See Other Side

St. Patrick’s Day always brings back fond memories…  The day always began for my dad and I with 7:00AM mass at St. Francis.  We knew it was a special day, at least for those of us who were Irish, when Dr. Gavagan walked down the center aisle wearing green wing-tip shoes.  After mass, my dad would lead us on a day of revelry beginning at an Irish pub called Dineen’s where we consumed a strange, awful-tasting concoction called a Tom & Jerry.  From there we traveled to a few other local taverns like Eddie Kane’s and Millie Miko’s.  On one memorable St. Patrick’s Day, we drive 60 miles to the state capital in Albany to a famous place called The Grinch.  As we walked toward the entrance, we could hear raucous singing to the tune of Irish folk music.  Above the steps, perpendicular to the door was a peculiar sign – “See Other Side.”  My dad chuckled as I followed directions.  On the other side was the same message.  The Irish sense of humor…

See Other Side…  Perhaps today, it is the right message at the right time for our country.  As vaccinations and herd immunity move in a positive direction, we can begin to see an end to the pandemic.  Will the recovery be strong or weak?  Perhaps, most importantly, will the politicization and polarization ever end?  Let me address the last question first. 

Politicization and polarization can only exist when there is a refusal to listen to, understand, and respect the opposite viewpoint.  Congress continues to demonstrate this unwillingness in its legislative process, but worse over in its communication and endless political spin.  Are they leaders or are they followers?  If they are the former, it is hard to envision our country uniting without bipartisanship being the modus operandi of Congress.

If we start from the assumption that our country cannot achieve its full potential if we remain divided, then how Congress conducts itself matters.  Legislating from the center, finding compromise on controversial issues, would go a long way toward unifying our country. Is Congress up to that task? So far, there are no signs that they are. So, our country remains polarized.

What will be the lasting impact of the pandemic? Will masks and social distancing be the new normal, even after we are all vaccinated? How will we rebuild trust and a sense of community?

The strength of the economic recovery hinges on positive progress on the first two issues. If we remain polarized politically, distrust and fearfulness will continue to suppress spending and investment, as well as overall economic growth. If we don’t work at the grass roots level to rebuild community, collaboration and entrepreneurship will not thrive. In short, we will fall far short of our economic potential.

With tax increases and increased government regulation a virtual certainty, an economy already operating below its potential will likely weaken further. As I see things today, there is a relatively high probability that this will be the most likely scenario over the next few years.

On the positive side, interest rates and inflation should remain relatively low. The pressure will be on companies to produce reasonable earnings growth in a very difficult environment. It would seem logical to see the overall equity market continue to narrow, fewer stocks driving the overall performance of the benchmarks.

Risks to this outlook include inflation gaining momentum due to endless government stimulus. The recent rise in interest rates is a warning signal, and trends in interest rates and inflation should be closely monitored going forward.

See Other Side… What risk is there, really, to be open-minded and listen to opposing viewpoints? Really listen and try to understand, before trying to be understood. When we finally decide to do this, and I am ever-hopeful we will eventually, the power of collaboration and esprit de corps will unleash an energy that our country hasn’t seen since WWII. Trust, community, confidence in the future, and teamwork, will be the major driving forces of the next great period for the most amazing country the world has ever known.

I just hope I live to see it.

Michael Kayes, CFA