Imagine having a rally car, like a smaller-category Ford Fiesta, on the starting line. Right next to it, imagine a semi-trailer truck, with more wheels, a much bigger engine and more horsepower. Now, imagine that the little Ford Fiesta gets installed with the same engine as the semi-trailer, so they’re both racing with the same amount of horsepower. If they both press the pedal to the metal at the same moment, the Fiesta will fly out of the gate much more aggressively than the semi-trailer truck will.
Being more nimble and much lighter, it can race ahead much faster than its heavy opponent. Economic recessions make the velocity of currency stall. It makes it so that the semi-trailer and the tiny Fiesta hit a wall (semi-truck being large business and Ford Fiesta representing small business). Once the impact is felt, the survival rate of the truck driver is higher and the damage done to him is far less harmful than the fatal wounds inflicted upon the driver of the little Fiesta. If both survive, though, and are bailed out of the mess by fixing all of their issues, the first few seconds of the race will clearly be won by the Ford Fiesta, since it’s built to shoot with speed from the starting line.
If the engineers feel that the damage to it was severe, they may over-repair it, installing an engine that doesn’t fit a small car, but a truck. They may have good intentions, but their error in judgment will lead to many issues down the road.
The pandemic was that wall. Both large businesses (semi-trailer trucks) and small businesses (Ford Fiesta rally cars) hit it simultaneously. Some trucks not only did not hit the wall, but blasted through it, showing how strong they were (Amazon, Walmart and other “shutdown winners”). Some smaller cars used that hole in the brick wall and passed through it, after the semi-trailers paved the way (Zoom, DocuSign and the like). These not only did not get hurt by the recessionary wall; they got much stronger, since their competition totaled their cars, so to speak. Walls are not fair, nor are recessions. Some are able to go above them, under them, around them or right through them, while others get wrecked. The pandemic wasn’t “fair” towards many businesses and it changed our world; no need denying that.
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Because engineers, firefighters, mechanics and rescue (governments and central banks) rushed to the scene immediately, the atmosphere of panic and disaster soon changed into hope and faith. Drivers imagined their cars going back on the road, better than ever (stock markets bounced fast in late March, rallied and even entered euphoric valuations), all as cars were mostly still getting fixed, replaced or totally renovated.
This metaphor is analogous to what has transpired thus far. The Republicans didn’t believe the wall was necessary, while the Democrats thought that this was one of the best ideas, since the wall was put there, in order to stop the cars from potentially going over a cliff.
In the end, a few of the mechanics invented a seemingly great solution, a sensor that is aimed at clearing all future walls of this sort (vaccine), but many don’t trust the sensor and don’t want their vehicle to be wired with it. It’s important to remember that governments put the wall where it is. The wall represents the lockdowns and the shutdown.
To sum up our current situation, most cars (both large and small businesses) are in the final stages of getting their oil changed and their tires pumped with air; they’re almost ready to hit the road again.
From the point of standing still, the smaller cars obviously are better suited to get a better start. These “cars” are metaphorical to cyclical businesses, such as commodities, banks and other industries, which were most hit and now have fresh legs, like hospitality, tourism and retail stores.
These drivers haven’t been on the road in so long that they may push the gas pedal too much (analogy for inflation).
2021 is not the reflation year; it is the inflation year and the starting gun will be the 2nd stimulus plan, which we expect to be announced in December, but more likely in January.
Right now, speculators can conjure up any scenario they want, but anyone who has ever seen what happens when the police stop traffic and then start it up again, knows that they race out of there.
I expect inflation. I expect the next few weeks to feel like a double-dip recession, but come March, I expect gold to go north, north, north.
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