COVID-19: Summer 2020 versus Summer 2021

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Dear fellow investors,

In the summer of 2020, we didn’t know quite a few things about how Americans would react when they got their social and entertainment choices back. We didn’t have vaccines yet and the media took everyone to the scariest place they could as they framed the future. Why are investors reacting in a similar way to this 2021 spike in positive cases? What opportunities does this create for the long duration common stock investor?

Between March and November of 2020, value investing and stock picking were pretty much left for dead. We had no way of knowing whether we’d get vaccines, we had no way to know if folks would ever go back to shopping in stores, going to entertainment venues, visiting casinos, taking airline flights and boarding cruises.

Now in 2021, we have a big spike in positive cases of the virus and the fear-mongering media is at the top of their game. Woe for us, visions of an everlasting virus dance in our heads and consumers and investors are reacting to this spike very much like they did last fall. How do we avoid stock market failure?

First, review the long-term chart of commodities versus stocks going back 250 years:

Source: Stifel Market Strategy Presentation to CSI Conference Jun-8, 2021

Commodities are likely to do dramatically better the next ten years. This means oil, lumber, copper and a wide variety of inputs could roar in price. Inflation has been let out of its bag and is unlikely to get put back in. Here is what Mohamed El-Erian says about where we are:

“The Fed’s new framework was designed for a world of deficient aggregate demand where supply was not an issue,” says Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist. “Coming out of the pandemic, we live in a world of ample demand where the main problem is on the supply side.”

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