The current economic cycle has been turbocharged through a unique combination of market behaviors. First, policymakers reacted strongly to threats posed by the pandemic to households and businesses. These actions resulted in a 27% increase in the money supply since March of last year, and government engaged in significant deficit spending. Similarly, businesses curtailed operations, not to combat a normal economic downturn, but to survive an existential threat. These management decisions contributed to the largest ever quarterly decline in Gross Domestic Product (GDP), a rapid increase in joblessness, and extensive liquidation of inventory. Finally, households hoarded savings, establishing a new record level of savings to income, much of which currently remains in the form of personal savings. The combination of these actions resulted in GDP recovering to its prior peak after only a year, even though New York and California announced the lifting of all state-mandated restrictions only weeks ago. In contrast, it took three-and-a-half years for economic output to recover following the Global Financial Crisis, which ended in 2009.
Economic and Capital Markets Commentary
Despite the initial enthusiasm for major economies moving towards economic expansion after unprecedented support with fiscal and monetary stimulus, the paths forward for different countries remain variable and tenuous. As we celebrate the opening ceremony for the Japanese 2020 Summer Olympics, the many uncertainties with resumption of “normal” activity become very clear. Aside from the obvious delay into 2021 due to the initial spread of the pandemic, the sudden change in attendance restrictions for the competitions exhibit the ongoing challenges with applying a single lens through which to view progress towards normalcy.
TWST: Please give us a snapshot of Luther King Capital Management, a bit about the company’s history and business today.
Mr. King: Luther King Capital Management was founded in 1979 by Luther King, after he had served for nearly a decade at Lionel D. Edie. He stepped out on his own to establish a firm here in Texas. The initial clients were from the Fort Worth and Dallas area. The requests from initial clients were for him to establish a firm based in Fort Worth and to focus on the investment research as opposed to marketing.