The Recovery Will Surprise!  Count on It!

By Shlomo Maital      

     The New Year 2021 is here.  At last.  What will it bring?

      Economists have an awful track record in their predictions.  So take mine with a grain of salt… But nonetheless…

      The economic recovery will begin with widespread vaccination, and a chance in mood and mindset.  Later this year, people will return to their old spending habits, with a vengeance.  Why has the stock market hit record heights, despite the pandemic?  Because people have been saving and the money has been invested, with few good choices except the stock market and equities.  It’s basic supply and demand.  With interest rates low, borrowing costs are low, and bond opportunities are poor.  Why not go for equities?

        After World War II, economists predicted depression.  It was logical.  With some 8 million Americna soldiers demobilized, and with huge dollops of defense spending about to disappear, it looked like there would be massively deficient demand. Economists predicted the depression might return.

      The opposite happened. The economy took off (see graph).  Why?  Soldiers who came home played catch-up —  there was a baby boom, housing boom, everything boom…demand soared.

        This will likely occur, on  a somewhat reduced scale, later this year.  People will emerge, and catch up on their spending.  The economy will boom.  The businesses that shutdown will re-emerge.  A lot of things will change – but the good old personal consumption will again buoy the recovery. 

          I feel pretty confident about this.   But – we shall see.