Now that reality has largely arrived. Those retail sales numbers certainly seem to confirm it and we see it too in travel bookings. And we see it when we go out to dinner now along with everyone else trying to get a table. But markets have become a little more divergent over the last month. There is no consensus, yet, about what comes next. Everyone already expects some kind of boom in the coming months, a rip-roaring summer of fun; it’s already priced in. What markets are searching for now is an answer to what comes after the boom, what comes after we get the pent up demand satisfied.

I often say that it isn’t our job as investors to predict the future. Our job is to interpret the present, to observe not predict. But that doesn’t mean we don’t think about how the future may evolve. In broad strokes, we know what creates economic growth. The only two things that really matter are workforce and productivity growth. The only way to make more stuff is to put more people to work or to make existing workers more productive. The reason we have been growing at 2% for the last decade is because population growth has slowed while labor force participation and productivity growth has been weak. When we look past the re-opening boom it is those measures that will have to move to produce a better outcome. It is probably harder today to do that than any time in my life. The virus impacts all those items and we have no way of predicting the long term consequences. In that context, some confusion on the part of investors today makes perfect sense. Pretty soon though a new consensus will develop, one that starts to incorporate innovations and investments that will impact tomorrow’s productivity growth, economic growth and corporate earnings. It is during these uncertain periods, these transitions, that we get increased volatility. Uncertainty leads to a lack of liquidity (no conviction) which leads to volatility. So fasten your seatbelts and put your trays in the upright position because we may be about to hit some turbulence. I hope you’ve enjoyed your vacation.

Industrial production was a little disappointing considering the surge in activity but some of that was due to reduced utility output after the cold spell passed. The manufacturing portion was quite a bit better than the headline.

I don’t have any strong opinions about what the post boom period will look like but I will admit that I have a hard time seeing how current economic policy will move the needle on the things that matter. The Biden administration may be slightly more lenient about immigration than its predecessor but political reality means immigration probably won’t produce any big changes in the labor force. Generous unemployment benefits play a role in keeping people out of the labor force too although that probably isn’t as big a problem as it is made out to be. States enforce the rules about collecting benefits. And I am old enough to know that anything labeled infrastructure is likely to be nothing more than a grab bag of political favors so don’t expect any productivity miracles from that front. What I don’t know is what will come from the private sector. Like most people I think, I am astonished at the speed at which the private sector produced multiple vaccines. And the technology used to produce the Moderna and Pfizer vaccines holds promise in other areas. I also know that necessity is the mother of invention and that there will be some innovations caused by the virus in other industries that pay dividends. Americans are at their best when the chips are down; the 1930s were a very innovative time. Whether there will be enough to raise productivity – and economic growth – significantly I can’t say. But I am certain the market will let me know when the time comes.