What to Say, Part Two: Main Street vs. Wall Street

The news shouts the happenings of Wall Street. You can not turn on the TV or browse online without breaking news about the global markets. This post will not be a depressing restatement of the news. I want to clarify what is most important and not stated as loudly. Main Street is more important than Wall Street.

“Today every thing tastes different, looks different, sounds different. Is everything really the same, or different? Everything is the same, everything is different.” – R. H. Blyth

Main Street

Here in our small town of Lunenburg, on the coast of Nova Scotia, shops are closed as they are around the world. I am reminded of the stories my parents told, about the years of the Great Depression. Both my parents were children during those difficult times, but their experiences were vastly different. Mother lived in New York City and Dad grew up in a small town in south Georgia. Mother remembered when the banks closed and standing in lines to buy bread with her mother. The shops in Dad’s town stayed open throughout ’29-’37. The bank never closed their doors, and everything was the same before and after. How does this relate to us today?

Wall Street

The Depression had a huge impact on Wall Street and large metropolitan centres, like New York. But small town Main Street was affected to a lesser degree. That is different today, the Corona virus has quarantined every community in every country, around the world. No event in the history of man has done such a thing.

The following comes from Morning Brew, my first read every morning.

“The International Monetary Fund (IMF) crunched the numbers and concluded we’re in the worst economic catastrophe since the Great Depression.

Introducing…the “Great Lockdown”:

  • Global output per person will contract 4.2% this year, the IMF predicts. It shrank less than half that much during the 2008–09 financial crisis.
  • The IMF’s baseline scenario for global economic growth this year: -3%. In the worst-case scenario—lockdowns extending into the second half of the year and a second wave of infections next year—GDP could fall by another 8% in 2021.
  • Cumulative GDP loss over 2020 and 2021: about $9 trillion, more than the economies of Japan and Germany combined. “

This is not quoted to arouse fear, but to waken us. The current market rally, stimulated by the $2 Trillion Stimulus Bill, may not be sustainable and a second leg down may be more likely. Two trillion dollars is a lot of money, it represents 10% of the US annual GDP. But it is not like real income from an outside source. Money is placed in one packet (stimulus), that comes out of the other pocket (long term liability), and the balance is zero. This is not some gift from the government, it is a debt each taxpayer will be paying back for decades to come.

Second, every one says we are headed for a recession, but when has any recession actually impacted your life? Unless you were in a business that was laying off employees, the average person never really felt a substantial impact from any of the past recessions. This time it’s different. We are all impacted in a significant way. Main Street in every small town around the world has closed down and will continue to be as long as the quarantine remains. The more the virus continues to infect each week, the more municipalities will lock down in an attempt to contain the spread.

 

Source: https://coronavirus.jhu.edu/map.html

This is what makes this situation different from any other in the history of the world. We have never shut down both Wall Street and Main Street globally before.

Third, when have we ever had a market correction, that the low was not a point of capitulation? We hope that the tools the Federal Reserve and other monetary agencies have at their disposal will give them greater opportunity to protect us. But corrections don’t end with the herd staying fully invested, and the professionals know that. We are within one hundred points from the most traded price in the market, the Point of Control (POC). As the reality that life will not return later this month or next to what it once was becomes true, we need to anticipate a further decline. Goldman Sachs and other economist have all stated lower valuations of the market. And despite the optimistic outlook of many retail firms, the numbers require us to reexamine our assumptions.

Your Street

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