Thinking Beyond the Pandemic

This pandemic has created a storm with hurricane-force in the financial markets. Adding to this is the uncertainty of when the pandemic will end. Will it come back? When will a vaccine be ready? But storms pass, and we as financial advisors must start thinking beyond the pandemic. Only then can we be truly useful resources for our clients.

The following concern me:

Consumer Spending Drove the Economy and the Markets, Now What?

Layoffs across the U.S. begun to reduce consumer spending in March, and this decline continues. Further, with American consumer debt now above fourteen trillion dollars, an all-time high, it can’t get much higher. [1]  Consumers will draw in their horns, spend less, and save more. People will think long and hard before buying anything. Many will also go bankrupt.

Avoiding Crowds and Other Behaviors From the Pandemic

I believe Americans will avoid places where they will be packed together in crowds, examples being movie theaters, popular resorts as well as professional and college sporting events. A lot of jobs and incomes depend on these sectors, and the impact of lower earnings for individuals and businesses will be significant. Corporate spending is not a replacement for consumer spending and cannot power the economy.

The Economic Role of the Federal Government Will Get Even Larger

We are in for long and challenging economic times. You don’t restart the economy like you restart a car. It will take years to restore equilibrium to society and the economy. Think of the United States as a self-insurance society with fifty members. Many are wealthy, and some are not.

Only the manager of the self-insurance society, the federal government, can move money from people and places to other people and places. Given the vast amounts of money being spent by the federal and state governments right now and the spending which will continue for the future, I feel confident I can say that taxes on your HNW/UHNW clients will likely go up.

Only Federal Spending Will “Restart” the Economy

Federal spending will continue to rise for an unknown number of months or years to supplement state unemployment benefits. To “restart” the economy, the Federal government will have to spend additional trillions. As a society, we are going through a collective traumatic experience that we will never forget. What will the impact of that be?

Disparities in wealth distribution have increased in the previous decades. The top ten percent of households own almost three-quarters of the wealth in this country. The bottom 50 percent of households own less than two percent. The federal government will provide income support like it is doing now but for a more extended period.

The rhythms of our lives and our careers in finance are uncertain. But I will end by reminding you that nothing was certain before the COVID-19 virus hit either. We just thought it was.

Resource:

[1] https://www.statista.com/chart/19955/household-debt-balance-in-the-united-states/

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Contributing Writer: Subject Matter Expert Charles McCain