Monday, November 30, 2020

Think Strategically: The Coronomics Transformation

By on April 7, 2020

Photo by Daniel Reyes on Unsplash

The earth shall never be the same again

In due time, the coronavirus pandemic shall eventually pass, leaving a path of human destruction in terms of lives lost, psychological impact and economic devastation. 

While we all adjust to this pandemic—which has much of the world in lockdowns, practicing social distancing and taking other extreme measures to preserve human lives—we have begun to see that the skies in China, Los Angeles and Mexico City are blue. We see fish and wildlife return all over the world in droves as we have abandoned their habitats. 

This past weekend, in Guánica, Puerto Rico’s famous Gilligan’s Island, schools of all types and colors of fish could be seen. In Venice, the waters have turned crystal clear. In the Condado lagoon, manatees have returned to their favorite cove. 

The unlikely beneficiary of the coronavirus has been our planet earth, and this should be a wake-up call to us all. As I see these changes all around me, I have started to think about how the “Corononomics Transformation” will engulf the world. 

Corononomics will emerge out in three repositionings: First, some fundamentals will never regain their former status; it will impact how we conduct physical proximity—how we go to restaurants, stadiums or concerts. Will people return to airplanes and cruiseships? How will we get our groceries and supplies? Will we use face masks from now on to protect ourselves from future outbreaks? 

Secondly, some of the current trends will surge because their immediate need has been indisputable during this critical period that there will be so many more adopters who will experience the benefits from now on. For example, online education, take-out food, online shopping, working remotely, video-conferencing, portability of offices, among others, and this new trend may be irreversible. 

Thirdly, unique ecosystems will be created around these new heightened levels of personal protection and health security. The transformation will impact at least three generations and will be irreversible, altering human behavior through their lifetimes. Every transformation brings about brand new economic opportunities. This one will spur ones that dominate our lives as we emerge from this horrific time. 

I have often said: “Transformations are not 100-meter races, they are marathons”; however, there is no better motivator than preserving human life to transform the habits of the human race.

The human race has gotten a rude awakening.

Week in Markets: Lockdown Extensions, Weaker Data Drive Markers Down

The U.S. stock market finished down amid a busy week that included several economic indicators reflecting weaker than expected data and the nationwide extension of social-distancing guidelines with most states in lockdown. The U.S. Initial Jobless Claims rose to 6.648 million new claims, climbing 3.341 million, or 101% from last week or 3,040% from last year. That translates to 10 million Americans filing for unemployment in two weeks’ time. Meanwhile U.S. Total Nonfarm Payrolls dropped 700,000 jobs to 151.79 million, down from 152.49 million last month. Also, U.S. Manufacturing Shipments was down 820 million, to 500.35 billion, down from 501.17 billion last month. Lastly the U.S. ISM Manufacturing PMI- was down 2% to 49.1, an 11.21% decline from last year.

Another factor that impacted the markets in the surge in oil prices of 32% driven by the possibility of a worldwide deal to cut output. 

We are living in one of the most uncertain climates of our lifetimes, and thus we recommend that investors carefully evaluate their portfolios and adopt defensive strategies. We also recommend the rebalancing of the portfolios to become better prepared to gain on the upside when it arrives. No one can determine when the market will hit bottom, thus it is smarter to rebalance and gradually position your portfolio. We also recommend using monthly performance reviews to better monitor weaknesses in your positions. This defensive action will save you tons of money and grief, while helping you to fully understand your portfolio. 

On to the markets. The Dow Jones Industrial Average closed the week of April 3 at 21,052.33, with a loss of 584.45 points, or 2.7%, and a year-to-date (YTD) return of minus-26.2%. Besides, the S&P 500 closed at 2,488.65, a loss of 56.82, or 2.08%, and a YTD return of minus-21.0%. The Nasdaq closed at 7,373.08 for a loss of 129.3, or 1.72%,  and YTD return of minus-17.8%.

The Birling Puerto Rico Stock Index closed at 1,077.61, dropping 157.89, or 12.78%, and yielding a YTD return of minus -47.12%. Meanwhile, the U.S. Treasury’s 10-year note closed at 0.62%, or 13.89 lower, and YTD return of minus-1.3%. The U.S. Treasury’s 2-year note closed at 0.23%, losing 8 points versus last week,  and a YTD return of minus-1.8%.

Destination Recession?

The stock markets’ response to the battle to contain the pandemic was fast, decisive and merciless. As the vastness of the economic impact of all efforts to prevent the virus from spreading, through social distancing, lockdowns and nonessential-business closures is just starting to become even more evident. The world’s stocks ended the first quarter of 2020 down anywhere between 17% and 47%, for the worst quarter since the 2008 financial crisis. 

One of the items that provide a stark contrast is the fact that in the Great Recession of 2008, it took 28 weeks to reach 10 million initial jobless claims, this time, it took two weeks.  

While no one can be surprised at job losses, the extent was much larger than analyst projections, with falling demographics nationwide. Close to 66% of those losing their jobs were in industries like tourism, retail and restaurants; however, a surprising one was the healthcare sector, which was profoundly impacted due to people being so afraid, as well as the suspension of private medical practices and clinics.

One of the main questions is whether the economy is in a recession. The answer: Technically, no. A recession is defined as two consecutive quarters of gross domestic product contraction; however, the health and economic bombshell has placed us close to a recession, or an inch from it.    

Investors must consider that it may take one quarter for most industries to start normalizing operations once the pandemic subsides and the economy is allowed to begin to run normally. However, only time will tell and human behavior may ultimately determine when the economy and the world comes back. 

Final Word: Puerto Rico Headed for the Worst Period of our Lifetimes

Even during the best of times, more than 80% of Puerto Ricans live from paycheck to paycheck. The slightest emergency—a hospitalization, the car breaking down or one of the kids needing new shoes—can make it quite challenging for most to fulfill their responsibilities, a trend that is somewhat mirrored stateside.  

The situation in Puerto Rico is even worse as the median household income of $20,873.80 is very little higher than the poverty level.  

The impact of government lockdown that began March 15 has been severe to the daily lives of all families that are unable to work. Most will not be able to meet their debt obligations, much less receive health care, or even be able to buy groceries. 

The island’s governor must make sure that as thorough as was the lockdown imposed to protect us from the pandemic, that the government now comes through with the moral responsibility to make sure the safety net it provides for those harmed economically is big enough to allow them not only to survive but to thrive.  

We all share the pain; everyone is suffering as no one is exempt from this health and economic catastrophe. 

The earth shall never be the same again, as every human being, as every soul in the universe is part of the planet’s cries for help.

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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