Tuesday, October 26, 2021

Think Strategically – The Year 2021= 365 Opportunities

By on December 21, 2020

frc@birlingcapital.com 

In Puerto Rico, the Christmas season boasts being “the longest in the world”. Our Christmas is usually filled with parties, gatherings, parrandas, Puerto Rico’s version of Christmas caroling on steroids, lots of food, fun, and festive events; this pandemic Christmas does not fill like Christmas at all.  

The whole of 2020 has been a year of enormous difficulty, the worst possible health crisis the world has ever faced. The COVID-19 crisis has infected 76,894,670 million people with 1,696,299 deaths worldwide and in the U.S. 323,745. In Puerto Rico, the number of cases is 63,419 cases with 1,294 deaths. The glimmer of hope arrived this past Tuesday in the form of the Pfizer/BioNTech COVID-19 vaccine that began distribution initially to the health workers, first responders, and key people in healthcare. 

This past Friday, the second COVID-19 vaccine from Moderna, Inc. was approved, providing an additional tool to fight the COVID-19. So the V-Shape recovery is now being called the Vaccine Shaped recovery, which is the theme for 2021.  

The world must crush the Coronavirus pandemic with massive vaccinantion in order to allow for robust and safe sustained economic growth.  

Without massive vaccinations, we will continue to experience the uncertainty of the COVID-19 sources, and having that level of uncertainty is detrimental for any economic activity to create sustained momentum.  

The Pfizer/BioNTech and Moderna, Inc. vaccines and others in the pipeline can get thru massive worldwide vaccinations to curtail the pandemic’s spread.  

As the crisis and surges subside, so does the uncertainty in any economic activity; as tension dissipates, it builds up business, governments, corporations, workers, and citizens.  

While there were many other issues, in came the COVID-19, an unknown potentially deadly disease evaporated governments and businesses ‘ ability to navigate the waters. Until now, there was no known manner to cure the COVID-19 to prevent it from getting infected.  

As the U.S. & Puerto Rico, and many other nations worldwide, begin choosing their path to allow their respective economic engine to fire all cylinders, the pressures are relatively high. The consensus estimates in losses worldwide have been as high as $15 trillion. 

There are three actions Governments must undertake to improve the chances of success during this pandemic; 

  1. Balancing Constituents Needs: While we agree that preserving life is the key. Some of the restrictions imposed in Puerto Rico defy logic; for starters, the current curfew of 9:00 pm and closing of all retail and restaurants at 8:30 pm are detrimental to the already weakened retail sector.Reducing the hours of operation has the opposite effect rather than lowering the attending public, it forces most to go simultaneously.                                                                                   
  1. How Entrepreneurs are suffering in Puerto Rico: 
  • 54.7% state, the Economic situation is their biggest concern. 
  • 51.3% state, that taxes are too high, and it’s their second concern. 
  • 37.3% feel that government bureaucracy affects their business. 
  • 36% claim that the pandemic has made business much worse.  
  • 43.3 of all businesses have closed on average, 100 days. 
  • 84.7% feel that Puerto Rico is in recession. 
  • 71.3% have not had COVID-19. 

In order to avert a crisis, all these issued must become action items for the Government to change the current operational conditions. 

  1. Transition Period: the government must establish a path that involves attempting to make business whole from the lockdown measures and invest a significant amount of capital in direct payouts to businesses most affected by the COVID-19 measures. During the transition period, most companies would receive a payout that would allow them to recover and begin their regular operation with enough capital to thrive; at least 60% of all businesses have stated they may not have enough money to continue. It has been established that 33% of Small & Midsized companies have closed down, and we must set an investment climate that allows them to recover their former glory.  

In conclusion, the year 2021 brings 365 new opportunities for both the Government and the private sector to figure out with the incoming administration a new working order that would allow a business to pivot, recover, and enhance their operations. The Government has to implement a more robust investment climate for investors, companies, and individuals to thrive, allowing Puerto Rico to become a magnet for both local and foreign investment; 2021=365 opportunities. 

Week in Markets: Two Vaccines, One Stimulus and Wall Street is at record levels. 

The U.S. stock markets ended the week with substantial gains, with all the key U.S. & Puerto Rico indexes hitting or close to all-time highs. In our view, the combination of the Pfizer, BioNTech vaccine distribution, the approval of the Moderna vaccine, and the increased sentiment that Fiscal-stimulus is on route to clear Congress provides a better long term outlook.  

 The Economic reveals that the economic recovery is losing lift as the rising virus cases and renewed activity restrictions.  

  • U.S. Retail and Food Services Sales MoM: fell to -1.08%, compared to -0.05% last month, much weaker than anticipated.  
  • U.S. Business Sales: rose to $1.48 trillion, up from $1.46 trillion last month. 
  • U.S. Business Inventories MoM is lower to 0.72%, compared to 0.78% last month, still higher than the long-term average of 0.26%.  
  • U.S. Initial Claims of Unemployment rose to 885,000 or 2.67% versus 862,000 last week. 

The economic recovery pace is stalling out as surging virus cases have incited renewed restrictions and lockdowns.  

Wall Street Results for the week of December 18, 2020

  • The Dow Jones Industrial Average closed at 30,179.05,up 132.68 points, or 0.44% and a YTD return of 5.75%.          
  • The Standard & Poor’s 500 closed at 3,709.41, up 45.95 points, or 1.25% and a YTD return of 14.81%. 
  • The Nasdaq Composite Index closed at 12,377.87, down 86.36 points, or %%, and a YTD return of 45.95%. 
  • The Birling Puerto Rico Stock Index closed at 1,993.46, down 62.80 points, or -3.05%, and a YTD return of -2.18%. 
  • The U.S. Treasury 10-year note closed at 0.90%, a change of -7.22%, and a YTD return of.         -1.10%. 
  • The U.S. Treasury 2-year note closed at 0.11%, down -31.25% a YTD return of  -1.20%.  
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The Final Word: What Should Investors Expect ? 

While fundamentally we see a brighter 2021, it must be accompanied by the Stimulus package from Congress. Don’t expect to experience the recessionary conditions early in the year; however, we believe that the initial months of 2021 will be much lower than initially projected.   

The current market is in the initial stages of a new expansionary cycle, but the recovery is likely to take longer and sputter before hitting its long stride; having said that, investors should anticipate continued volatility as we dive into the year 2021. 

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