Common Cents & You Can’t Be Serious on Friday the 13th

November 13, 2020, by John Norris

When I was younger, my parents told me never to discuss politics or religion in ‘mixed company.’ By that, they meant with people you don’t know well, or people whose ideologies are not in keeping with yours. This was not proprietary advice, by any stretch of the imagination, but it was good advice all the same. There is nothing to be gained by alienating people unnecessarily, at least in your personal life.

In your professional life, if nothing else, it is often impossible to avoid the appearance of being political, even when you are not trying to do be so.

Perhaps it is because of where I live, a red state where the liberals would be arch-conservatives in places like San Francisco, however, I truly believed ‘the freak out’ over COVID19 would end with the elections. After November 3rd, there would be no reason to potentially politicize the pandemic, would there? Trust me, I was not alone in this contention, at all.  So, I have read recent reports of new economic restrictions and closings with some measure of bewilderment.

Today, I am writing this from my kitchen table, having spent the week in quarantine due to my daughter having testing positive for the virus. This morning, I woke up feeling rotten, and went to the local ‘doc in a box’ to take yet another test. For the second time in the last 7 days, the results came back negative. So, if I have something, it isn’t COVID19. In a simpler time, I might have just said I have ‘the crud.’

This is important because I don’t feel like being out and about. I don’t feel like going to bars and restaurants, and have even cancelled plans my wife and I made to go out to dinner with another couple. Such as it is when you don’t feel terribly well, and I am not even that sick.

Admittedly, I am not an epidemiologist, but with what I just said in mind, I am not sure the of the effectiveness of setting somewhat arbitrary curfews on specific businesses. If the goal is to keep people from interacting to stem the spread of the virus, forcing people to close at, say, 10:00 pm, as opposed to midnight or later, seems like so much trying to catch the wind. To me, it screams: “I feel like I have to do something, anything, so here it is.”

The problem with allowing, say, a restaurant & bar to stay open for abbreviated hours and with a reduced capacity is the numbers don’t (or won’t) for many business owners. The margins are already razor thin, the landlord still wants their rent, the power and gas companies want theirs, and so on and so forth. Consider this: from research I have done in the past, it seems the ‘average’ stand-alone fast-food restaurant will clear roughly $75,000 for the owner in a typical year. Some chains like Chick-fil-a are more profitable than others, but that is the number.

So, what happens IF that owner can still maintain their margins (unlikely) when restrictions cause a 50% drop in revenue? That’s right, they will make $37,500 from that store. At that level, their personal budget gets the squeeze, doesn’t it? Multiply that store/restaurant owner by the thousands, and what do you have? A real problem, that’s what.

Clearly, these new restrictions are in response to the recent spike in COVID cases. What to do? What to do? Well, let’s do what we did in the Spring, which led to the worst quarter for the US economy in official, recorded history! More than that, it didn’t really stop the spread of the disease, did it? Do you know how I know that? Because we have already ‘been there and done that.’

The worst hit places seem to have a common characteristic: population density. The more people there are in a compressed area, the worst the spread of the disease will be. Period. Unfortunately, afflicted individuals still have to somehow manage their daily lives. This involves making money, paying bills, running errands, etc. It isn’t just going to restaurants or concerts. If someone is contagious at, say, 7:00, they will probably be so at 10:00. So, the logic is: it is okay for them to come into the establishment at 8:00, but they have to be gone by 10:00? How does that make any difference? Particularly since they have likely been active throughout the day. Okay, Infected Person X might not ‘get you’ at 11:00 pm, but they were in that bodega just before you at 2:00 pm.

In so many words, if the goal is to keep people from interacting, partial restrictions ultimately won’t deliver the desired result. You have to use the Chinese method…total lockdown. Do not leave your house, period. Absent that, I would argue that might go over so well here in the United States.

Obviously, I am running the risk of going off the rails here, and it is probably due to the fact I don’t feel so great. However, to watch some of these officials defies credulity. It didn’t really work in the Spring, shutting things mostly down. The virus is still around and ‘we’ have spent literally trillions of dollars in effort to keep the economy afloat…and we still aren’t back to where we were. So, let’s do it again? Is that the thought process? Especially now that the virus’ mortality rate has been shrinking AND we have made significant progress of developing a vaccine?

I don’t know. I need some help wrapping my brain around this. If you don’t like the snow, don’t live in Alaska. If you don’t like the heat, don’t move to Arizona. If you live on the water in Florida, you have to know you will eventually face a hurricane or tropical storm. If you live in the woods, you probably won’t interact with many people. If you live in New Orleans, I hope you don’t mind the humidity and tourists who treat your home like dirt. If you live in Omaha, you might not make it to the beach every year. If you like to be ‘where the action is,’ move to a big, densely populated city. The only problem with that is people catch and spread all manner of diseases, and human beings are social creatures.

In closing, viruses are weird things. They don’t think. They just spread, and will continue to spread until you kill it off. You can do so by either developing a medicine/vaccine/serum/magic potion which will kill the virus, while keeping the host alive, OR you can simply kill the host. Those are your two only failproof options. Until then, the virus will continue to hang around, and you do your best to avoid it. You wash your hands; you wear a mask; you limit so-called unnecessary interactions with others; you don’t touch or hug a bunch of folks; you get enough sleep; you eat a healthier diet, and so on and so forth. However, knowingly wrecking people’s economic livelihoods, when that isn’t one of the two failproof methods?

I have a hard time with that, and I freely admit I look at the world through an economic lens. The thing is, I am not as sure the economy can bounce back the way it has since the Spring IF we insist on locking it down again in the Fall. In fact, I am sure it can’t, and I don’t care on which side of the aisle you sit.

There you have it; me being all political again. I just can’t help myself.

John Norris

Chief Economist

 

As always, the opinions expressed in this newsletter are mine and mine alone, and are subject to change without notice. Nothing in this article should be construed as an offer to buy or sell financial or investment advice.