Economic Commentary

We all run across quotes from a variety of sources during the course of our lives. Some of those quotes stick with us for any number of personal reasons. Close to twenty years ago a person who I think is a really talented behavioral scientist said “Big people share and little people keep secrets.” I took note of it, and used it as one of my filters in life that helped me know who I respected and wanted to be around and who I didn’t. Warren Buffet passed this test because he never kept secrets. He was an open book, and never hesitated to share what his life experiences taught him. I am certain others have spoken similar words, but Warren was credited with offering the truism, “If you can keep your head when others are losing theirs, you will be well served.” Emotional investing has particularly outsized impact in short-term market movements. Panic is not rational and is almost always created by voids of logical thought and cogent information. The recent panic-driven reaction to the Coronavirus has certainly been created by emotional behavior in the absence of fact.

Nick Juhle and his fine research team have created weekly updates on COVID-19 in which he provides a monitor-like dashboard on global real time detected cases of the Coronavirus and deaths that have occurred. It is an excellent piece and is available to clients of Greenleaf Trust through our website and our client centric team members.

Words and terms evolve in popular culture media, and a current phrase, “existential threat,” has been amplified by current political discourse that focuses on global warming. The Coronavirus threat topic has now also been tagged with this term. The dictionary meaning of existential threat implies a threat so severe and real that it could eliminate existence. Wow, that is big! Cable networks have many channels and 24 hours of programming to fill seven days a week and thus quality sometimes suffers. One wonders why there hasn’t been some attempt to publish more factual content about COVID-19 and perspective on other relevant pandemic experiences in our history. A pandemic differs from an epidemic in that the novel virus in an epidemic spreads globally, thus the term pandemic.

The CDC (Center for Disease Control) didn’t begin until July 1, 1946, thus some of the history of previous pandemics is more driven by media accounts than coordinated health agency data, yet the information available helps us frame some perspective on the size of the infections and mortality rate of each different strain of virus.

Russian Flu cases in 1889 were hard to pin down, yet we do know that approximately one million people died of symptoms aligned with the description of the virus in that year. It is difficult to understand the mortality rate or demographics of those who died.

Spanish Flu was named in 1918 because it was widely believed that World War One troop movements, particularly from Spain, were responsible for the global spread of the disease. One-third of the world’s population was infected, nearly 500 million people, and somewhere between 50 – 100 million died as a result.

Asian Flu, originating in Singapore in 1957, was responsible for 1.1 million deaths globally. Hong Kong Flu, which began in 1968 and lasted until 1970, killed another one million people throughout the world.

Swine Flu, 2009 to late 2010, was identified as originating in the United States and was unusual in that most deaths (574,000) were in people younger than 65. Prior to the Swine Flu, 70% of all deaths occurring in pandemic outbreaks of flu viruses were in people over the age of 65.

Current data on COVID-19 or Coronavirus reveals that there have been 92,314 cases diagnosed and that 3,134 individuals have died (3.4% mortality rate) as a result of complications attributed to contracting the virus. Both of these numbers will grow, but the sample size is large enough now that the mortality rate is not likely to grow. In fact, as treatment modalities become more standardized, the mortality rate is likely to decline.

Of course, global mortality rates are an expression of all who have been diagnosed and have succumbed as a result of complications created by the disease. If a diagnosed patient was 80 years of age, suffered from respiratory issues, hypertension, diabetes or cardiac disease their mortality rate doubled.

So what do we know with the historical perspective of global pandemics of flu like viruses? First, we are early in this pandemic. Most flu-borne pandemics run between 12 and 24 month cycles with the common average being 14 months. China was the first country to report the spread of COVID-19 and thus their experience is the longest in current duration. Based upon CDC data that is highly dependent upon China data releases, there are now fewer current cases than diagnosed cases, and hospital discharges are exceeding admissions. Currently, the largest number of diagnosed cases and deaths are inside mainland China. There will be more of both, but currently the rate of both admittance for COVID-19 and deaths in China appears to be slowing.

More is being learned daily if not by the hour about the Coronavirus, such as proper treatment, quarantine protocols, the development of antiviral medications and, longer term, preventive vaccinations. Emergency preparedness particularly around large population gatherings such as schools, universities, entertainment and sporting events, are being defined rapidly. Travel is restricted to and from several high outbreak countries and involuntary quarantines are increasing. Rapid response teams are being described by the CDC to put resources on target quickly if “hot spots” such as Kane County, Washington increase.

There is a high probability that consumer confidence will suffer a setback, as will consumer spending. The impact on economic activity will be more interruptive than significant if the steps taken and treatment protocols have a positive impact. The Federal Reserve has cut interest rates by 50 basis points, in a move they described as stimulative, in anticipation of weakening consumer demand. The Fed’s reaction seems more political than substantively needed. Lowering the cost of bank borrowing will not increase consumer demand that weakens due to sagging confidence. What will return confidence is real action to control, treat and eliminate the current COVID-19 strain of virus and transparent data that demonstrates progress.

We are living in both interesting and challenging times. We have experienced seven pandemics in the last century, and four of those in the last 50 years. The probability of experiencing more in a globally mobile world is high. Pharmaceutical companies have little incentive to tie themselves to antibody research if sovereign governments don’t reward that research by investing in novel virus research and vaccines to prevent and control outbreaks that lead to pandemics. Photo ops of pharmaceutical executives sitting at the cabinet table with the President won’t move the needle (pardon the pun), but investing in the CDC, National Institutes of Health and global sharing or research will. Is COVID-19 an existential threat? No, but we are early and there will be more cases and more deaths. We will continue to monitor and report facts when we learn them.