Welcome to March 61st. At least it feels that way!
In reality, April 2020 is now behind us and we’re well into May. But with most of the country still sheltering in place, at first glance it feels like not much has changed since the beginning of the coronavirus lockdown. Bars, restaurants, retail, and travel are still largely closed. The number of people filing for unemployment benefits continues to grow.
But, if we look deeper, there may be signs that, although undergoing monumental strains, our economy may bend but not break.
On March 27th, we wrote about the 3-Legged Stool of economic recovery. Today, let’s examine the progress that’s been made in those three areas.
A small (but vocal) minority in the finance community are trying to compare our current circumstances to the Great Depression. For reference, the Great Depression started with the stock market crash of 1929, was brought on by financial excesses, and would last until the beginning of World War II in 1941.
At the time, the US Federal Reserve was a brand-new institution. Not only did they do nothing to stop the excesses of the “Roaring Twenties,” but they were equally inept at facilitating a recovery.
During our current health crisis, the Federal Reserve acted quickly and decisively, injecting capital into financial markets to keep the gears of the financial system running. The Fed also immediately reduced their benchmark interest rate to the lower bound (0%-.25%), executed large scale asset purchases, and committed to buying corporate and municipal bonds.
Last week, the Fed announced an expansion of its “Main Street” lending program. The sweet spot for this program will be companies larger than those applying for the Paycheck Protection Program (PPP), but not large enough to access capital markets. The Fed will provide four-year loans of between $1 million and $200 million to qualifying companies. Just as important, Fed Chair Jerome Powell announced that this program will not run out of money.
“With the changes, the program will now offer more options to a wider set of eligible small and medium-size businesses,” according to a Federal Reserve statement1.
Liz Ann Sonders, Chief Investment Officer at Charles Schwab posted the following on Twitter on Aril 28th, comparing the current policy response to that of the Global Financial Crisis 2008-2009:
“Comparing QEs (Quantitative Easing): It took nearly 80 weeks for @federalreserve to buy during GFC what it has purchased since March 11 this year (less than 10 weeks).”
Of course, no amount of Federal help will replace the catastrophic economic impact of the last two months, but the odds of a depression have been significantly reduced.
Likewise, Social Security, Medicare and Medicaid, unemployment insurance, and FDIC insurance didn’t exist in the Great Depression, as they were created in its aftermath.
While not perfect, the $2+ trillion of stimulus approved in the CARES ACT is acting as a social safety net, getting money into the hands of Americans who need it. Sure, it’s gaining widespread criticism for being a slow and messy process, but as of last week, the IRS reported more than 130 million of the $1,200 stimulus checks (and more for families) have been delivered.
Slowly but surely, enhanced unemployment benefits are reaching those 30 million individuals applying for jobless claims. According to the New York Times, with the addition of claims eligible for the new additional $600 per week in benefits, “workers in more than half of states will receive, on average, more in unemployment benefits than their normal salaries.”
And while the Paycheck Protection Program (PPP), in which Congress initially approved $349 billion in relief for small business owners, quickly saw its funds depleted, on April 21st, an additional $310 billion in funding was approved for the PPP.
A quick note on the program: There has been a lot of PPP shaming in the media, and mostly for good reason. The Los Angeles Lakers, Ruth’s Chris, and Shake Shack are among the large corporations returning their multi-million-dollar relief loans. But aside from those lightning rod examples, the fact is that the majority of these loans are getting to small businesses as intended. As you can see below from the SBA’s analysis of the first round of funding, 95% of total loans and 55% of total funding have been for loans less than $1 million.
Source: Small Business Administration. Approvals through 4/16/2020
Health Crisis Improvement
Thus far, the only tool we have had to slow the spread of the pandemic is mitigation. We’re trying to flatten the curve though aggressive – yet highly disruptive - social distancing measures. However, on April 29th, we got a rare and welcomed sliver of hope: Results from two long-anticipated studies for the drug remdesivir were released.
According to CNBC, “Gilead Sciences said Wednesday preliminary results of a coronavirus drug trial showed at least 50% of patients treated with a five-day dosage of remdesivir improved and more than half were discharged from the hospital within two weeks.”
Another trial by the National Institute of Allergy and Infectious Diseases, in which Dr. Anthony Fauci is the Director, also met its goal. He emphasized this was an international trial, highly powered with 1,000-plus individuals with a randomized placebo. The primary endpoint of the study was to determine if the drug provided improvement in time to discharge.
According to Dr. Fauci, “The data shows that remdesivir has a clear cut significant positive effect in diminishing the time to recovery.”2
Time to improvement under the study was 11 days compared with 15 days under the placebo group, a 31% improvement. He went on to say that this is a drug that can “block the virus.”
Mortality rates trended better, with the treated group experiencing lower mortality (8% versus 11% in the placebo group).
The trial results were not expected to be released until sometime later in May but Dr. Fauci emphasized, “Whenever you have clear cut evidence that a drug works, you have an ethical obligation to immediately let the people in the placebo group know so they can have access.” He added, “This will be the standard of care.”
You can watch the video of Dr. Fauci’s announcement here. It is the first time I’ve seen him positively giddy since he first appeared in briefings about the coronavirus.
Dr. Scott Gottlieb, former FDA Commissioner, says there are 70 additional drugs currently under active protocols in clinical development with the FDA and another 200 drugs in earlier stages of development.
This was the bit of good news we’ve all been waiting for.
While it’s virtually impossible to make short-term predictions about the economy coming out of this pandemic, these monetary and fiscal policies should help kickstart the recovery on solid footing, and proven treatment options may build our confidence as we reenter an uncertain world.
I’m also eager to see what remarkable ancillary scientific advances come from this fight against coronavirus. Americans, with their backs against the wall, have a proven track record of making incredible discoveries.
Finance writer Morgan Housel wrote in 2017, “The Great Depression brought us bread lines. But it also brought us supermarkets, microwaves, sunscreen, radar, jets, rockets, penicillin, electron microscopes, magnetic recording, nylon, photocopying, teflon, helicopters, color TV, plexiglass, commercial aviation, most forms of plastic, synthetic rubber, nuclear fission, laundromats, and countless other discoveries.
The timing of some of these breakthroughs were coincidences. But many were not.
Nothing sparks resourcefulness like necessity and scarcity.”
We continue to see improvement in the 3-Legged Stool of economic recovery. We still have a long, bumpy road ahead, but the gravity of our times will likely produce some equally positive discoveries which improve daily life – and serve to protect us in the future.
Let’s hope that the next 30 days are better than the previous 30 days. We’re always thinking of you and your family and continue to wish you all good health.
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