Let’s Get This Plane Airborne Again!

As my aviation expert brother says when he’s conquered a difficult challenge, and he’s conquered many, “I flew the airplane out of the hangar!”  I pray that you and your family are healthy, that you’re washing your hands often, and that you’re practicing social distancing.  If you need anything, prayers or otherwise, please let me know.  We are all in this together.  And yes we are in unprecedented times.  The novel Coronavirus COVID-19 pandemic has grounded planet Earth.  Let’s do what we can to get this plane airborne again!

Where do we begin?

1. Improve communication and engage in collaborative thinking.
2. Think big!
3. Innovate in manufacturing and supply chain management.
4. Ramp up testing and delivery of existing possible therapies such as remdesivir.
5. Create effective public or private sector management of health resource allocation.
6. Encourage bold economic support to infuse massive liquidity to individual Americans, medical centers, regional governments, and small and big business.
7. Initiate a call to action for Bi-partisan problem solving.  Yes I’m serious. Problem Solver Caucus Health Crisis Economic Revival Package

Above all, my money is on the remarkable resiliency and creativity of the American people.  Yes it’s a mind numbing situation.  But when the ground is shifting and the stakes are high, new opportunities present.  In this week’s post, my goal is to frame the magnitude of this complex situation and offer insight into the evolving game plan.  Knowledge is power and understanding the scope will make it more manageable.  Many things need to happen to right the ship.  Figure out how you can help.  If you see an opportunity, jump on it!  Volunteer and connect with new people.  Always operate from a place of integrity.  Have fun!  Let’s do this!

Thank you to all the incredible healthcare and scientific professionals across the United States and our world, working tirelessly on our behalf, in particular those at University of Nebraska Medical Center and Mount Sinai Hospital. You are our angels!

While the health of the $22 trillion U.S. economy hangs in the balance, I’m grateful for the extraordinary leadership of the U.S. Federal Reserve.  I worship the ground upon which U.S. Treasury Secretary Steve Mnuchin walks.  I pray for our elected and appointed officials in Washington and thank them for working incredibly long hours to deliver medical and economic solutions to this global pandemic.  Thank you to  California Governor Gavin Newsom, San Francisco Mayor London Breed, and Los Angeles Mayor Eric Garcetti for taking bold action and leading the country by issuing the first stay-at-home orders.  This is our best chance to flatten the curve, minimize loss of life, and guide our economy to a soft landing.  Check your Social Distancing score.

Numbers tell the truth.  Numbers inform us.  And the line in the sand keeps moving.  All figures and information reported were as of Thursday March 26, 2020 at 2:30pm PST, except as noted.  The disease figures were sourced by Microsoft COVID-19 Tracker.  Globally there were 509,427 reported cases of COVID-19, with a fatality rate of 4.5% or 23,004 souls.  In the U.S. there were 81,996 reported cases, the most of any country in the world, surpassing China with 81,285 cases and Italy with 80,589.   The U.S. fatality rate was 1.4% or 1,177 souls.  Trends in China and Italy demonstrate that the virus is killing more men than women.  Story here.

The epicenter in the United States is New York,  with 37,258 cases and a fatality rate of 1.0% or 385 souls.  The rate of acceleration, currently doubling every three days, is expected to grow exponentially in the coming weeks.  New York City is under siege as the supply of necessary equipment has not yet met demand, with ventilators the chokepoint. Governor Cuomo advised that New York City needed 15,000 ventilators on March 25, 2020.  When the rate of acceleration shifts to another state, he has committed to ship them accordingly.   Projected hospital bed demand has increased from 110,000 to 140,000, from a current inventory of 53,000.

California reported 2,617 cases with a fatality rate of 2.1%, more than double New York’s fatality rate of 1.0%.  Both states’ rates have been fairly consistent, but there may be timing differences in reporting.  L.A. County Director of Public Health Dr. Barbara Ferrer reported that 18% of cases were currently hospitalized and 51% of cases fall within the 18 – 49 year age bracket.  The pace of new cases in L.A. County essentially quadrupled overnight, bringing the total to 1,216 confirmed cases.

Louisiana’s virus rate is currently growing the fastest in the world, driven on the recent Mardi Gras celebrations. Louisiana on lockdown.  San Francisco start up Kinsa Health, that records and shares temperature readings from their newly developed thermometer, suggests that Florida will be the next hot spot.  More on smart thermometer.

In the long run, initial estimates were that 70% of the United States’ 320 million citizens are projected to contract the Coronavirus through the year 2022.  It’s important to note that a vaccine is expected to be available in 2021 and 2022.  In the first year though, it’s projected that a minimum of 25%, or 80 million Americans will contract the virus.  At an expected 3% mortality rate, that’s 2 million American souls projected to lose their life to COVID-19 in the first year.  If we lower the projected mortality rate to 1%, then we’re looking at 800,000 souls.  The U.S. government’s foremost infection disease expert Dr. Anthony Fauci issued a new projection Sunday morning March 29, putting the figure at between 100,000 – 200,000 souls, but adding, “I don’t want to be held to that”.

And now we move to the economic picture, equally sobering, although with some encouraging news as the street appears to have embraced the pending $2.2 trillion stimulus plan, expected to pass in the U.S. House of Representatives Friday.  Of course, volatility will continue.  We are in uncharted waters.

The week began with the Dow Jones industrial average closing at a record low of 18,213.65 on Monday March 23, down (11,354.92) points (38.4%) from a record high of 29,568.57 only 27 trading days earlier.  About 3.4 million Americans filed new unemployment claims the week ending March 20, 2020.  EPI’s Aaron Sojourner on unemployment.  That figure is projected to reach 14 million by the summer.

Also on Monday March 23, the New York Stock Exchange took the unprecedented action of closing the trading floors temporarily, and initiating fully electronic trading.  This was done to ensure the safety and health of floor employees, as well as the ongoing functioning of the U.S. equity markets.  This was the first time in the NYSE’s 228-year history that the floors to the exchange were closed while markets were open.  NYSE Announces All Electronic Trading  NYSE Floor Closure FAQ

As Capitol Hill continued to struggle amidst deep partisan mistrust and ideological divide, tasked with putting into motion the largest economic legislation in U.S. history, totaling an estimated $2 trillion, the U.S. Federal Reserve in bold and unprecedented fashion, committed to an additional $4 trillion cash infusion.  This brought the total cost of U.S. economic relief to $6 trillion, to weather the storm caused by the necessary temporary shutdown of the $22 trillion U.S. economy, at the hands of the COVID-19 virus.

Following signs that Capitol Hill was indeed close to passing the stimulus plan, the DJIA surged 2,113 points or 11.4% on Tuesday, the largest one day gain since 1933.  The climb continued on Wednesday and Thursday, up more than 20% from its recent low, a move that starts a new bull market.  This defined the shortest bear market in the index’s history.  The DJIA closed  at 22,552.17 Thursday, up 23.8% to the recent low of 18,213.65 just four days earlier. The S&P 500 closed at 2,630.07, up 20% from the low on Monday.

Gains on Thursday were broad, with all 11 sectors of the S&P 500 up for the day.  DJIA heavyweight Boeing continued its surge Thursday, rebounding 75% in in just five days to close at 180.55.  Similarly, airlines and aerospace have rallied somewhat, expecting to be major beneficiaries of the stimulus package.  Energy stocks, one of the worst-hit groups in the sell-off last week, have also risen from their lows, in anticipation of increased demand when people return to their usual way of life.  Global Stock Market Update March 26, 2020

The corporate bond market, sent reeling over concerns of a liquidity crunch, has improved for blue chip corporates on the extraordinary interventions by the U.S. Federal Reserve.  Story here.

Yields on the safest, short term Treasuries closed in negative territory for the first time in more than four years.  Negative yields on Bonds in Europe and Japan have become commonplace, where central banks use negative policy rates to spur growth.  The U.S. Federal Reserve has all but ruled out that practice.  Story here.

J.P. Morgan has issued a new 2020 GDP forecast.   U.S.: -4% Q1, -14% Q2, +8% Q3, +4% Q4; Euro area: -15% Q1, -22% Q2, +45% Q3, +3.5% Q4.   J.P. Morgan Global Research Coronavirus

Late Wednesday evening, at ten minutes to midnight in the nation’s capital, the United States Senate passed the 880 page $2.2 trillion U.S. Senate Act H.R. 748 Coronavirus Aid, Relief, and Economic Security Act, or simply CARES Act, by a vote of 96-0, with four U.S. Senators in self-quarantine.  House Majority Leader Steny Hoyer announced a “voice vote” to approve it in the U.S. House of Representatives Friday morning.  Story here.

How long will stimulus be needed and how long can the U.S. Treasury float the $22 trillion U.S. economy?  The total current commitment of $6.2 trillion suggests Mnuchin is forecasting a minimum of three months.  As the U.S. Treasury has already begun putting the wheels in motion for efficient distribution of funds, and with the expected passage of H.R. 748 in the House Friday, the only remaining hurdle should be how quickly the U.S. can contain the spread of COVID-19.  If we struggle in that regard, then we should be prepared to issue more stimulus.  Why $2 trillion could just be the start.  As to the latter question, the economists are running the models now to determine that answer.

So what did the American taxpayer get for all this money?  Please note summary highlights of the three bills passed to date.

In order to expand the U.S. society’s ability to respond to the epidemic, Congress passed an $8.3 billion emergency funding bill (Public Law 116-123), which was signed into law by the President on March 6, 2020.  This law includes funding to develop and test coronavirus vaccines, support state and local health departments and hospitals, and better equip health care workers on the front lines of this pandemic.

Congress also passed a $100 billion Families First Coronavirus Response Act (Public Law 116-127), developed by House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin, which was signed into law by the President on March 18, 2020.  Among other benefits, this law provides paid sick leave during public health emergencies, additional funding for unemployment benefits, meals for vulnerable Americans, and free coronavirus testing for everyone in America.

Key Provisions in the U.S. Senate Act H.R. 748  $2.2 trillion CARES Act: 

1. The $2.2 trillion stimulus will dwarf the $700 billion “TARP” legislation enacted near the height of the 2008 economic collapse.
2. Direct cash payments to all Americans with Treasury Secretary Mnuchin committing to a three week delivery time from March 25, 2020. Most individuals will receive a $1,200 check plus $500 for each dependent child.  The amounts are less for people who made more than $75,000 in 2019, and are zero for those earning $99,000 and above. Washington Post Stimulus Check Calculator
3. Expanded unemployment benefits for those who qualify, with an extra $600 a week for up to four months. Significant expansion to include self-employed workers who file a Schedule C.
4. $367 billion small business loans (<500 employees), including Not For Profit entities, with loan forgiveness for businesses that keep employees on payroll.
5. $500 billion to large businesses, cities, and states. Required to offer collateral.  C suite will not be permitted to buy back stock, and there will be incentives to keep employees on payroll.
6. $425 billion “Slush Fund”, to be distributed to businesses at discretion of U.S. Treasury. A new entity within the U.S. Treasury will be created, with a required special reporting mechanism for transparency and accountability.
7. $130 billion to hospitals who have lost revenue on elective surgeries.
8. $75 billion supplemental funding for the National Endowment for the Arts, which will provide employment for creatives.
9. Retirement Accounts: Waiver of the 10% penalty on early withdrawal retirement savings up to $100,000. Loan amounts permitted on 401k doubled to $100,000.
10. Increased short term food support (SNAP), child care, and aid to farmers.
11. No funds to Trump businesses.
12. Alternative Minimum Tax (AMT) credits to offer liquidity and Net Operating Loss provisions.

There may be some minor changes before the House votes on this bill Friday, but all of the major provisions detailed above will likely stand.

Well that was a mouthful.  Now how exactly will you and I get the plane airborne again for America broadly, and for each of us individually?  First and foremost, please continue to practice social distancing, wash your hands often, and take care of your health.  Please review the key provisions spelled out directly above.  If you have any questions, please reach out.  This will be the first in a series intended to inform and collaborate.

I really want to encourage you to learn more about No Labels and the Problem Solver Caucus in the U.S. House of Representatives.  Comprising 48 members the caucus is equally divided between Democrats and Republicans, committed to forging bipartisan cooperation on key issues.  The caucus is co-chaired by Congressman Josh Gottheimer (D-NJ) and Congressman Tom Reed (R-NY).  Problem Solver Caucus Health Crisis Economic Revival Package

As I reflect on all that has transpired over the past eight weeks, and particularly as an analyst who runs forecast models for a living, it’s clear that I underestimated the power of geo-political risk in a nation where un-truths and venom are spewed back and forth with such velocity, across deep ideological divides, that it’s now costing lives and financial savings.  Let’s do something about that please.  Let’s be role models for open, constructive, truthful debate!  Let’s cheer each other on and deliver the America we aspire to be!

2019 was a good year for me.  I hope and expect the same was true for you.   I’m looking to build on my success and wish the same for you!  While the next quarter will certainly be rough, all the forecasts suggest we can rebound in the third quarter.  Be safe.  Be well.  Let’s make it happen!

Always true to my brand, and forever bullish on the incredible healing power of music, I’d like to lead you out with not one, but two musical pieces. Enjoy!

Famous Album Covers Promoting Social Distancing

John Lennon’s Imagine

 

 

 

Addendum of Coronavirus helpful links and resources:

Los Angeles COVID-19 Testing Qualification

L.A. Small Business Coronavirus Relief Package

LinkedIn Who’s Hiring Now

Songwriters of North America Emergency Resources

Grammy Recording Academy Musicares Relief Fund

Fender Free Guitar Lessons