Broker Check

The Ultimate Catch-22

April 12, 2020
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The world is dealing with a once-in-a-century event that will likely change the way we live forever. While the concept of a pandemic is not something completely out of left field, it is now clear that no country or government was ready to effectively contain it and prevent the unfolding crisis. The human toll has been immense, with over 100,000 deaths worldwide, including hundreds of healthcare professionals and first responders.

There is a tremendous amount of blame to spread around starting, of course, with China. But it cannot stop there: even the most developed countries, the U.S. first among them, were found completely unprepared for the pandemic and unable to mount an effective response.

But that should be a story for another time, after the crisis is behind us. Right now, the world is rightfully consumed with fighting COVID-19 and the crisis represents the ultimate Catch-22 scenario: in order to control the spread of the virus and save lives, most of the world’s economic activity had to be shut down, leading to staggering unemployment and conditions under which many businesses will likely cease to exist even with significant government support.

Despite the above, there are reasons for optimism. The world has weathered other existential crises in the past only to emerge stronger.

In past crises, especially during the Great Depression of 1929, the government and central banks were slow to react and some of their actions even made the crisis worse. In this one, global central banks and governments seemed to have learned their history lessons and have acted with unprecedented speed. Finally, historical evidence is unanimous that economic and market crises lead to significantly higher long-term returns for patient investors.

World’s economic and market prospects now all come down to how effectively we can end the pandemic and restart business activity. If the spread of COVID-19 peaks within the next few weeks, economies could recover more quickly. Financial markets will require more time before volatility subsides and a proper assessment of fair value for the assets can be determined.

The phrase “live to fight another day” has never been more apropos in both life and investing.

Mark J. Majka, CFA, Chief Investment Officer

Full report is available HERE

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