Hold The Line

by Geoff Garbacz | 04/25/2021 10:45 AM
Hold The Line

Last night I was driving back from a swim meet in Wisconsin. Suddenly the song from Toto called "Hold The Line". There is a line in that song that is useful in today's  world- "Hold the line, recovery isn't always on time". Well I replaced the word love with recovery. It got me to thinking.

After the swim meet, we had dinner at Bravo Bio and sat at the bar. A couple next to me and my son made a comment about his flip flops and we began a conversation. It moved to Covid and the man noted that we are likely not done with the virus. I agreed with him but Mr. Market does not.

Mr. Market (i.e. the stock market) believes the growth will be huge and unstoppable. I have too much experience to blindly accept this idea. We will get our first look at Q1 GDP this Wednesday and it is expected to come in at 6.5% from 4.3% in Q4 of 2020. Ninety days ago Goldman Sachs was calling for negative Q1 growth. Well that has changed BUT 6.5% seems to be a stretch. We will see on Wednesday.

The big problem that is emerging is that the U.S., Great Britain, Israel and China (did they ever have it) seem to have beaten the virus. The rest of the world has not. Last Monday the State Department declared that 80% of the globe now has a travel advisory on it. Effectively, do not travel the globe.

Why? Covid-19 is winning the battle and most of the globe is losing the battle. A statistic I heard last week has really stuck with me. Last weekend the death toll for the world went over 3,000,000. On that same weekend, there were 5,000,000 new cases of Covid. That is an alarming statistic. 

So if the world cannot beat Covid, then U.S. companies may have big issues. Raw materials come from many emerging markets and if their population is losing workers or they are being forced to stay home, then U.S. companies may see those materials slow in getting to the U.S. We know that chip demand outstrips supply. Imagine if this would become the standard for all unfinished goods? 6.5% might become 2% growth.

Something to think about as we head into May.


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