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THE FRITZ REPORT

What a Puzzle

July 03, 2020

I have been enjoying a vacation in beautiful Jackson Hole, WY. Unfortunately, there is a significant weather event right now which gives me a chance to think through this unending puzzle we call the economy. Some interesting facts about Wyoming: sadly, the State of Wyoming has suffered 21 deaths from the COVID-19 pandemic, they have roughly five infections a day, and compared to the rest of the United States where there have been just over 128,000 horrifying deaths, it doesn't seem like a lot. My intuition told me that since the numbers were so low, the restrictions would be greatly decreased. At the same time, we hear about spikes in various states, and especially in the Los Angeles County. The interesting thing is that even though the restrictions here are officially much less than some of the harder hit areas, the reality is a little bit different. Wyoming lives on tourism. Unfortunately, with the inflow of people looking for somewhere to go, it is a natural destination. There are lots of outside activities (hiking, fishing, golf) and the state is officially open for business. Restaurants and bars are open and ready to go, however, all of the shops require face coverings and a quick hit of hand sanitizer when you enter the store. The locals are very nervous that all of the outsiders are going to bring infections into the community. It's a really weird feeling.

I mentioned in my last post that I was going to be flying for the first time since March. It was quite an experience. The airport was jammed. The lines at the checkout counters were at least average if not above average in length. I received confirming evidence of this when I read an article by Brian Wesbury of FT Advisors:

"In spite of the "surge" in new cases, the TSA reports that the number of airline passengers going through checkpoints in the week through June 25th was up 12% versus the prior week. TSA data show a steady and uninterrupted increase in passengers since bottoming back in April. No wonder airlines are adding back flights and letting passengers know some of their flights will be full. In other words, the data show that economic activity continues to rebound from the widespread shutdowns."

The line for Starbucks was at least 30 people. The airline employees seemed genuinely happy to have a bustling crowd. We were told prior to boarding that a mask or face covering of some kind must be worn for the entirety of the flight, unless you were eating or drinking. I think a fair majority of the passengers grabbed a water bottle to make sure that they could be considered as "drinking" most of the time. If anyone gave them a sly look, they could quickly take a drink of water and be officially "drinking". Like many people, I occasionally fall asleep during a flight. Have you ever tried sleeping with a face covering on? Not ideal. There was also a diligent minority that had the full protective gear: face covering, face shield, and rubber gloves. The whole situation was strange. Something that seemed so normal 90 days ago is now an experience. My impression is that it will not be "normal" for quite a while.

I think this is a microcosm of what's going on in our country.

Right now, our country feels chaotic and sometimes it is hard to step out of the craziness and reflect on the bigger picture. At times, it feels like our country has gone off the deep end, and who knows maybe it has. Maybe we are all witnesses to some kind of massive revolution.

One of the best things for me about going on vacation is catching up on my reading. One of my favorite genres is historical fiction, and one of favorite books is entitled A Place of Greater Safety, by Hilary Mantel. This is a book about the French Revolution. Note: another great Mantel book is The Mirror and the Light which is about the transition from Henry VIII, through Mary and then Elizabeth. If we think that what we are living through now is crazy, we should take a moment to reflect on the French Revolution. It rocked Europe for decades. Some of you will remember the name Maximilien Robespierre. His nickname was "The Candle of Arras" and he was an extremely mild mannered, soft-spoken man that ended up condemning thousands of his political enemies and anyone who stood in the way of the revolution to the guillotine. As often happens in revolutions, the revolutionaries eventually ate themselves. Robespierre and all of his cronies eventually met the same fate via the guillotine. The second book goes through the transition from England as a Catholic country to Protestant, back to Catholic, and then back again. People were burned at the stake for their beliefs, mercy was scarce and chaos reigned for many years. We need to be aware that while our country seems to be chaotic right now, it is not the first time in history that chaos reigned.

Speaking of chaos, let's not forget World War I and World War II, or for that matter the Vietnam War, the Korean War, or the race riots of the 1960's. Remember the 1968 Democratic convention in Chicago? During the riots surrounding that convention, more than 48 hours of rioting left 11 Chicago citizens dead, 48 wounded by police gunfire, 90 policemen injured, and 2,150 people arrested. Sound familiar? Unfortunately, our world is filled with many imperfect people. They often screw up in the pursuit of short-term power struggles and personal advancement. Right now, Donald Trump is the center of attention. In 20 years, his impulsive tweeting and the media responses will mostly be forgotten. Consider another example, Joseph McCarthy. Most of today's youth has never heard of Joseph McCarthy and his maniacal attempt to destroy communists. He spent three years in the senate from 1942 to 1945 doing just that. He wrecked many lives and destroyed many careers, professional and political. At the time, everyone knew who he was, what he was doing, and how powerful he was. Today, I'm guessing less than 20% of the U.S. population has ever heard of him.

As Mark Twain said, "History doesn't repeat itself, but it does rhyme."

What will it mean for the financial markets in the short term of the next two to three years? It's literally impossible to say. Negative interest rates? Massive inflation? Deflation? Politics? Will the Euro survive? Will we find a cure for COVID-19?

This brings me full circle to my title, What a Puzzle. During the bad weather stretch here in Jackson Hole, we decided to get a 2,000-piece puzzle. It is way beyond my skill level. My kids informed me that there are strategies to doing puzzles. First, you get all the edges together. Then, you sort similar colors. There are also strategies for managing financial assets through these times, and I think it's actually pretty simple. First, don't even pretend that you know what is going to happen. Don't. If you claim to know, it will make you look silly and arrogant. Second, get your team together and brainstorm on as many potential outcomes as you can come up with. Be creative. Then, map out potential scenarios in both time and space. By space, I mean potential outcomes. I will not claim that the next few years will be easy for investors, I think it will be extremely hard, especially when you throw in the Fed and its insatiable hunger for assets. By the way, don't forget to check out that William Dudley article I mentioned in my 6/25/20 post.

As we head into the July 4th holiday, I wanted to take a moment to say how thankful I am to live in this country. There have been days lately where I fear for its future, but there is no better country on this planet than the United States of America. I am really blessed to be writing this from the wonderful state of Wyoming, staring at the Grand Tetons. Amazing. To that end, I wanted to share a quote I found from Dwight Eisenhower:

"Independence Day: freedom has its life in the hearts, the actions, the spirit of men and so it must be daily earned and refreshed - else like a flower cut from its life-giving roots, it will wither and die."

Final, final thought: eat a hot dog this weekend. It's good for the soul.