I’m a pilot. I learned to fly 30 years ago. All of my flying experience has been done in what’s known as VMC, or visual meteorological conditions. Under VMC, you are mostly flying based on your reference to the ground and the horizon with aide of basic instruments to confirm altitude, attitude, airspeed, and rate of ascent or decent. Most of my career in money management has been performed the same way. Normally, we have good visibility of the horizon and can see conditions changing well in advance of when they do. We have our usual instruments to measure and confirm where we are and which way we are going and can often steer around trouble.
Some pilots can also fly under what’s known as IFR, or instrument flight rules. Normally poor weather or visibility (known as IMC, or instrument meteorological) conditions will require a pilot to use more sophisticated instruments to fly their aircraft when they can’t see or rely on the usual visual references such as the ground or the horizon. In a handful of crises and market displacements of my 30-year career, we couldn’t see the ground or the horizon. We were in IMC for those periods and I was left to resort to the pieces of hard data I could rely on to safely pilot our course. When you are flying in IMC, in an airplane or in the financial markets, you must trust and rely on your instruments to get you safely where you are going. But what if you don’t have any visual references like when you are in IMC conditions AND your GPS and Map programs stop working? This is the most perilous place a pilot can find him or herself.
This is exactly where we find ourselves now – economically. Unemployment data is exploding. Just last week, over six million people filed unemployment. That brings the unemployment rate to above the peaks of the 2008-2009 financial crisis… in just two weeks. There is no way to accurately predict where this number will grow to, or how long it will stay up there, because we still don’t know how long we will be dealing with the coronavirus. Nor do we know what government policies will be enacted for isolation measures along the way. The latest reports from the Institute of Supply Management showed readings that were so disconnected from this fast-changing story that they are literally useless. Expect the same from the housing market when existing home sales get reported later this month. The same will be true of retail sales, consumer confidence, and virtually every dataset we could look to. Virtually every indicator that we rely on has stopped working or is giving us data that is of no use to us, since it is moving so fast. We are literally flying blind. So, what do we do?
In aviation, there is a mantra that pilots rely on when in conditions like this, “aviate, navigate, communicate.” Aviate means, fly the aircraft. Try to establish a steady and level flight (assuming you weren’t heading straight towards a mountain). Don’t make any sudden inputs into the controls. Your heading was based off of your well thought out flight plan before you lost your references. Try to stay on course as much as possible.
Then you navigate. Again, you knew where you were heading at one point. As long as your path was one towards safety, stay on it. Again, no sudden moves. Rely on the instruments you have left and try to maintain your altitude and heading as much as you can.
Lastly, communicate. Once you have the aircraft stable and heading in a safe direction, don’t try to go it alone. Call for assistance. Whether it’s the tower, or a fellow pilot, others can help you by adding additional helpful information and a different perspective on the situation.
That’s what’s required of us right now. If we had a good plan going into the storm, despite the turbulence, we should try to steer a steady course. Our map, a compass, and straight and level flight may be all that’s necessary until the clouds part and we can reassess.
And the storm may be starting to let up a bit in some areas already. As we have reported consistently, the storm is not the economy. Job losses and liquidity-issues are the wind and the rain. The storm is the spread of the SARS-cov2 virus. Although the clouds over the U.S. are getting darker and the rain is falling harder here, the winds and rain are starting to let up back in the direction the storm came from, namely Italy (and surrounding areas). The trend we reported on last week and updated on Tuesday continues to add encouraging data. Italy continues to see the rate of new COVID-19 cases decelerate. If this pattern continues to hold, this adds support to the theory that China and South Korea were not anomalies – that although the severity of isolation measures may shorten or elongate the timeline, COVID-19 cases may begin to meaningfully retreat just two to four weeks after meaningful social distancing occurs in an outbreak community.
The other two countries we have been watching for declines to materialize in their growth rates have also added supportive datapoints since our last update. Both Austria and Switzerland have seen continuous declines in their growth rates. As a reminder, both countries boarder Italy to the north, nearest to Milan, the biggest Italian hotspot. Both countries were quick to roll out isolation measures.
Spain, Germany, and France were the next major countries in line as the virus spread. All three have seen growth rates stabilize at 1 to 1 or below over the last week or more. If the pattern holds, these three countries should see declines in new cases in the coming days.
Several other countries are showing similar patterns to those that we observed last week in their close neighbors: France, Germany and Spain. The Netherlands, Portugal and Belgium are all showing initial signs of peaking. It has been 15-20 days since they all reported their 1000th case. (As we reported previously, our baseline for undeniable spread.) If conditions change and you’re heading for trouble, you should adjust and navigate back to a point of safety and land, reassess, and make a new flight plan when conditions clear. It this pattern continues, these countries will be showing early signs of decline next week and their neighbors should have evidence of plateauing (Sweden, Norway, Denmark, Poland, etc.).
That brings us back to the U.S. (and by proxy, Great Britain). Again, it is too early to pronounce the U.S. as beginning the deceleration process. However, early isolation adopters, like Los Angeles and the Bay Area, have seen relatively flat growth rates of the virus. If we treat California like its own country, it would look a lot like Spain or Germany right now. In other words, though it’s too early to say we are following the above described model, the data we are receiving does not conflict with it at this point in time. In 7-10 days, we should be able to project with some level of confidence.
Going back to our flying in a storm analogy, if ATC or another pilot could tell us that the storm had almost passed us, and all we had to do was stay on our planned course and we would get through it, would that influence our decision on how to navigate the aircraft? What if we learned the exact opposite and the storm in front of us was building stronger? Surely we would choose to navigate back to a point of safety, land, reassess, and make a new flight plan when conditions cleared. We are at the point in the journey where almost all we see is clouds. Now is the time to stabilize the aircraft, check our flightpath to make sure we are still on our original, well-thought-out course, and look to gather additional information through communication. Hopefully the pilots ahead that are going through the storm can communicate the information that we need. If Italy and its neighbors begin to emerge from the darkness, this will inform our decisions. Yes, as with weather, conditions can always change, no matter what appears ahead. Nonetheless, our training has taught us to be calm, not make any sudden moves, and gather information to make the best decisions to safely pilot us towards our intended destination, even if that means we don’t get there exactly when we had planned.
We look forward to updating you next week. We suspect that much more will be known then. Until that time, stay healthy, stay grounded, and stay positive.
Jim Scheinberg CIMA
Managing Partner
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The information and statistical data contained within are from sources which North Pier Fiduciary Management, LLC believes to be reliable but is in no way warranted by us to accuracy or completeness. Source for selected data and charts: JP Morgan, U.D. Dept. of Labor, YCharts,com, Statista.com and Worldometers.info. North Pier does not undertake to advise you as to any change in figures of North Pier’s views. This is not a solicitation of any offer to buy or sell securities or services. North Pier, our affiliates, and any Officer, Director or Stockholders, or any member of their families, may have a position in and may from time to time purchase or sell any of the securities mentioned herein.
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