Juggling Dynamite

As the latest COVID-19 variant (Delta) accelerates, legitimate questions arise about when a booster shot may be needed to maintain antibodies among the vaccinated and whether rich countries should be entitled to a third shot while 84% of the global population has not had the first two.  See Does the explosion of the new Delta variant mean we need a new COVID-19 vaccine?:

Worldwide, only 15.6% of people are fully vaccinated, according to Our World in Data. This has many health experts concerned that high-income countries will be busy handing out booster shots while the rest of the world burns. It’s another ethical quandary, Ochando said. Distributing booster shots to the immunocompromised and elderly in wealthy countries makes sense, he told Live Science, but providing third shots to young, healthy people in rich countries is hard to swallow when only 2% of Africa’s population has been fully vaccinated, according to the Africa Centres for Disease Control numbers.

One thing we know for sure is that the more the virus spreads the more its variants are likely to prove endemic.  This is one of the reasons that the exodus of workers and dwellers from major population centers may be longer-lasting than presently priced into property prices, rents and government tax collection forecasts.  “The High Beta Rich” author Robert Frank reports on trends to date in New York.

CNBC’s Robert Frank reports on New York City real estate. Here is a direct video link.

Life is full of risk every day in every way.  Acknowledging this is not pessimistic; it allows thinking people to be proactive.  Risk management requires that we hope for the best while trying to drownproof an uncertain future.

Cultivating health is job number one.  Beyond our bodies and environment, this means minimize debt, keep costs and spending well below our income, buy insurance, maintain liquidity and direct longer-term savings in ways that enhance future resources.

Over the past year, I have encountered many well-intentioned people who have come to believe that the best way to help young people is to assist them in buying homes priced at 5 to 15 times their household income.

Many have borrowed personally to help with downpayments or co-signed to enable off-spring into properties they will struggle to maintain and indebtedness that will last decades.

Few have considered the probability that home prices may be flat or considerably lower a few years hence than they are today, and that many may need to sell before prices recover.

Already, recent surveys show that 20% of Canadians regret how much they’ve borrowed, and 45% doubt they will be able to cover living expenses without going further into debt.

The best time to prepare for both difficulty and opportunity is before they arise.   The best time to reduce spending and risk is before we are forced to.   Solid financial plans require optimism and drownproofing.

As Ben Graham pointed out in 1959, the typical experience of the speculator is one of temporary profit followed by ultimate loss. Yet, those who buy corporate securities without regard for valuation are speculating, whether they know it or not.

Another generation is learning old lessons the hard way; see How Millennial Investors lost Millions on Bill Ackman’s SPAC.

And it’s not about a lack of smarts; in fact, intelligent, educated people are just as prone to classic errors of over-confidence and reckless ‘investment’ choices:

“Just because I have specialized training doesn’t mean I can’t be just as much of a fool as the guy next door.”

Also, read the very lucid The Critical Importance of Confidence Diversification to Today’s Investment Portfolios:

It is very rare to see the kind of extreme confidence we have today in so many financial assets at once. Moreover, it is a potentially precarious situation. Overconfidence is inherently fragile, and, looking at most portfolios, there are few holdings with low or uncorrelated sentiment to buffer losses should confidence soon drop. When it comes to mood, portfolios are woefully unbalanced. Not only is everything is on the same side of the sentiment ship, but extremely so.

While investors are now debating what might happen to future asset prices because of macroeconomic forces like inflation and growth, I think they are focused on the wrong risks. What will drive prices ahead will be a function of what happens to the synchronous euphoria now present in what were once confidence-uncorrelated markets. Given the collective extreme in confidence, if sentiment drops, it is likely that all asset prices will fall sharply in unison. Investors won’t reap the benefits of diversification they believe they have in their portfolios.