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Sailing into uncharted waters
by Andy Burish, founder and managing director of The Burish Group
As the US economy gradually awakens and
changes course, investors are facing an
unprecedented level of uncertainty about
the outlook for their portfolios. Stock
prices have rallied strongly in anticipation
of an economic reopening, reflecting a
belief that consumer purchasing power has
only been delayed, but not destroyed.
Amid the optimism, however, you may
have heard other voices drawing parallels to
the difficult times of the 1930s. And, over
the near term, many of the statistics will
indeed look similar to that lost decade. For
example, the nation’s unemployment rate
rose in April to 14.7%, the highest in the
post-World War II period.1 Viewed through
any realistic lens, the hit to the economy
from the coronavirus outbreak has been
severe. The waters may seem choppy.

central bank. The Fed possessed neither
the expertise nor the monetary firepower
required to arrest the downward economic
spiral that took hold in the early 1930s,
and that reappeared later in the decade.
In contrast, the “modern” Federal Reserve
has been both bold and creative in fighting
the economic consequences of the
coronavirus pandemic, first by using tools
dusted off from the Great Recession—
including lowering its benchmark lending
rate to near zero—and by implementing
an array of lending facilities designed
to address liquidity shortfalls in various
lending markets.

Notably, the Fed recently expanded
its bond-buying program beyond US
Treasuries to include US corporate debt.
For investors, that could mean higher
But while the immediate consequences for bond prices, and for the economy, lower
the American economy make for disturbing borrowing costs.
headlines, there are many reasons for
In dollar terms, the size of the Fed’s
optimism.
interventions are staggering: Since March,
Major differences between our 21st
century financial system and that of
the pre-war decade suggest a different
outcome, albeit one that is still
economically challenging and far from
what we expected only a few short months
ago. And these differences are significant.
So what does this mean for you as an
investor? In a word: plenty.
Lessons learned
America of the 1930s was ill-prepared
and poorly equipped to cushion the
powerful economic shock that stemmed,
in part, from the stock market crash of
1929. As late as 1933, the US was still
on the gold standard, which restricted
the government’s ability to lubricate
the nation’s economic engine by rapidly
increasing the money supply.
At that time, the Federal Reserve was
a relatively young and inexperienced

1
2
3

the Fed has pumped over $2 trillion into
the economy1—about 9% of annual
GDP—and has signaled it will do whatever
is necessary to minimize the economic
damage.

trade-related disputes, global tariff rates
remain far below those in the 1930s.3

Will Americans revert to their prepandemic spending habits, or will they
decide
to increase their savings? Could
It is also important to note that there are
social
distancing
further damage brick-anddifferences between the current downturn
mortar retail, or will shoppers return to
and that of the Great Recession. In
physical stores once they feel safe in doing
September 2008, the financial system had
so?
Will the trillions of relief and stimulus
nearly shut down due to nonperforming
dollars
created out of thin air eventually
loans in a high-risk segment of the
residential housing market. Investors feared lead to a resurgence of inflation, and if
so, what will that mean for bonds? Could
for the safety of their holdings in money
market accounts. Neither of those concerns the Federal Reserve actually welcome
higher inflation after more than a decade
are present today.
of undershooting its price targets? What
Economic lessons learned from the Great
effect will more people working remotely
Depression led to the creation of a social
have on oil prices and the clean-energy
safety net through such programs as social industry? And finally, what will become of
security, unemployment benefits and bank travel/leisure businesses, which have borne
deposit insurance.
the brunt of the economic lockdown?
The bottom line:
The answers to these and other questions
While the initial economic jolt from the
will be key to constructing portfolios that
COVID-19 outbreak could approximate
balance the need for return with the need
that of the 1930s, it is not clear if this will
for prudence.
be shorter or longer lived or cause more
At The Burish Group, we are here to listen
or less damage to the nation‘s financial
to your concerns and help you navigate
infrastructure. For example, the bank runs
your investments through these uncharted
that characterized the Great Depression
waters. Call us to begin the conversation.
will not be reprised in the current version.

This is not to suggest, however, that
economic conditions will quickly revert to
Investors like you have gotten the message: pre-pandemic levels, with totally smooth
The central bank has your back.
sailing ahead. Even with expanded social
programs and aggressive monetary and
So apparently have fiscal policymakers,
fiscal
policies, the damage to consumer
whose moves have diverged sharply from
confidence
and business and household
the 1930s. The combination of expanded
finances will take time to repair. Shoveling
unemployment benefits, small-business
money into the economic hole left by
loans and approximate $1,200 stimulus
the
pandemic may fill it temporarily, but
checks (sometimes called helicopter money)
the
financial ground underfoot will settle
has injected close to $3 trillion more into
over time, requiring still more government
the economy. Additional legislation seems
intervention and raising important concerns
likely in coming months.
about how to service all that new debt.
Taken together, the monetary and fiscal
The economy that emerges from the
rescue packages could amount to over
COVID-19
downturn will look different to
20% of US GDP, or roughly double the
investors
and
feel different to consumers.
projections for lost economic output this
How
different
remains to be seen.
2
year. And despite the recent escalation in

Andrew D. Burish
Managing Director

The Burish Group
UBS Financial Services Inc.
8020 Excelsior Drive, Suite 400
Madison, WI 53717
608-831-4282
andrew.burish@ubs.com
ubs.com/team/burishgroup

https://www.usnews.com/news/economy/articles/2020-04-09/federal-reserve-unveils-additional-2t-stimulus-to-support-states-markets-amid-coronavirus
https://www.aei.org/carpe-diem/putting-americas-huge-21-5t-economy-into-perspective-by-comparing-us-state-gdps-to-entire-countries/ ($5 trillion / $21.5 trillion = 23.25%
https://en.irefeurope.org/Publications/Online-Articles/article/Trade-Liberalisation-The-Challenge-of-Non-Tariff-Barriers
Andrew Burish is a Financial Advisor with UBS Financial Services Inc., 8020 Excelsior Dr., Suite 400, Madison, WI 53717 Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves
risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. As a firm providing wealth management services to
clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are
separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that clients understand the ways in which we conduct business, that they carefully read the agreements and disclosures that we
provide to them about the products or services we offer. For more information, please review the PDF document at ubs.com/workingwithus. © UBS 2020. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC.
VIP_05192020-10.25x10

Exp.: 05/31/2021

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