Common Cents & Fear on September 4, 2020

This morning, the Bureau of Labor Statistics (BLS) released the “The Employment Situation – August 2020” report at 8:30 am EDT. Frankly, it was pretty good. The BLS estimated employers added 1.371 million net new jobs last month, and the official Unemployment Rate fell to 8.4% from 10.2% in July. Secondarily, the Labor Force Participation Rate increased 0.3% to 61.7% and the Employment to Population Ratio, the percent of working aged Americans actually working, jumped from 55.1% in July to 56.5% in August. That bodes well for overall household income.

While the headlines were great and much of the underlying data solid, there were still some dark clouds hiding within the silver linings if you were inclined to look for them. The economy created only 29K net new jobs in manufacturing, and much of the growth was ‘chunky.’ For instance, ‘general merchandise stores’ added 116.4K new jobs, ‘temporary help services’ accounted for 106.7K, ‘food services and drinking places’ tacked on another 133.6K, the Federal Government grew its payroll by 251K, and local governments somehow came up with the funds to create another 95K jobs.

Then, there is the simple fact there were officially 10.227 million fewer payroll jobs in the US economy in August 2020 than there were in August 2019. For all the good news in the report, and there was plenty, that last sentence is where the rubber truly meets the road. 10.2 million fewer payroll jobs. When you consider the entire population of Michigan is roughly 10 million, every last man, woman, child, and gender fluid individual, that is a hard number to fully grasp.

There I go again, being negative.

When push comes to shove, when the smoke clears, and the dust settles, it DOES appear as though the US economy is gaining traction. I will stop short of saying ‘we’ are where we need or want to be; however, the current state of things is much better than the worst-case scenarios many envisioned not so long ago, including me. Who should we thank? The Federal Reserve and its blank checkbook? The Congress and its CARES Act? The Administration? Dr. Fauci? The gradual and begrudging acceptance economies had to ‘re-open’ to avoid long-term distress and/or collapse? The continued studies which suggest, if not confirm, those most at risk for death from COVID-19 are old, already infirm, men?

In truth, while the pandemic is still a topic of discussion with clients, it seems people are increasingly focused, or worried, about what seems to be increased lawlessness in America. If I could generalize the prevailing attitude of the people with whom I have spoken about the pandemic, I would venture the following: “yeah, COVID-19 [stinks], but we have to get on with our lives at some point.” Of course, this is a broad assessment and there are exceptions. As to the continued disquiet around the country coupled with the apparent public desire to defund or otherwise defang local law enforcement, I have met no small number of people who are nothing short of alarmed.

Oh, don’t get me wrong; people understand the underlying frustration and societal discontent much better than the media would give them credit. They do. However, it scares the living [bejeebers] out of many to see local governments consciously deciding to not enforce their own laws, and even have elected officials publicly denounce those whose job it is to uphold the very laws they pass. It especially concerns them to see the same things, the same stories, play out each and every day on their televisions, smartphones, tablets, and laptops. Riots [stink], but they happen and they generally end when the authorities decide enough is enough. What happens when the authorities never make that decision?

To be sure, most of us haven’t personally experienced the perceived uptick in crime, although some have. However, the perception of crime is ordinarily far worse than the reality of it. After all, the dark alley is more than likely empty, but how many of us are willing to walk down it if we don’t have to do so? I imagine very few, for as Napoleon Bonaparte said: “Men are moved by tow levers only: fear and self-interest.” As difficult as it is for us to accept this contention, unfortunately, there is much merit to it.

To this end, it is currently extremely hard to find centerfire ammunition for most types of handguns, especially 9mm. It is also difficult to find modestly priced 9mm handguns at big-box retailers. It isn’t impossible, but the demand for the things from first-time gun owners has everything to do with the fear they feel from watching the news. They fear what they see and read, even if they don’t actually experience. They decide it is in their best, self-interest to arm themselves appropriately, even if they never have the actual need for it.

Fear and self-interest? Sounds like the stock market doesn’t it?

What do people fear when they invest their money? That is simple enough, isn’t it? Losing it. So, why is it in their self-interest to invest their money? That too is simple: to make more of it. While Saint Timothy tells us “for the love of money is a rood of all kinds of evil,” it is generally accepted having more of it is preferable than the alternative, all other things being equal.

Interestingly, fear tends to be worse once one’s self-interest is sated. The fear of losing what you have is far worse than the fear of not attaining what you don’t. For instance, assume you have owned large-cap tech stocks over the last decade. How have you done financially? Quite well, right? Now, imagine you haven’t invested in large cap tech stocks over the last decade, not a penny. How have you reacted to the sharp sell-off in that asset class/sector over the last two days? Do you really care? And why not? Because it doesn’t impact you, right? You aren’t emotionally attached, even if you have friends and family members who might have been impacted. In truth, there is a strong likelihood you are experiencing a sense of schadenfreude from their paper losses, just as you probably experienced some measure of envy in their gains.

This emotional attachment to something as precious as one’s assets/savings is one of the primary reasons there are financial advisors. After all, when do most people make their best decisions: when they are calm and collected, or when they are stressed, fearful and emotional? You might be different than I am, but I tend to perform better when I am the former.

Taken together, what must we do, as individuals and as a society, to remove fear from the equation as much as is possible? What can we do to turn that fear around into self-interest? Because we operate at a higher level when we are striving to attain, as opposed to simply trying not to lose. For all you football fans out there: prevent defense, anyone? For anyone who has ever broken a habit or addiction, was it easier when you viewed it as a punishment or as a reward? For anyone who has ever opened a business or achieved some heightened level of success, could or did you appreciate the risks you were taking when you were taking them? Perhaps some, but not the full extent until they were in the rearview mirror, right?

Let me start closing this somewhat rambling piece today with a quote by Dale Carnegie: “You can conquer almost any fear if you will only make up your mind to do so. For remember, fear doesn’t exist anywhere except in the mind.” This is extremely good advice, and it can take on many forms and many guises. Perhaps you feel the need to purchase the handgun, turn off the bad news on the television, use a financial advisor, shelter in place to avoid COVID-19, or whatever is necessary to allay your fears and allow you to get into a ‘higher state of mind.’ This is where you are free from distraction and where you can make your best decisions.

If all of us can make these decisions on our own, and not have them forced upon us by the proverbial powers that be, we will be able achieve far greater things than what we have. This is intuitive to me: a collection of unfettered minds operating free from fear, and it their collective best interest, will almost have to perform better than they would when saddled with fear. By definition, right? Huh.

As crazy as this may all sound, it is what ran through my mind when I was reading this morning’s Employment Situation report. The US economy is creating jobs? Of course, it is, and would have been this entire time if we hadn’t shut down local economies and whole sectors due to fear. We can debate whether this fear was justified, but the numbers are what the numbers are: when we were our most scared and fearful, we hemorrhaged jobs and economic activity. Now that we are less scared and fearful, we are creating them again…in the millions, by the way. As I was typing that last sentence, the word ‘duh’ kept ringing in my ears.

Perhaps there is a lesson in there somewhere.

Have a great long weekend. Remember, on Labor Day, go celebrate work by playing all day.

John Norris

Chief Economist



As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.