In this Issue:

  • New Risks: Normalizing the Abnormal
  • Getting School Back in Session
  • Long-Term Rates, Near-Term Concerns

The eager entrepreneur sits at the desk of a startup investor, seeking the seed funding that will allow her to open her dream restaurant. “Your pitch sounds great,” says the investor, “but I have one question: Could your business survive a year-long government shutdown mandate that prevents customers from dining on premises?”

Not long ago, that question would sound preposterous, perhaps paranoid. Today, it is legitimate.

Our concept of plausible risks has entirely changed. COVID-19 is top of mind, and not just because of business risks like those described above. The scope of health risks and necessary mitigations has widened; we newly question whether merely leaving the home is wise or necessary.

Weekly Economic Commentary - 03/05/21 - Chart 1

A variety of adverse events have occurred recently, as simmering risks boiled over. While climate change takes place over a long range of time, it can manifest suddenly. The recent cases of Texas freezing and California burning added to a rising frequency of severe natural disasters around the globe. These episodes are consequences of the long-running (and long-ignored) risks from pollution. Reports of high-profile cybersecurity incidents are on the rise, the result of the gradual increase in concentration among technology service providers and a steady accumulation of bad actors.

Unforeseen events quickly and palpably rattle markets. In 2008, equity markets sold off, the Cboe Volatility Index (VIX) reading set a new high, and bond yields plumbed new depths as the financial sector reckoned with an overproduction of mortgages. Though it felt like a once-in-a-lifetime interval of stress, just 12 years later, the pandemic brought about an even more severe downturn. Last March witnessed another record high in the VIX and a plunge to even lower depths in yields. And just as markets stabilized, the GameStop mania provided sudden evidence of the long-term rise of social media and the decades-long collapse in the cost of trading shares.