Have We Seen This Before?

Can governments cause economic recessions and even depressions? The short answer appears to be yes, but with the best of intentions. California enacted shelter in place mandates sooner than many other states, and while the Cares Act and other stimulus plans have helped stem the tide, it is unclear how long we can use the countries balance sheet as a stop-gap.

Looking back over 100 years we see that the Spanish flu started in 1918 with 100 soldiers being infected in Kansas and spreading rapidly during the summer such that almost 200,000 deaths were reported in October. The virus killed more people worldwide than World War I and had an immediate impact on employment and certain industries. In one year, the average life expectancy dropped by 12 years.

The economic impact from this was the recession of 1919 and the follow-on depression of 1920 to 1921 as the chart shows.

Are we calling for a depression in the next few years? That is not the point we are seeking to make. Our point is that when it comes to the public health, we are all in it together. Government officials and the virus cannot discriminate, and it is very hard for freedom and liberty loving citizens to be told they can’t use the beach, or worse yet, go to work.

We expect more back peddling from our elected officials in the next 100 days and then another period of indecision as our newly or re-elected officials establish their plans. The correlations to the Spanish Flu period are not precise, there are many differences in our current situation. Yet we do believe that Winston Churchill’s quote, “The longer you can look back, the farther you can look forward” fits our current point of view. We are students of economic history to the end that it affords us to run our processes with the proper amount of patience and perspective.

Client Centered, Quality Focused. We are an independent, employee owned investment advisory firm with institutional quality practices that are applied to all aspects of our business. Our disciplined and balanced approach allows us to focus on the most important aspect of our job: creating long-term value for our clients. DLK is a diverse team of professionals who have experience in multiple areas of investment management, on both the advisor and client side.