Queen Elizabeth’s Speech, Markets Look To Recover, And Pharma Works For A Vaccine

When life seems hard, the courageous do not lie down and accept defeat; instead, they are all the more determined to struggle for a better future. Queen Elizabeth II

The United Kingdom has a long history of providing leadership to the world. The most famous example was the legendary Winston Churchill, whose will and iron-clad refusal to deal with Adolf Hitler, ultimately led to the defeat of Nazi Germany. Today’s circumstance is quite different because the issue at hand is a virus which has spread across the globe, causing illness and death. All over the world our supposed leaders, including those in our country at the federal, state, and local levels, did not prepare for the problem, even though they knew of the situation in November of last year. Every day over the last few months we are treated to the same thing - some politician getting up and saying there are no beds, there is no equipment or masks, there are no ventilators, and things would only get worse. We got unilateral decisions about staying in our homes, which currently still exist. Not only that, as citizens, we should not expect things to ever get better. Great, way to inspire us and give the masses hope. Interestingly, there are times when leadership arrives from places one least expects it. Enter the 93 year-old Queen of England.

Last Sunday, the leader of the UK gave a four-minute speech where she thanked her citizens for their selfless contributions all across the kingdom. She mentioned the lovely participation of the children and kids who have such spirit throughout the land. Finally, she tied the whole thing together by telling her people the country will overcome the challenge with a quiet and steely resolve and move on to greater heights in time. It did not get a great deal of attention, but I am confident it helped people feel better about the path ahead. The next day, the UK got word that Prime Minister Boris Johnson had to go into intensive care because of the virus. It appears he is improving and is now out of ICU. In difficult times, and make no mistake, the modern world is in uncharted territory, we find out who are the pretenders and who are people that lead the way. Queen Elizabeth is one such leader.

Elsewhere, here in the United States, over 6.6 million people filed for unemployment this week. It brought the three week total to over 17 million. By the end of April, it is expected the number will surpass thirty million. Not good, not good at all. Under the best scenario, government financing through the broad assortment of plans by the Federal Reserve and Treasury, will provide adequate financing for businesses, workers and citizens to bridge the gap until the economy is allowed to open. Once it does, it will be a slow process to recover, potentially taking up to a year or longer. Customers don’t just show up because a business is now open. Of course, you have to be allowed to open to even have a chance for a customer to show up.

The question of how long the country will wait before it opens is based on models of the illness and how it is spreading in each state. Many of the models which are being used across the globe have shown to be inaccurate in their initial predictions. Quite a few have seen their numbers revised downwards in a big way, leading observers to question the extreme remedies currently taken. I believe this is very much justified, and further begs the question as to how can one trust these actions when they are based on faulty figures?

On the health care side, it is important to note the efforts being made by the pharmaceutical industry to come up with a vaccine as soon as possible. Major drug manufacturers like Johnson & Johnson, Gilead Sciences, and others are in clinical trials to find a cure. Over the last four years, the leading critic of the industry has been Bernie Sanders, along with his fellow Democratic colleagues in Congress. His criticism is based on how much money the drug makers earn. It is at a time like this to recognize why these businesses are so important to society. Without them, will we have a society that could even function without a cure to this virus? At the very least, it wouldn’t look anything close to what we are used to. Personally, it was nice to see Mr. Sanders have to stop his campaign to become the Democratic nominee. Unfortunately, it seems as Mr. Biden will adopt many of the policy stances that Bolshevik Bernie believes in. Some things don’t change.

In the energy markets, OPEC+ met and came up with the logical decision to cut production by at least 10 million barrels a day and probably much more. Most estimates show supplies need to be cut by a minimum of 20 million per day to have any chance of balancing markets. Of course, when airlines start regaining customers and travel slowly starts to begin, the number of barrels being used will go up dramatically. In the oil patch, there is so much pain that their lenders, the largest banks (Chase, Wells, Citi, Goldman, Morgan Stanley) are preparing to take control of those companies that default on their loans. Most of this will take place in the shale areas, where the reduced value of the reserves doesn’t warrant more capital from lenders. All of this will play out over the next year. Like the rest of the economy, those who are strong probably are going to wind up with crown jewel assets.

Speaking of strong, Warren Buffett sits on $120 billion, about 70 of which he can use for acquisitions. I suspect he has been looking quite hard, and is talking to all kinds of companies. Other well capitalized enterprises are also on the prowl, and now is the time when those who have liquidity and are leaders in their industries are going to consolidate the weaker companies. Investment banks are going to be quite busy over the next year, so look for deal activity to start to pick up after the next quarter passes. Meanwhile, I am sure plenty of readers have been doing the same thing, looking for opportunities from a volatile market.