No Reserves
Pointing Fingers
Blood Sport
Gym Time and Bear Market Timing

When Cornwallis surrendered to George Washington at Yorktown in 1781, tradition has it that the British band played an old English children’s folk tune, “The World Turned Upside Down.”


Painting by John Trumbull

If buttercups buzz’d after the bee,
If boats were on land, churches on sea,
If ponies rode men and if grass ate the cows,
And cats should be chased into holes by the mouse,
If the mamas sold their babies
To the gypsies for half a crown;
If summer were spring and the other way ‘round,
Then all the world would be upside down.

In this letter I find myself recommending policies that not that long ago would have been extraordinarily distasteful to me. Yet, unless we pursue them, our economy will truly be turned upside down. I fully recognize these things have a cost. But the cost of inaction is much higher.

Our economic prospects looked bleak back in March and April. Much of the economy was closed down, we didn’t know how bad the virus would get, and it was hard to see a good outcome.

Now the outlook is relatively better. Unemployment, GDP, and other indicators aren’t great but they’ve improved. Yet a “better” outlook isn’t necessarily a good one. It’s just “not as bad.” Today’s numbers would be considered terrible if we weren’t comparing them to truly disastrous numbers from last spring. We avoided the worst because generous fiscal income replacement and business lifelines maintained consumer spending, and in some cases increased it.

If you fly a lot as I do (or used to), you’ve heard the term “stall speed.” An airplane needs to go a certain speed in order to stay aloft. The math behind that idea is pretty simple: lift from the wings must be equal to or greater than the plane’s weight. Lift, in turn, comes from the engine creating forward motion relative to the air. No air flow over the wings means no lift and no flight.

In economic terms, we stayed above stall speed by forcing extra fuel into the engine. The resulting forward motion gave the economy the lift it needed. Now the fuel is running out.

If this plane stalls, as is a real possibility, we won’t like the result. Today we’ll talk about why that is and how to stop it.