Here are some things I think I am thinking about.
1) The Mask Controversy.
I manage risk for a living. It’s something I obsess about every minute of every day. Understanding risk helps you optimize risk and reward by understanding when things have an asymmetric payoff. We all want to do things that have a high payoff and low amount of risk.
COVID is obviously a very high risk virus. We don’t know exactly how to stop the transmission of the virus, but it is becoming clear that mask wearing is consistent with reduced rates of transmission. Mask wearing is also a very low cost and low risk act. It is, in the current environment, one of the perfect asymmetric trade-offs. So, there’s your trade of the year – if you want life to return to normal and the economy to recover then do your part and wear a mask when you might expose other people to the virus and ignore all the political bias around this issue. It’s just silliness.¹
2) Stressed Banks
The Fed capped bank dividends and banned buybacks after the recent results from the stress tests. This leads me to believe that the Fed is somewhat concerned about bank capitalization going forward. Makes sense in my view. The way the virus seems to be playing out I think we’re very likely to see the economy remain under pressure into year-end. Without another big stimulus package it’s likely that we’ll start to see rising real estate defaults (especially in the commercial space) in the Fall and Winter.