Think Strategically: Why Compassion, Leadership & Character Matter in a Crisis
President Trump, Why Compassion, Leadership and Character Matter
Reviewing the pandemic’s latest toll globally, there are 720,658 confirmed cases, according to the World Health Organization. The novel coronavirus disease (Covid-19) has killed 33,925 people, an increase in cases of 117.3% and 134.3% in fatalities.
In the United States, there are 141,169 positive cases and 2,458 deaths, and the country is now the epicenter of the pandemic. In Italy and Spain, the deaths have been much higher than in China. Italy is reporting 97,689 positive cases and 10,781 deaths, and Spain is reporting 78,898 positive cases with 6,528 deaths. In Puerto Rico, we have 239 positive cases and 11 deaths.
With this crisis unfolding in the United States, as citizens, we must be concerned with President Trump’s actions, such as initially dismissing the threat for weeks, eroding his administration’s efforts to fight the outbreak. He blatantly resisted attempts to plan for worst-case scenarios, while repeating only the warnings that he chose to hear from the nation’s best scientists.
Trump has only one thing in his mind, his reelection, and it is a well-known fact that since 1912 no sitting president with an economy in recession has been reelected. His only claim to fame was that the stock market was thriving, corporate earnings were up, unemployment was down, and the overall jobs market was growing. When you take those away, his chances of reelection greatly diminish.
We have had as president everything from farmers to movie stars. One thing we have not had in recent memory was a president who lacked compassion. Without compassion during a crisis you cannot be a good leader. In U.S. history, the greatest presidents have been those who served during times of crisis. Has Trump risen to the challenge?
In the end, the presidency is all about compassion, leadership and character, qualities that are essential but invisible.
Primary U.S. Indicators: March 23-27
- U.S. New Single-Family Houses Sold: reported on 3/24 total sales of 765,000, down from 800,000 last month.
- U.S. Durable Goods New Orders YoY: reported on 03/25 is at the level of -0.06%, up from -3.75% last month.
- U.S. Initial Jobless Claims: reported on 03/26 a total of 3.283 million, an increase of 3.001million, or 1,060% from last week.
- U.S. Real GDP Growth: reported on 03/26 at 2.1%, compared to 2.1% last quarter, this number will be impacted by the coronavirus pandemic.
- U.S. Personal Savings Rate: reported on 03/26 is at 7.6%, compared to 7.7% last quarter and 7.8% last year.
- U.S. Personal Consumption Expenditures: reported on 03/27 at a current level of 14.8 trillion, up from 14.68 trillion last quarter.
Week in markets: $2.2 Trillion Rescue Bill Drives Markets
The U.S. stock market delivered the best week in 11 years, recording gains in more than four weeks. All indices remain down for the year and far from their February 2020 highs by 20% or more. One of the more positive surprises of this period has been the Federal Reserve Bank, which has acted with speed and focus. The Fed has used all the tools in its arsenal to allow markets to remain open, including asset purchases, commercial paper, and several strategies designed to maintain the liquidity and the flow of credit to businesses, corporations and consumers.
Also, the legislature passed and the president signed into law March 27, the Cares Act (HB 748), which provides emergency assistance and healthcare response for individuals, families and businesses affected by the COVID-19 pandemic. The Cares Act provides a $2.2 trillion economic rescue package to offset the fallout from the outbreak; below; we discuss some of the highlights.
On to the markets, the Dow Jones Industrial Average closed the week of March 27 at 21,636.78, a rise of 2,463.6 points, or 12.85%, and a year-to-date (YTD) return of minus-24.2%. The S&P 500 closed at 2,541.47, rising 236.55, or 10.26%, for a YTD return of minus-21.3%. The Nasdaq closed at 7,502.5, increasing by 622.86, or 9.05%, a YTD return of minus-16.40%.
The Birling Puerto Rico Stock Index closed at 1,235.50, climbing 266.58, or 27.21%, a YTD return of minus-39.37%. Meanwhile, the U.S. Treasury’s 10-year note closed at 0.72%, or 21.74 less, and a YTD return of minus-1.2%. The U.S. Treasury’s 2-year note closed at 0.25%, dropping 32.43 versus last week, for a YTD return of minus-1.6 percent.
We forecast that the markets will continue to react negatively for as long as the pandemic continues to spread globally. However, once controlled, the markets will focus on the economic damage in terms of GDP, employment, corporate earnings, bankruptcies and business closures before it becomes more rationalized. However, the rescue package assists in preventing this coronavirus crisis from evolving into an extended global financial crisis
Highlights of the $2.2 Trillion CARES ACT:
- Small Business Interruption Loans: companies with fewer than 500 employees are eligible for a loan made under Section 7(a) of the Small Business Act (the “7A Loan”) for up to $10 million.
- Relaxed Eligibility Requirements for 7A Loans: For eligibility purposes, the business will only be required to have been operational on Feb. 15, 2020, substantially impacted by COVID-19 and continued paying salaries and payroll taxes to its employees
- SBA 7A Loan Forgiveness: Borrowers will also be able to achieve loan forgiveness for the cost of payroll, mortgage, rent and expenses related to debt obligations for the eight-week period after the loan origination date. The loan forgiveness amount will be allowed to be excluded from the borrower’s gross income for income tax purposes
- Individuals and Families: Granting of direct payment of up to $1,200 ($2,400 married filing jointly) to eligible individuals. The amount increases by $500 for every child.
- Employee Retention Credit: Provides a credit against the employer’s share of 6.2% Social Security payroll taxes of any business that is forced to suspend or close its operations due to the COVID-19 emergency, but that continues to pay its employees during the shutdown.
If you work in a one-person business or are an independent contractor, or work for hire, or self-employed, you qualify for a Payroll Protection Loan along with any company with less than 500 employees. The Small Business Administration has pledged to be ready to accept applications by Wednesday, April 1, and disburse the loans, once approved within 48 hours.
Final Word: The COVID-19 Impact on Puerto Rico
We reviewed an analysis by Estudios Tecnicos Inc. (ETI) that provides estimates of the economic impact of the COVID-19 effects on the Puerto Rico Economy.
Direct Puerto Rico Economy Losses
- Affected sectors will suffer a loss of $2.7 billion in direct economic activity for 2020.
- The Puerto Rico Economy as a whole will suffer a total loss of $5.8 billion
- Total impacts on demand were estimated at $2.5 billion
- Supply-side impacts expected to total $1.8 million.
- The impact of containment measures on economic activity was estimated at $1.6 billion.
As the virus has spread and the number of cases accelerates, the governor has extended the lockdown order. Additionally, she implemented a stricter stay-at-home policy that begins Tuesday, when vehicles will only be allowed to be driven on the street three days a week, depending on whether their license plate ends with an even or odd number.
As the circumstances surrounding the pandemic evolve in Puerto Rico, we expect that the economic impacts will be much more significant than anyone could have estimated. The study finds that the stimulus packages and emergency programs will soften the macroeconomic implications of the emergency.
…Three things in life are best proven in a crisis: compassion, leadership and character!
Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.