This Time Was Different

When assessing all the potential risks to the economy in 2020, not a single person had a global pandemic on their list. And because the shock came from outside the economy, the ensuing recession was didn’t follow the traditional playbook.

Howard Marks wrote about this in his latest memo. He said:

Most of the time, downturns stem primarily from economic weakness, and they are repaired with economic tools. But this episode is different. It was caused by an exogenous, non-economic development, the pandemic. The recession- rather than being the cause- was the result: a closure of business induced intentionally in order to minimize inter-personal contact and halt the spread of the disease.

Nobody knows when the virus will be gone. All we know is that it’s still here, as is the recession. And yet, asset prices are at all-time highs. The Russell 3,000 for example is 3% higher than it was at its peak in February, before the markets cratered. The Nasdaq-100 is 22% higher now than it was at its prior peak.

This recession was different than all others. This recovery was different than all others.

If we’ve learned anything over the last few months, it’s that change is the only constant in the markets. We must be very careful about what we think we know.


Coming Into Focus