Saturday, December 5, 2020

THINK STRATEGICALLY: Are Puerto Rico’s Citizens Ready to Reopen the Economy Safely?

By on May 26, 2020

(Screen capture of www.ddec.pr.gov)

The Puerto Rican spirit is the force that drives our hope and pushes us to discover our real limits and purpose. We are facing the worst health and economic disaster in the last 100 years. 

For so many of us, we miss the lives we all used to live; we miss our families, friends, hugs and handshakes, happy hours, concerts, schools and universities. This Friday, when coming home, I was stuck in a traffic jam and was delighted to be in one.

We are extremely sad that so many fellow Puerto Ricans have lost their jobs and have had their lives turned upside down. With thousands of businesses unable to operate due to the lockdown, we all are wondering when will we be going back to normal. Until there is a cure or vaccine for the coronavirus, our way of living will entail face masks, alcohol, sanitizer, wipes, constant hand washing, disinfection, social distancing and all the precautions necessary to prevent being infected by the coronavirus. 

After several weeks of clamoring by the private sector and as the number of infections in Puerto Rico have slowed down after 70 plus days of lockdown, the economy began to slowly reopen Tuesday. 

Gov. Wanda Vázquez has issued a new executive order that will allow for a significant part of the economy to reopen. Under the orde, the following businesses can operate:

  • Restaurants
  • Barber Shops and Beauty Parlors
  • All Retail sales will operate, including Malls
  • Auto Sales, Car Wash
  • Laundry and Grooming
  • Funeral Homes
  • Private Schools
  • Realtors
  • Arms Dealers
  • Travel Agents
  • Boating and Beaches

The order is a massive step in the right direction. Now it is every citizen’s responsibility to respect everyone else’s space by wearing masks everywhere we go. We must take every precaution by using alcohol-based hand sanitizer and being very aware of our surroundings to protect anyone from infection. The coronavirus pandemic is by no means over; we largely dodged the bullet as the government acted early and implemented the strictest lockdown order of any U.S. state or territory. Vázquez took this prudent action, keeping Puerto Rico mostly healthy with just shy of 3,320 Covid-19 cases on the island and 129 deaths. We have been lucky, and to stay that way, we cannot let our guard down, our new normal is wearing masks and taking all precautions to sanitize our surroundings as well as ourselves. 

However, over this long weekend, the first in 70 days after Vázquez’s executive order was relaxed, it was notable how many abused this flexibility. Hundreds of beaches were filled with people, with huts, chairs and leaving lots of trash. There were the usual motorized posses.One of which caused a chase that left an officer seriously hurt.

In many places, mothers with children in swimming pools without protection, seemingly unaware of how infectious this novel virus is.

Judging by the events of the weekend, many have not yet realized that although the coronavirus has not devastated Puerto Rico, it is because one of the strictest curfews, or “toques de queda,” in the United State was implemented. That is the reason we have been relatively fortunate. It seems that thousands of citizens still do not understand that this virus is here to stay and that as soon as we lower our guard, it will destroy the lives of thousands of Puerto Ricans.

Now the job of protecting citizens from infections falls on the private sector and every citizen individually. The government did its best to protect us; now it is up to us to prevent Covid-19 from spreading.

Week in markets: Reopening Optimism, Covid-19 Vaccine trials Drive Markets 

The U.S. stock and global markets ended the week with substantial gains after one of the most volatile weeks in recent memory; the Dow was able to gain 780 points for the week. The drivers are the optimism about the reopening of the U.S. economy, even though there are concerns over other waves of coronavirus infections.

On the coronavirus vaccine front, there is hope on the progress made by Moderna Inc., a pharmaceutical that creates novel medicines focused on the human genes. Moderna reported positive data from its coronavirus vaccine trial. This vaccine is scheduled to be the first for large-scale testing in July.

Other issues that are sure to cause additional tension in the U.S.-China relations are the latter’s planned security laws for Hong Kong, as well as a Senate bill that may prohibit Chinese firms from listing on U.S. exchanges. 

On the weakening economic front, the U.S. reported that the unemployment rate was 14.5%  and that there were 2.4 million new initial jobless claims. The total is now 38.7 million people unemployed. While we note that most investors are more focused on the long-term recovery of the United States and global economy, we strongly recommend preparing investment portfolios for increased volatility and sharp downturns. 

On to the markets, the Dow Jones Industrial Average closed the week May 22 at 24,465.16, for a gain of 779.46 points, or 3.29%, and a year-to-date (YTD) return of minus-14.2%. The S&P 500 closed at 2,955.45, gaining 91.75 points, or 3.2%, and a YTD return of minus-8.5%. The Nasdaq closed at 9,324.59, for an increase of 310.03, or 3.44%, and YTD return of 3.9%. 

The Birling Puerto Rico Stock Index closed at 1,381.57, rising 107.9, or 8.47%, for a YTD return of  minus-32.21%. 

Meanwhile, the U.S. Treasury’s 10-year note closed at 0.66%, a change of 3.12%, and YTD return of minus-1.3%. The U.S. Treasury’s 2-year note closed flat, at 0.17%, a change of 6.25%, and a YTD return of minus-1.7%. 

Why does there seem to be a disconnect between Wall Street and Main Street?

If you do not understand why the stock market is rising when economic benchmarks reflect a weakening economy, which tends to feel like Wall Street and Main Street are on different planets, it is frequently because stock markets are looking well into the future.

As the reopening of the eurozone and the United States was announced, the U.S. and global markets began their path forward, expecting a rise in GDPs worldwide, along with corporate profits. 

While the recent market upswings should not lead you to believe that the bear market has ended, historically strong rallies happen during the bottom half of a bear market. 

Additionally, the strong performance of the U.S. stock markets is signaling that the unprecedented fast and decisive action of the Federal Reserve Bank and Congress, combined with the administration’s focus on reopening the Unite States has allowed investors to look ahead. 

In terms of the overall economy, since WWII, it has taken an average of 12 months for the economy to the bottom out during recessions, and an average of nearly 24 months for the economy to return to pre-recession GDP levels.

However, since this particular recession was self-inflicted by the lockdown orders, we tend to believe that the return to economic growth will be achieved much faster as the economy gets into the gear. 

The Final Word: 70 days and counting under Covid-19

Seventy days is the journey each Puerto Rican has been on attempting to survive the Covid-19 lockdown order and its direct effects on all of our lives.

Seventy days have made us realize how little we truly need to live and have forced us to create new habits during our daily routines.

As Puerto Ricans continue to suffer from the disruption of the usual way of life due to the pandemic thousands of families barely have food and water on their tables—more than 359,000 are unemployed—we see a path of confluence in the destruction of the lives of those who have less. We see a deterioration of every citizen’s way of life.

During the Great Depression of the 1930s, 65% of all Puerto Ricans were unemployed. It impacted the economy significantly, which was driven back then by agricultural business, principally sugar. As the declines in the prices of sugar occurred in the depression, the response of Congress was to implement the Jones act, which placed quotas on sugar production. Eighty-six years later, Puerto Rico continues to debate the Jones Act, with no end in sight.

We have said it before, and we repeat it again, the safety net that the government must provide to the less fortunate must be large enough to allow every Puerto Rican to thrive.

Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.

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