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Déjà Vu (all over again?)

Now that we have passed Labour Day and summer is over (at least unofficially), the time has come to get into new routines.  It’s back to school time.  Time to close the cottage, put away the golf clubs and hunker down on the big push to hit your yearend sales targets and revenue projections.

 

Because our children will be heading back to school, there’s a renewed concern about a fresh round of COVID-19 outbreaks.  Children are notoriously oblivious to social distancing norms and are therefore at least somewhat more likely to contract and spread the disease – even if they themselves are less likely to be infected.  Should something like this happen, the increased risk of broad societal infection has the knock-off effect that there is an increased risk that the economy may need to be shut down again.  Or something like it.  I’m not saying that’s what’s going to happen, but I am saying you’re naïve if you think it isn’t at least possible.

 

No one reading this is likely to have a firsthand recollection of what happened in 1929 and 1930.  For those who are foggy about the history, here’s a refresher: markets dropped by about 33% starting on Black Monday, in late October.  By early 1930, markets were thought to have bottomed out and people felt that the roaring ‘20s would give way to the roaring ‘30s.  For a short while (about six months, as it turned out), they seemed to be right.  Starting in early 1930, markets rose by about 50% – erasing essentially all of what had been lost at the end of ’29.  Then the bottom fell out.  Over the remainder of the decade, stocks around the world plummeted.  In the U.S. the drop was over 85% from peak to trough.  Does that sound like an environment you know personally?

 

To me, it looks eerily similar to what is going on right now.  Later this month, we’ll pass through the six-month anniversary of the cyclical low we hit in March while in the teeth of the coronavirus-induced recession and bear market.  If history is any guide, we may top out in the next month or two.  I’m not alone in my assessment.  Gary Shilling is a renowned American economist and analyst.  He recently warned investors to not be fooled by the recent rebound in stock prices in a Bloomberg op-ed column.

Shilling drew parallels between the present day and the great depression to sound the alarm on “the most disruptive financial and social event since World War II.”  In so doing, he warned that by the end of 2021, stocks could fall as much as 40%.

 

There’s a saying that ‘those who are ignorant of history are condemned to repeat it’.  You can no longer claim to be unaware of history.  The choice about whether you choose to participate in the repeat performance remains yours, however.

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