Roaring 20’s redux?
After this quarantine ends and the threat of Covid passes, will the roaring 20’s begin? Following the “Spanish Flu” in 1918/1919, the stock market went on a massive rally. Novelist F. Scott Fitzgerald marveled at the U.S. economy and wrote, “a fresh picture of life in America began to form before my eyes – America was going on the greatest, gaudiest spree in history.”
Tracy Alloway, who is a financial journalist at Bloomberg, gave a contrarian take: instead of Covid’s emotional economic scars taking the form of higher savings rates by consumers, people emerge from the crisis with a determination to spend like there’s no tomorrow. It’s not the base case, but will people exercise will power and save money vs. will people be impulsive and spend money?
Today, it’s hard to imagine a roaring twenties redux with 38.6 million people unemployed. It might all depend on whether or not Washington expands benefits beyond July. The last $2-3 trillion in stimulus helped to keep the economy going. It looks as though more money is on the way.
Last Sunday night Federal Reserve chairman Jerome Powell appeared on ’60 Minutes’ and the global equity rose an astounding $2.5 trillion in value the next day. He talked about the difficulties ahead and then went on to say the Fed has a large cache of tools available to keep the U.S. economy moving in the right direction. The phrase that took global markets 3% higher was, “we’re not out of ammunition by a long shot.” He went on to say the U.S. will need to repay these emergency debts. If this is true, the case for a roaring 20’s dedux is hard to imagine. I expect the Fed will have major difficulties removing any stimulus even when the time comes in 2021-2022.
The differences are stark between the economy in 1919 and today. Moreover, World War I had just ended and there wasn’t a Fed printing trillions of dollars. Today the country is also divided politically going into the election and who knows what that result will be in November. The U.S. stock market had already been roaring from 2010-2019 and the question that nobody can answer is will it roar after this pandemic ends. The one parallel that is the same as it was in 1919 is that people want to live the American dream and no force is going to stop them. People will eventually emerge from this and rebuild what they have lost. I believe people will go back to their old habits of spending. As all of us know, part of living the American dream is getting knocked down and getting back up.
But we couldn’t do it all without the sacrifices of the veterans who did everything possible to bring us peace and prosperity. Enjoy the Memorial Day weekend!
