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V for Wunschdenken

We've been told that there has been, and will be, a V-Shaped economic recovery. Well today with unemployment claims and corona virus cases back on the rise, failed vaccine trails and a stimulus 2.0 impasse in Congress, this theory is being massively tested. It is a theory that I had never bought into. So, I figured a repost from my Medium article I publish in June, and an official post on The Wealth Effect, would be quite prescient. 

V for Wunschdenken - Medium - 6/3/2020

Perception is reality. At least that is the dubious claim that we are told. Is perception really reality, or is perception just your reality? Was WeWork's V-shaped turn-around reality, or just their perceived reality? It’s an interesting thought experiment and especially poignant in a world where everyone is chasing their “own truth” and attempting to manipulate the world around them to the way they wish it to be. Naturally, then, we are continuously fed narratives of what people want to believe as opposed to what they believe to be true. Never mind what they believe to be universally true. See, there is a distinction here, one that I would imagine has roots in philosophy and psychology, but the nuance can lead to drastically different perspectives.

Wunschdenken, pronounced with a V, is the German term for wishful thinking. I use this term here because often when people want so badly to believe something (or not believe something), their logical anchoring can become utterly indistinguishable from wishful thinking. The power of the human brain to rationalize just about anything into what it wants to believe is quite potent. Now, wishful thinking is not necessarily a bad thing all the time. After all, it generally pays off to be optimistic over the long-run because 99% of the time, things turn out to be just fine. But what of the 1%? Does it pay to be wishful thinking when life is in the domain of the rare “black swan”? (yes, I know, that is not the true meaning of the term.)

There is a fragile and dangerous line between wishful thinking and delusion. To illustrate the point, I’ll illuminate with an example. If a tsunami, or an avalanche, or a hurricane was barreling towards you, would wishful thinking help you? Religious and supernatural beliefs aside, could it somehow change the outcome? I’d bet most of your answers are an emphatic no. And not only that, I’d bet you’d say the best course of action is cold, hard, rational, objective truth, and evaluation of the current situation is the best way to perceive reality (Perception  Reality). That is if you wish to survive. In this example, it would be very costly to not perceive reality for what it is, and therefore, one must realize that there is an objective reality to observe. I’d bet WeWork investors are starting to come to their senses.

So what is the current, widely held belief, yet is Wunschdenken? A V-shaped economic recovery.

Let me first a foremost start off by saying that I wish more than anything that there is a V-shaped economic recovery. So much pain and suffering could and would be avoided if that was to play out, and maybe it will. But it is Wunschdenken. There is no point in staring a tornado in the face and convincing yourself that “it will dog-tail left.” Sure there is a chance, but you’d be better off battening down the hatches, getting in your car, and getting the hell out of dodge. Just like now, there is no point in saying there is going to be a V-shaped economic recovery in our future when we have failed to ensure its outcome. Sure there is still a chance, but we’d all be better off understanding the true state of affairs being caused by combating this virus and recognizing what will be necessary to deal with it moving forward. That is if you want to make good economic/business/investing decisions. And for that reason, financial modeling that does not take into account the continued behavioral impacts on socioeconomic activity over the next 12–24 months is Wunschdenken.

Why? The very foundation of our global economic system lies upon the bedrock of a rapid free flow of goods, services, and people. This virus has the core of our globalized economy in its crosshairs, and until we have solved for the virus, it will remain so. So sure, we might bounce back off the bottom a bit as we cautiously reopen the country. But getting back to Jan. 2020 levels of economic activity is a long way out. To believe that we all can go back to life as it used to be just a few short months ago, one must think that we have solved for the virus, i.e., created and widely distributed a vaccine/cure. And the last time I checked the Fiscal + Monetary Stimulus did not do that.

Further, according to many top virologists like Dr. Peter Hotez of Baylor University and Michael Osterholm of CIDRAP, among others, a safe vaccine for humans will be at the earliest available in ~12–18 months. Until that time, we are going to have to adhere to mass testing, contact tracing, self-isolations, social distancing policies, and strong PPE requirements. Hardly an environment where our socioeconomic apparatus can come roaring back. This reality will keep a lid on the economic recovery for the foreseeable future. And if we do not adhere to the above prescription, we risk additional hot-spots forming across the country, which we need only look at NYC (among others) to see that that is not a model to emulate, nor an economic outcome to be desired.

Questions, or wondering what this may mean for you and your wealth strategy? I would love to speak with you, so please don't hesitate to reach out! 


Matt Faubion, CFP®

Founder - Wealth Manager