Improvise, Adapt and Overcome

Marines are trained to “improvise, adapt and overcome” any obstacle in whatever situation they are needed.[1] It’s a mindset rooted in the fact that Marines have historically had less funding than other military branches, so they needed to figure out how to do more with less. It’s a can-do attitude worthy of admiration – and an apt description of the way that we, as a nation, are attempting to deal with the COVID-19 crisis.

Despite our valiant and in some cases heroic efforts, we have suffered significant losses. More than 100,000 Americans have lost their lives. More than 40 million jobs have been lost. We have entered an economic recession, with unemployment now expected to peak above 15 percent. And U.S. financial markets initially dropped more than 35 percent, though they have since staged a significant and encouraging recovery.[2]

The lessons learned from this crisis will be debated for years to come, but after much reflection, I’ve arrived at the following conclusions.

We could have been better prepared.

As COVID-19 started spreading across the U.S., some scientists predicted that as many as two million Americans could die.[3] Federal, state and local governments made the difficult decision to shut down commerce and ask people to shelter at home to avoid the predicted dire outcomes. Many had questioned whether Americans so accustomed to individual freedom would be willing to comply with such an unprecedented request, but with the dawning realization that we really are all in this together, most followed the guidance to stay at home and socially distance. As a result of this willingness by people to temporarily adapt their lifestyles, lives were saved.

As the pandemic descended on the U.S. in early March, healthcare workers across the U.S. were faced with severe shortages in personal protective equipment (PPE) like masks, gloves and gowns for weeks. By early April, more than 9,000 health workers had been infected, according to the Centers for Disease Control and Prevention, and at least 27 had died. In some hospitals the situation became so desperate the equipment was locked in cages and rationed. Reports surfaced of doctors wearing ski goggles to treat patients, ponchos replacing surgical gowns and nurses re-using face masks for days on end.

All indications seemed to be that things would only get worse. But they haven’t – because American ingenuity and the spirit of “adapt, improvise and overcome” kicked in. Hospitals, state and local governments and the private sector banded together and “MacGyvered their way out of the chaos.”[4] Here is an incomplete list of inspiring examples:

• Cafeterias were transformed into medical wards.
• Breathing tubes were recycled.
• Ventilators were split (serving up to an additional 1 to 3 extra patients).
• Whisky companies started producing hand sanitizer.
• Furniture companies started creating surgical masks.
• Medical students were conscripted overnight.
• Zoom (video chat technology) was used to interact with patients without entering negative-pressure isolation rooms to preserve PPE and minimize exposure.
  

Shutting down the economy has widespread, long-term consequences.

The decision to shut down the American economy and ask people to shelter at home has saved lives, but it has also resulted in significant collateral damage. The Organization for Economic Co-operation and Development (OECD) estimates that for each month of lockdown, there will be a loss of two percent in annual economic growth.[5] Here in the U.S., our economic output contracted by 4.8 percent in the first quarter of 2020, with deeper pain coming in the second quarter. This drop in economic activity has resulted in over 40 million jobs being lost in just eight weeks, with the unemployment rate hitting 13.3 percent and now projected to peak at more than 15 percent.

Between Congress and the Federal Reserve, it is estimated that we have already thrown more than $6 trillion dollars at the coronavirus crisis. To put that in perspective, it’s more than the entire economic output of the U.S. economy in the fourth quarter of 2019. And we may not be done yet. Whether we are or we aren’t, though, one thing seems assured – we will have ongoing budget deficits.

There have been other human consequences of the decision to pull the plug on the economy. Perhaps not surprisingly in this time of anxiety and isolation, suicides and overdoses – so-called deaths of despair – have spiked. Domestic violence has increased. And educational progress across all age groups has been interrupted.

How can we overcome these additional threats to our economy and society? The answer, of course, is through more adaptation and innovation. In the immediate future, we must adapt to this so-called new normal by doing everything we can to ensure a safe and successful reopening of our economy that allows people to return to work and children to return to school. As we’ve already begun to see, this may mean rethinking and reconfiguring workspaces, finding safer alternatives to traditions like hugs and handshakes and adjusting to sports without fans in the stands for some span of time.

In the weeks and months ahead, our scientists, laboratories, medical experts and even military professionals will be engaged in an historic effort to innovate our way out of the current crisis by developing, testing, formulating and distributing a vaccine that can more permanently restore a sense of order and safety to our lives. Due to technological advancements, we have been able to map the genetics of this virus and engage in the effort to develop a vaccine more quickly than ever before. You may be encouraged to learn of the remarkable progress that is already being made: 

• There are over 1,300 clinical studies related to COVID-19 that will allow us to learn more about this disease.[6]
• There are over 10 courses of treatment that are being studied or used in live situations.[7]
•  There are 10 vaccines in clinical trials (using patients) and 114 vaccines in preclinical evaluation – some of the vaccines could be ready by October.[8]

When you consider that none of these things were even underway only six months ago, this is truly incredible.

We need to be better prepared for the next pandemic.

Understandably, all our focus has been on overcoming COVID-19.  But what about the next pandemic?  I think the saying that “there is nothing certain in life but death and taxes” needs to be updated. We should add pandemics to that list. We will almost certainly have more of these to deal with in the future, so we will need to use what we have learned from this one to be better prepared for the next one. This could include steps like:

• Strategically stockpiling PPE and ventilators across the U.S. at appropriate levels.
• Mandating that hospitals maintain a certain level of capacity – hospital beds and ICUs – that exceed the levels needed in ordinary times[9] and/or we will create mobile infection treatment centers (think of MASH units for pandemics) that can be quickly deployed to pandemic hotspots.
• Developing a national playbook (protocols and standard operating procedures) for dealing with pandemics that will consider geographic differences.
• Creating a national pandemic committee that includes professionals from various disciplines such as health public policy, virology, front-line health practitioners, business leaders, historians (to give us context), and even economists, all with multiple skill sets.

Only a year ago, measures such as these would have been viewed by most as public health policy. Now, we know better. If COVID-19 has taught us anything, it is that everything is connected to everything, especially when it comes to the health and safety of society. A pandemic is not just a threat to the physical health of our citizens, it is a threat to our economy and, consequently, to our financial markets. By being fully prepared for the next pandemic, we will not be forced to rely solely on our ability to “adapt, improvise and overcome.” And that may give us a better chance of threading the needle between protecting people from the virus and keeping our economic engine going.  

First Command is here for you.

Considering the economic damage wrought by the coronavirus, financial markets have proven to be surprisingly resilient. It’s been yet another lesson in why the best course of action for long-term investors is almost always to stick to their plan. I will delve more deeply into the financial consequences of the pandemic and what we anticipate lies ahead in my next commentary. In the meantime, if you have questions or concerns specific to your situation that have not been addressed, please reach out to your Advisor. Thank you for the confidence you have placed in First Command. We are committed to being at our best for you at this important time.

The information in this report was prepared by John Weitzer, Chief Investment Officer of First Command. Opinions represent First Command’s opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. First Command does not undertake to advise you of any change in its opinions or the information contained in this report. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Should you require investment advice, please consult with your financial advisor. Risk is inherent in the market. Past performance does not guarantee future results. Your investment may be worth more or less than its original cost. Your investment returns will be affected by investment expenses, fees, taxes and other costs.

All estimates provided are for informational purposes only and should not be relied on to make investment or other decisions. Should you require investment advice, please consult with your financial advisor. Risk is inherent in the market. Past performance does not guarantee future results. Your investment may be worth more or less than its original cost. Your investment returns will be affected by investment expenses, fees, taxes and other costs.

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Footnotes

[1] https://www.military.com/undertheradar/2015/03/23-terms-only-us-marines-will-understand

[2] The S&P 500 was down -35% on March 23 from its high on February 19.  March 23 may turn out to the bottom of this bear market correction.     

[3] Neil Ferguson of the Imperial College of London predicted that over 2 million individuals in the U.S could die from this new virus.

[4] MacGyver was a TV series from 1985 that featured Richard Dean Anderson as Angus “Mac” MacGyver.  MacGyver was a genius who used common items to solve complex problems.  He always carried a swiss army knife and he refused to carry a gun.  https://en.wikipedia.org/wiki/MacGyver. 

[5] OECD Updates G020 Summit on Outlook for Global Economy (March 27, 2020 as updated April 15, 2020) (http://www.oecd.org/newsroom/oecd-updates-g20-summit-on-outlook-for-global-economy.htm). 

[6] https://clinicaltrials.gov/ct2/who_table.  

[7] https://www.goodrx.com/blog/coronavirus-treatments-on-the-way/. 

[8] Morning Briefing, Yardeni Research (May 27, 2020).

[9] One of the main issues about health care resources needed to combat a pandemic is that hospitals are financially incented to not waste medical resources on things that may happen infrequently.