Advisor Talking Points: A Smarter Way To Reopen America

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Covid Retail Stores Opening

 

This past month, the S&P 500 Index gained 4.5% and the NASDAQ gained 6.8%.

Year-to-date, as of June 1st, the S&P 500 Index is down -5.4%, and for the past year, it is now up 11%.  The tech-heavy NASDAQ index is up year-to-date 6.5%, and for the past year, it is currently up 28.2%.

Again, given the near-complete shutdown of the U.S. economy, the S&P 500 Index only being down -5.4% year-to-date represents a minor correction in the stock market.

 

Reopening News

As the economy has begun to reopen, investors have been encouraged by several key indicators that now point to a pickup in economic activity.

U.S. home price sales grew in both March and April, and building permits increased significantly above analysts’ estimates. The economy also saw an unexpected increase in consumer confidence.

While consumer spending dropped last month by over -13%, personal savings enjoyed its largest surge ever at 33%.  Even with high unemployment, consumers still have money.

One reason is the additional unemployment benefits that were part of the economic stimulus package. Most state unemployment compensation provides 30% to 50% of average wages. The recent stimulus legislation added $600 a week or $2,400 per month on top of state unemployment benefits.

A recent paper from the University of Chicago shows that 68% of workers who are eligible for unemployment checks are getting benefits that exceed their lost earnings, and that half of those getting benefits are receiving at least 34% more than their lost earnings.

Other better-than-expected news came from TSA stating that 268,867 passengers went through security last Saturday. That was up 39% from two weeks ago and up 187% from the low on Saturday, April 11th.

Also, gasoline sales were up 24% from a month ago. These numbers are still down substantially from a year ago, but a recovery has to start somewhere.

Even New York City has announced it will reopen for business on June 8th.

Investors should not be surprised to see a second-quarter gross domestic product (GDP) decline by as much as -30%. Still, global progress in reopening the economy, combined with massive congressional stimulus funds, points to a potentially strong rebound in the third and fourth quarters.

 

Did We Have To Shut Down The Entire U.S. Economy?

In fairness to politicians and public health officials, it is always easy to be a Monday Morning Quarterback.  But one of the first things you learn in Business 101 classes is that when you confront something you have never faced before, you must first identify and then isolate the problem.  Only then can you craft a specific successful response.

Since the government knew little about how deadly the Coronavirus was, they decided just to shut down the U.S. economy and have the vast majority of Americans shelter in place.

Shutting down the U.S. economy was a very crude and blunt instrument approach to the problem.

We knew this virus was extremely contagious and deadly, but we didn’t realize that it would primarily hospitalize and kill a very specific and distinctive demographic of people.

 

Here Is What We Know Now 

According to the CDC, Johns Hopkins University and the Journal of the American Medical Association:

Most Americans Will Be Infected By the Virus At Some Time

  • 80% of Americans who are infected by the Coronavirus will show no symptoms or will display symptoms similar to the flu, and some will show signs of a bad case of pneumonia. Almost all will recover after a few weeks and will never be hospitalized.
  • Many epidemiologists now believe that, with or without a vaccine, most Americans will, at some point, be infected by the virus, and we will have to live with the unpleasant consequences of a few weeks of flu or pneumonia-like symptoms.

 

From Where Are The New Cases Coming?

Over the past two months of April and May, almost all new Coronavirus cases were diagnosed in very specific groups of businesses and people.  Here is where virtually all the new cases have come from:

  • Individuals of all ages with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.
  • Elderly individuals over the age of 65, with preexisting medical conditions.
  • African Americans of all ages, with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.
  • Hispanic Americans of all ages, with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.
  • Nursing home patients.
  • Health Care workers. (Most health care workers will not require hospitalization.)
  • Prisoners. (Most prisoners and prison staff will not require hospitalization.)
  • Meatpacking plants. (Most meatpacking workers will not require hospitalization.)

 

Who Are The Most Likely To Be Hospitalized and Die From The Coronavirus?

Only a small number of people who are infected by the virus require hospitalization.  Here are the groups:

  • Individuals of all ages with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.
  • Elderly individuals over the age of 65, with preexisting medical conditions.
  • African Americans of all ages, with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.
  • Hispanic Americans of all ages, with preexisting medical conditions like high blood pressure, diabetes, cardiac problems, and obesity.

Here Are The Statistics of Hospitalizations and Mortality: (source: New York City Health – May 13th, 2020)

Depending on the state and hospital system, 85% to 94% of people hospitalized for COVID-19 recover and are discharged from the hospital.

  • Only 0.7% of all COVID-19 deaths from all ages have NO preexisting medical conditions.
  • 6% of all Coronavirus deaths are people over the age of 65. The average age of death is 79.
  • 4% of deaths are people ages 45-64 years of age.
  • 9% of deaths are people ages 18-44 years of age.
  • 06% of deaths are people ages 0-17 years of age.
  • 42% to 50% of all U.S. deaths came from nursing homes.

 

What Does This All Mean? 

The U.S. government shut down the economy and forced almost all Americans to shelter in their homes for 2.5 months to protect a tiny number of people who were most at risk of being hospitalized and possibly dying from this pandemic.

Instead of paying out trillions of U.S. dollars giving everyone in America $1,200, and paying workers unemployment compensation not to work, and trillions of U.S. dollars to bail out businesses, we could have better spent a fraction of that money solving the problems of those individuals most at risk.

Nursing Homes:  Hong Kong has as many nursing home patients per 100,000 as we do in the U.S.  However, they have not had one nursing home death attributed to COVID-19.  After the SARS Virus scare, they mandated that all nursing home patients have their own room, and they instituted strict infectious control protocols.  They also paid higher salaries and required more training and qualifications for nursing home workers.  If the U.S. had done this, we would have eliminated most of the 42% to 50% of the deaths attributed to the virus’ spread in nursing homes.

Other At-Risk Groups:  More testing and better healthcare for poorer minority Americans would have cost a fraction of the trillions of dollars we have spent on offsetting the costs of shutting down the U.S. economy.

 

What Lessons Will We Learn From This Pandemic? 

In the end, this Coronavirus crisis has been a severe traumatic event for this nation.  It will be like an X-ray of our entire society, culture, government and economy.   We will be able to see all our broken places and broken institutions.

We will be able to determine what was sick and diseased and what was healthy and worked.

It will be like ripping the bandage off of a wound.  Everything will be exposed.  The good and the ugly.

After all this is over, and there are treatments and vaccines, we can look back at what happened without any of the fear, and then we must do a thoughtful “lessons learned report.”

We need to know where we exhibited shortcomings at every level and how we can remedy them in the future.

It will be a time of soul searching on what we did right and what we should never do again.

I think the individuals who will come out of this crisis best will be the doctors and nurses and all the essential workers who risked their health and lives every day while most of us just stayed home.

I think those who will come out worse will be some of our public health institutions and many politicians.

Few stepped up and really led.  There were very few Winston Churchills among us in this pandemic war.

During past severe national traumas like the Civil War, the Depression, and World War II, we emerged as changed Americans.  We were changed as a people.  After each period, we saw both societal and cultural changes. We also witnessed significant political and governmental realignments.

We have begun to realize that our government, economy, institutions, society, and culture were far more fragile than we had imagined.

We have to do a better job taking care of our at-risk elderly, nursing home patients, and minority health care systems. We have found out how costly it can be to continue to ignore these problems.

There is no question we could have done better. We should have done better. We must do better in the future.

The Good News is, we are reopening the economy.  The stock market is on its way to recovery, and there are several promising new treatments and possible new vaccines coming shortly.

If we can rebuild our economy this year and discover some new treatments and vaccines to defeat this pandemic, perhaps we can also focus on a few other reforms like being a little kinder and more tolerant of our fellow Americans.

NOTE: This report is authorized for distribution to clients.

Paul Dietrich is the Chief Investment Strategist for B. Riley Wealth Management. B. Riley Wealth Management offers comprehensive financial solutions to clients through its network of over 160 experienced financial advisors across 13 states. The firm manages more than $11 billion in client assets and serves approximately 34,000 client accounts.

 

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Comments (1)
  • As Paul states, it is easier to be a Monday morning quarterback. We did not have the statistics that he states. Most of the preventative measures he identifies require major systemic changes in our health insurance coverage, care for the elderly, and dealing with long-term employment inequities. They were not in place, so we cannot blame decision-making, but seek to learn from our shortcomings as an equitable society. We also benefited from the stay-at-home directives of governors, which did dramatically reduce the spike of serious COVID-19 infections that required hospitalization. Many cities throughout the country could have faced the problems of Italy that used triage regarding whom to treat, NYC was on the verge of making such decisions. So lets work on those societal, cultural, and healthcare system changes that are needed.

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