems, which contributed to inflation, so it’s tempting to think that the decline of covid will solve those problems and inflation will subside. Unfortunately, it may not be quite that simple.

First of all, the pandemic didn’t cause supply chain weaknesses so much as reveal them. When demand ramped up for household products and “personal protective equipment,” there weren’t enough trucks, containers, ships, warehouses, docks, forklifts, or general infrastructure to handle the flow. These things are expensive, and they can’t be put in place overnight.

Second, the pandemic accelerated the shift from brick and mortar to e-commerce, which had been going on for a long time. That put a greater strain on the supply chain, because of the additional step of home delivery. While we can hope that some of that volume may revert back to traditional retail, the overall trend continues.

We also need to give some thought to the way that covid changed purchasing habits, and how much of that change might endure after the virus is gone. People who were sheltering at home bought things that enhanced that experience, rather than spending money on travel, dining out, entertainment, and other activities.

Fitness buffs, for example, stopped paying for gym memberships and instead bought exercise equipment for the home. Will they now go back to the gym, or will they stick with their $3,000 treadmills and Pelotons?

The same basic question lingers in the art materials industry, of course. Millions of people tried creating art during the pandemic, partly because it was something they could do at home, and partly because they needed an outlet. It will be interesting to see how many of them stay with it.

Getting back to the supply chain, I’ve been hearing a lot lately about repatriating manufacturing in order to reduce our reliance on all those container ships that are backed up off the coast of Southern California. It’s an exciting prospect, and I’m all for American manufacturing, but I think we need to remember why we moved production offshore to begin with.

It was to save money. Perhaps it’s a price worth paying, but it’s more expensive to make things here, and that would contribute to inflation.

All that is basically on one side of the ledger. On the other side is the Federal Reserve Board, which is about to start ratcheting up interest rates. That’s a delicate dance, which may tamp down inflation but could also trigger another recession.

So am I optimistic or pessimistic? That’s easy. Both.


You can e-mail Kevin at kfahy@fwpi.com

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