Sunday, August 9, 2020

Investing: Virus Response Takes Shape

Promoted Partner Content

We would like first to express our deep gratitude to all of the selfless and courageous medical professionals and first responders who are standing in harm’s way while they attack this historic crisis head on. We are also very grateful for all of the workers in the grocery and home goods supply chains that are continuing their great work amidst all of the disruption so that we can put food on the table for our families.

A Biological Crisis

- Advertisement -

The COVID-19 crisis, at its heart, is a health care crisis. It is rooted in biology, and ultimately it will be constrained or solved with biology. In the meantime, however, it has precipitated an unprecedented shuttering of large parts of our economy and is beginning to clog up the plumbing of our financial system. If we are able to solve the health care problem we face—and in time we will—then our economy will be able to begin healing itself.

A Two-Pronged Response from the Government: Monetary and Fiscal

- Advertisement -

The economic impact of social distancing will be sudden and deep. The U.S. is almost certainly in a steep economic contraction right now and unemployment will soar over the coming weeks. To help bridge the gap to the other side of the valley, there are two basic ways the federal government can support our economy while we fight the virus. The first way is through the Federal Reserve, which is already acting forcefully. The Fed has dropped interest rates to zero and is now buying both government and corporate bonds in the open market at a rapid rate in an attempt to both keep markets functioning smoothly and to prevent higher borrowing costs. It has essentially said it will do virtually anything to support markets and maintain liquidity. The second way our government can help is through fiscal spending—getting cash quickly into the hands of Americans who are most severely impacted by this crisis via both direct cash payments and unemployment benefits, as well as relief of tax obligations, loan payment forbearance, and extension of paid sick leave provisions, among other things. We are now awaiting passage of legislation—which could come today—for what looks to be a nearly $2 trillion fiscal stimulus package.

In the Coming Weeks . . .

We expect the number of cases in the U.S. to rise dramatically over the next several weeks as the number of tests increases. It will be difficult to gain comfort from these numbers, as they will not be able to indicate if our social distancing strategy is working. Only after many more tests and at least several weeks will we really be able to see if the number of new cases is slowing.

An Economically Painful but Necessary Response

Quarantining large parts of our population puts a massive strain on our economy, but there is apparently no other good way to decrease the rate at which the virus is spreading. As Dr. Anthony Fauci of the National Institute of Allergy and Infectious Diseases (NIAID) says, we all have to work together (or rather six feet apart) in trying to “flatten the curve” of the spread of disease so that we do not have too many cases at one time and overwhelm our health care system.

Signposts to Watch

This crisis, while scary and sudden, will, in the end, be a transitory crisis. Both equity and fixed income markets have of course reacted very negatively to the economic uncertainty the virus has created. We expect investors to begin to regain confidence once we start to get some positive data about the progression of the outbreak. First, a reduction in the number of new cases would be a very welcome sign as would any data that specific infection clusters are being contained. Second, any promising results from the numerous anti-viral and vaccine efforts underway could help investors conclude that we will not be struggling against COVID-19 forever and that we will ultimately return to normal life. Given that this pathogen is single-handedly shutting down our world, finding a way to vanquish it is among the most urgent matters that humanity has ever faced. Thus, we believe it is only a matter of time before effective treatments and/or vaccines become widely available and the COVID-19 crisis is laid to rest.

I welcome your comments and feedback. Please contact us if you have any questions about the markets or your portfolio.

Read more of our Commentary here.

 

-----
Do You Value The Coronado Times?
Become a Paid Supporter

Keep it civil. Comments may be removed or closed if they violate Terms of Service.

Advertisement

LETTERS TO THE EDITOR

Money Shamefully Spent

Submitted by Barry AustinAm I the only one to feel outraged that the Mayor and Council, under cover of restricted public involvement, gave away...

More Questions Than Answers

Submitted by Carolyn RogersonThere are days when I cannot believe the vitriol to be read on the pages of Coronado publications or online. I...

Tim Rohan Announces Candidacy for City Council

Submitted by Tim RohanEvents of the past few weeks have spurred me into action. I see a Council that is out of touch with...

Open Letter in Support of Crown Manor and Adaptive Reuse

Submitted by Ryan CraneI was interested to read the recent open letter from the Coronado Historical Association (CHA) in opposition to the Major Special...

NEW STORIES

Jack and Grace Creatively Raise Funds for CSF During Pandemic

Coronado kids Jack and Grace Elardo began their business Jack and Grace's Pop-Up Stand four years ago when they were in 3rd and 4th...

Local Voices: Coronado Picture-Perfect from the Outside; Not Always So Pretty for a Person of Color

Esme Ronis knew that she was different from the rest of her family. Born in La Paz, Mexico, and adopted by a white family,...

Tim Rohan Announces Candidacy for City Council

Submitted by Tim RohanEvents of the past few weeks have spurred me into action. I see a Council that is out of touch with...

Sue Tushingham McNary (1937-2020)

Sue Tushingham McNary, an internationally renowned artist, mother, mother-in-law, grandmother, great grandmother, and loyal friend, passed away peacefully on Monday morning, August 3, 2020,...

Grand Caribe Shoreline Park Temporarily Closed by Port of San Diego

Prioritizing public health, and in alignment with COVID-19 State and County public health orders, Grand Caribe Shoreline Park in the Coronado Cays will be...