Samuel Johnson said that "when
a man knows he is to be hanged in a fortnight, it concentrates
his mind wonderfully." Fortnight is one of those words that we've abandoned in
our quest for precision over poetry, like "score" for 20 and "stone" for 14
lbs. A fortnight is 2 weeks, which seems a long time to contemplate one's
demise, but maybe only because these days so few of us even do.
In a fortnight, if current models of the coronavirus spread remain unaltered, there will be about 2,300 dead from the virus in the US, and about 150,000 known to be infected. We won't know how many are actually infected, or were and recovered. We are blind -- not only for lack of good test information, but also for not having a familiar context. The last time anything like this happened was in 1918, and there's no one around now who remembers it. But Samuel Johnson's dictum is true, and we see it in the markets. Our collective minds are being concentrated on what matters.
Take, for instance, one of my pet peeves. Bitcoin is selling this morning at about $5,300, almost half its value a month ago. Compare that to the S&P500 (down a quarter, though it depends on the day and the hour), silver and platinum (down a third), or gold (down 7%). Sure, oil is down more, but that's manipulated. Hmmm . . . .
But I'm more interested in the counter-examples.
Consider what happens when a large chunk of the country is forced to work from home, and can only attend meetings remotely. Or when the country's students all need to attend classes on line. Well, what happens is that a mobile app that was popular among high school video bloggers and chatters suits up to shoulder an adult challenge. Zoom Video Communications is poised to be the leading facility for work-from-home learning and conferencing. https://www.investors.com/research/breakout-stocks-technical-analysis/zoom-stock-ipo-leads-coronavirus-stock-market/ Its stock went up 20% in the past month.
This is what concentrating the
mind means, coming to grips with reality and giving due concern to what really
matters. It's interesting that bitcoin's price today is about what it was a
year ago. In the meantime, it had gotten as high as $20,000. One now has to
wonder what that was all about. Not me, of course; I've been wondering that all
year long. In the end, Zoom
matters, and bitcoin doesn't. Zoom will be an essential tool for
sheltered-in-place knowledge workers, and bitcoin will remain the oddity it
always was. In a crisis, oddities don't do well. They get zoomed by
reality-based goods and services.
A few columns back, I noted that markets have never before reacted so badly to
epidemics. The Fever ([In]Securities Guest Blog by Aegis Frumento, Esq., BrokeAndBroker.com / March 5, 2020) http://www.brokeandbroker.com/5100/aegis-frumento-insecurities-covid/. Not even the Spanish Flu pandemic of 1918 caused the markets to
quaver like they have today. I suggested from that historical perspective that
something else was at play this time. The fate of bitcoin offers a clue: unlike
in 1918, too much of today's economy is built on sand -- on unessential goods
and services. The hospitality industry, for example, may lay off 4 million
workers in the next few days. That's 2.5% of the US labor force. The ripple
effect of those job losses could easily result in an increase in unemployment
of over 8%. That will put us almost back where we were during the Great Recession
a dozen years ago.
differently in 1918. There were bars and restaurants, of course, but the
hospitality industry was not as large or as consequential as it is today. Most
people did not live in cities, and most ate and entertained at home.
But in our reality, today's
massacre was completely predictable. We have been warned of the inevitable
pandemic for years. And even in 1918 we knew that social distancing was key to
stemming the tide of illness. Therefore, we should have known that a pandemic
would come, and that the social distancing it required would wipe out the
hospitality industry. That this one caught us by surprise IS the surprise.
I'm not suggesting that we all
revert to our 1918 farmhouses. I enjoy bars and restaurants as much as or more
than the next guy, but we should have seen this coming and been better prepared
for it. If you know you will face a months-long shutdown sometime in the
future, you insure against it. If you cannot buy pandemic insurance (I'm
guessing not), then you self-insure against it. Ever since Joseph interpreted
Pharaoh's dream, we've known to provision ourselves against the threat that is
predictable in all but when. If that means higher prices and lower profits in
the fat years, so be it. Unimaginative managements and itinerant shareholders,
with their short-sighted focus on short-term profits, are to
blame. When this is all over --
and it will be all over -- we'll need to rethink how we live. COVID-19 caught
us flat-footed. If we take some lessons that will help us manage the inevitable
next one, then it may have been worth it. The hospitality industry wants a $150
billion bailout. https://www.travelweekly.com/Travel-News/Hotel-News/Hotel-industry-requests-aid-amid-mass-layoffs-coronavirus. I suppose they'll get it. It'd be
nice if that money went to the laid off workers rather than to defray corporate
losses, but I'm guessing it won't. But there should be some serious strings
attached to safeguard against them cratering again the next time a pandemic
hits. Last time it was the banks, and now it's the bars. Our entire economy
shouldn't be at risk because one industry or another lacks imagination,
courage, or both. If that's not why industry leaders are paid those big bucks .
. . well, don't even get me started on
that. Samuel Johnson also said
that "when a man is tired of London, he is tired of life; for there is in
London all that life can afford." The very same can be said, in our day, of New
York, and I miss it. I'm stuck at home with Zoom and a well-stocked liquor
cabinet my only bulwarks against the storm coming in the fortnight. I hope
that's enough. Stay healthy,
Aegis Frumento is a partner of Stern Tannenbaum &
Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento
represents persons and businesses in all aspects of commercial, corporate and
securities matters and dispute resolution (including trials and arbitrations);
SEC and FINRA regulated firms and persons on regulatory compliance issues and
in SEC and FINRA enforcement investigations and proceedings; and senior
executives of public corporations personal securities law and corporate
governance matters. Mr. Frumento also represents clients in
forming and registering broker-dealers and registered investment advisers, in
developing compliance policies, procedures and controls, and in adopting proper
disclosure documents. Those now include industry professionals looking to adapt
blockchain technologies to finance and financial market
Prior to joining the firm, Mr.
Frumento was a managing director of Citigroup and Morgan Stanley, a partner and
the head of the financial markets group of Duane Morris LLP, and the managing
partner of Singer Frumento LLP.
graduated from Harvard College in 1976 and New York University School of Law in
1979. Mr. Frumento is a frequent author and speaker on securities law issues,
and is often quoted in the media on current securities law
views expressed in this Guest Blog are those of the author and do not necessarily
reflect those of BrokeAndBroker.com