The Problem
We spent most of the weekend in isolation. When we did venture out the roads were empty. Notwithstanding the incessant squabbling of our cabin fevered children, my wife and I gradually became more and more anxious about the current situation. Her maternal instincts seemed to have kicked into overdrive during the past 48 hours. It is understandable and adds to the tension. I did my best to mitigate her angst. Part of my assuaging tactics included a search to find some news that would lead me to believe that our elected leaders understood the problem we face. From the heterogeneity of attempted solutions across cities, states, and nationally it was clear that no one has any idea what the problem even is. No coordination whatsoever. It’s panic across the board. I watched the press conference last evening and most assuredly it did not instill a great deal of confidence that there was a plan. Moreover, I received text messages from my siblings (4 MD’s) that hospitals literally do not have enough beds, masks, ventilators, and other necessary equipment to even do their jobs properly. My approach to problem solving is first to understand the problem. Fully defining and structuring the problem is the essential first step. As I synthesize all the available information regarding the health and safety aspects of the COVID-19 outbreak one thing is crystal clear: Decision makers do not understand the problem.
How can an unknown problem be solved?
It can’t. That is where we are on this thing. A random 10 questions that I’d like answered as I write this:
1. What are the asymptotic forecasts of the virus? Worst case? Best case?
2. Has anyone quantified the difference between what is available throughout the
healthcare system and what will be needed in each of these scenarios?
3. What are we doing to address all deficiencies?
4. How long will each scenario take to be reached?
5. What are the actual costs associated with each scenario?
6. When will the inevitable national lock down begin? How long will it be in place for?
What is the expectation of the virus dynamics during this period? Are there metrics
that if hit trigger success or other solutions?
7. Rather than offer platitudes, can someone in leadership (e.g., President Trump)
offer actual hard evidence that what is being done is progressing toward an
objective?
8. What empirical evidence do decision makers have to make policy decisions?
9. Has leadership collected the best and the brightest and let them make the hard
decisions? Politicians and appointees are largely hopeless right now. The political
self-preservation and hubris make elected leaders useless.
10. Has anyone thought ahead by more than an hour?
I have not seen the answer to any of these pretty simple questions. It is unacceptable. Until we know the problem any and all solutions are largely wasted energy. The Whack-a-Mole legislation being debated is complete garbage. It is based on pure emotion and politics. Until actionable information is available no solution is even feasible. It’s preposterous. The magnitude of the numbers being thrown around will alter our debt structure for the next hundred years and won’t even solve the problem. The government’s plan is to throw a butt load of money in every direction and pray some of it is useful. To me, it seems a better use of those resources would be to make masks with $100 bills. At least then we know that the money is literally getting in the hands of those that are making a difference!
Practical Considerations
Practically, now is a time for great patience regarding investment decisions. Until we have more clarity on the impact of the virus, we will continue to manage our risks across all asset classes. Liquidity is king right now. Regardless of what policies are thrown at the markets, fear will be the major force. This is understandable. Policy makers seem to be frontrunning the national lockdown decision with staggering amounts of resources. Again, the policy makers don’t have a clue what the problems even are yet. They are just trying to overwhelm the capital markets with huge numbers. The temptation to trade must be separated from long term investment decisions. Opportunities will abound over the coming months. The markets will fluctuate wildly as they find an equilibrium. Until then, smart risk management is essential.