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

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

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.

As always, I welcome your comments and feedback.