The Many-Minded Market

Market Commentary | April 2020

The Many-Minded Market

“To be interested in the changing seasons is a happier state of mind than to be hopelessly in love with spring.”

– George Santayana^[1]

Success is too often portrayed as the triumph of single-minded heroes.^[2]  Whether business, biomedical research, politics or social policy, the media regularly serves up accounts of singular champions.  More often, though, true successes in social policy and business innovation, the type that actually create broad incremental improvements in quality of life, are the work of many. This diverse human ingenuity gives us confidence in the future success of our long-term investment portfolios. In the midst of today’s pandemic, we are seeing multi-faceted, decentralized economic innovation – often at the state and local levels, including private industry – essentially creating a crowd-sourced path to success.

To be sure, the current coronavirus challenges are especially daunting in the face of early dismissiveness from a variety of national leaders, poorly managed federal stockpiles of essential supplies, and efforts to de-fund and de-staff federal pandemic preparedness resources set up in response to the 2016 Ebola outbreak.  Analysis of past missteps is key to improving future decisions and preparedness. In this moment, we, like the market, must also look at the varied recovery efforts and long-term opportunities that are tentatively emerging.

With dramatic market behavior both up and down, the question is often asked: is it different this time? Indeed this pandemic has characteristics that are new, “novel” in more than name for the lived experience of many politicians, health leaders and business leaders. The part that isn’t different is that human communities have responded with similarly new and inventive efforts to slow contagion, expand coordination among relevant agencies, counties and cities, and quickly determine what data we need and how to effectively analyze it to further focus our efforts successfully. Every day brings change, and every day brings progress.  And every day the market tries to estimate a timeline for economic recovery, based on the varied efforts and progress in confronting the contagion.

Shortages of hand sanitizer, N95 respirator and surgical masks, single use aprons and ventilators have inspired legions of businesses to shift from their usual gear to produce for the medical community.  Just a few examples include IKEA (from furniture to N95 masks and single use aprons), Dyson (from vacuum cleaners to ventilator parts), Armani (from clothes and accessories to medical overalls), Under Armour (from underwear to surgical masks), Ricard, Tito & Koval (from spirits to sanitizer), Aenium Engineering (from aerospace components to face mask filters).

The automobile manufacturing industry in has gotten into ventilator production in a big way, including GM, Tesla, and Ford.  GM in particular has accelerated complex efforts to bridge the automotive and health equipment industries, mobilizing along with scores of other manufacturers and medical supply companies.  New partnerships, bolstering and transformation of supply chains, retooling of plants – all this is underway.^[3]  The 3D printing industry, including departments at multinational companies (Hewlett Packard, Siemens AG, General Electric, Boeing) and startups in the US and Europe are reprogramming their capabilities to address a wide variety of equipment and materials shortages.^[4]

These necessary innovations will also lead to unexpected benefits that fuel future growth.

Parallel to adaptations in the manufacturing world to address short supplies, the biomedical community is also racing to understand and develop effective treatment and prevention for this novel coronavirus.  The FDA is working to clear hurdles to approval of testing and treatment processes, as well as efforts at developing vaccines.  As of today, there are 23 possible treatments and 5 vaccines already in human trials on an emergency basis, as well as 41 different diagnostic tests.

Efforts to use the plasma of recovered patients to help current patients are underway.  “Convalescent plasma therapy” is a form of passive antibody therapy, and has been widely used in past epidemics, although never affirmed in rigorous clinical trials.  Nationwide, blood banks are starting to collect plasma in anticipation of logistics expansion once the success of early uses – in NY, TX and WA – becomes clearer in the coming days and weeks.

These compassionate innovations will ease the health costs and shorten the pandemic’s impact.

Since the beginning of this pandemic, securities markets have largely traded based on fear of the impact on global economies and both domestic and global businesses.  Daily news cycles compound this price movement, and even the bond market has seen significant drops and spikes based on the dramatic need for liquidity.

In between all that, there are many level-headed individual and institutional investors – including many of our clients, our investment committee, and the fund managers we work with – that are keeping calm, and assiduously examining their portfolios for areas of potential continued weakness as well as energetically looking for opportunities created by irrational prices.  This many-minded blend of actions – by investors that need liquidity as well as investors that are repositioning as they stay invested – creates a picture that looks chaotic in the short term.  It is a cacophony, but also a sort of symphony, as all investors dance their way through the uncertainty.

Ahead, we watch the horizon. Uncertainty about the course of the coronavirus pandemic and the success of containment efforts means the timing of economic recovery continues to shift.  We can’t know when, exactly, there will be recovery – and as unemployment filings rise, and cases continue to rise, it’s easy to think recovery may be pushed out for a very long time.

In the midst of that, however, we are patient as new liquidity programs initiated by the Federal Reserve go into operation, and the first tangible impacts from the stimulus legislation start to flow in April. We also remember the amazing capacity for ingenuity, novel partnerships, flexibility and innovation that we are seeing across the economy, and in government and healthcare. Santayana was eloquent in raising up the value of curiosity and innovation rather than the limitations of focusing on one current reality.  Put less eloquently, Churchill is supposed to have quipped “Americans can be relied upon to do the right thing after exhausting all other possibilities.”

We aren’t going to survive the coronavirus pandemic by doing one thing that magically makes it go away, but by all the many efforts and innovation by varied local governments, hundreds of businesses and thousands of individuals.  We’ll keep working on all the possibilities, together, and by adding extraordinary efforts to provide compassionate mutual aid among local residents, we have good reason to raise our eyes to the horizon beyond, regardless of distance.

Let’s stick with it.

This is a general assessment of client portfolios and does not reflect the specific circumstance of every client.

[1] George Santayana was a philosopher, essayist, poet, and novelist.

[2] See for instance the best-selling nonfiction book by Malcolm Gladwell, “Outliers:  The Story of Success,” 2008. In it, Gladwell discusses the now infamous 10,000 hours of practice required to accomplish expert skill in a particular area, and the very elite few who accomplish it.

[3] For an engaging listen, check out “The Race to Make Ventilators,” a 24-minute podcast (Episode 987 of Planet Money).  Ventec, the ventilator manufacturer in Washington state at the heart of the effort, calls GM not a car company but a “massive supply chain management marvel.”

[4] “3D Companies Tackle Coronavirus Supply Shortages,” WSJ Online, 4/2/2020.

[5] A phrase used by Louis Katz, a blood industry expert leading the AABB’s working group on convalescent plasma.