What’s the Fallout?

Managing Principal

What type of long-term impacts can a national crisis or a pandemic, such as COVID-19, have on a nation or society in general? How do these types of events change the way we view the world post-crisis? I have been in finance for over 20 years, and in that time, we have had no less than four pandemic scares, one great financial recession, wars, several bear markets, and more corrections than I can remember.  Is it fair to say that events like 9/11 and the recession that followed, or the Financial Crisis of 2007 and 2008, and “health-related events” like the COVID-19 virus change the course of history going forward? What if we backed up a number of decades and included the Great Depression of the 1930s? More importantly, are there similarities in the way people and economies recover or adapt from events like these?

I have had the privilege to work with many clients who were young adults, some even children, during the 1920s and 1930s. With very little doubt, the post-depression generation had a mentality of being very frugal, of saving at a higher rate and of making sure an emergency fund (and food cellar) were well stocked. Could a bigger factor be the length of the event? Negativity over time, month after month, and year after year, does wear people down and can give them a feeling of helplessness. The fallout from the Great Depression was much longer, the employment rates on a relative basis much higher, and the poverty level much greater. The better part of a decade in an economic tailspin, with rising rates and very little opportunity, left a generation forever changed.

How about the Financial Crisis of 2007 and 2008? That monumental event spanned just over two years, cut deep into stock prices (to the tune of 50%), and destroyed homeownership for a huge swath of the population. It was a difficult time for most people and a time where credit from the banks all but dried up. There are similarities between the Financial Crisis and the Great Depression from a structural standpoint, with leverage and risk-taking running rampant both times. The biggest difference in the outcome and long-term fallout to society between the two events was that the government acted more swiftly in the crisis of 2007 and 2008. It acted in ways that stabilized and then stimulated the economy. The Fed cut rates to virtually zero and injected money into the banks to, in turn, pump into the economy to kick start the lending engine again. The Financial Crisis devastated many workers’ savings, eliminated their jobs, and exposed a number of cracks in the system. The events caused laws to be re-written in Washington, similar to what happened after the Great Depression. The Dodd Frank Act, one of the biggest pieces of legislation to ever be created, was a result of the changes that needed to be put in place. But back to the question – did the Financial Crisis change the way people live, spend, save or plan for the future just like the Great Depression did?  Will the recent COVID-19 scare do the same?

I would say an absolute yes to the question about history being forever changed. Events that we have to suffer through undoubtedly change the way we act and affect the choices we make. When we suffer a job loss or a sudden loss of wealth in a volatile market, or anything meaningful and tragic, it creates lasting memories that change the way we view things. Worldwide pandemic scares that call for social distancing, or stay-at-home orders will most likely affect us long after the event has passed because we remember how we felt when the event happened.

No one knows for sure how things will change.  Maybe we will save and invest differently. Maybe we will protect ourselves in ways that perhaps we never thought we would have to.  Maybe we will wear bubble suits with oxygen tanks to go outside. We will see. Whatever it is, we will rise to the call and will still be the best nation in the world to live in.

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor, Independent Advisor Alliance and Marzano Capital Group are separate entities from LPL Financial.


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