Searching For Context

Searching For Context

2020-2 (May)

This quarter’s commentary will not include the customary economic analysis. With COVID-19 completely disrupting our fundamental way of life, economic analysis is at present somewhat meaningless – at least in the relative sense in which we typically use it because we have no context for this, nothing with which to compare. Much of the economy is simply shut down in a manner we have never experienced or even envisioned, and the government is pouring in epic sums of cash in an effort to provide a financial bridge while we all assess the pace of infection, work toward remedies, and look to rebuild economic activity.

Trying to project levels of economic decline or recovery at this stage is pointless. For the purpose of forward-looking economic assessments, we have to press the reset button and start again from scratch, playing this out as if we’ve just been introduced to a completely new game. It should become useful to begin to evaluate the progression as new trends begin to establish themselves, but we are not there yet.

To briefly summarize: The economy has fallen into a hole / Governments and central banks have stepped in boldly to try to temporarily fill that hole / While we work on multiple fronts to figure it all out.

“Complex” is a woefully inadequate word for what we are all experiencing, but… 

  • It is complex to try to determine the size of the hole:

• Vast numbers of businesses have been either shut down completely or severely curtailed, leaving them unable to pay employees and rent in the absence of government efforts at assistance.

• Many more will be similarly affected by disruption of their supply chains, rapidly changing consumer behavior, and various other downstream issues which have yet to play out.

It is complex to assess either the adequacy or the effectiveness of the government’s epic response:

• Is it sufficient in its magnitude?

• Is it hitting the mark – getting at least in broad measure to the right people?



It is complex to consider the potential duration of the primary effects:

• How quickly will businesses reopen, putting people back to work?

• How quickly and to what extent will consumers return to “normal” levels of activity?

• How long will it take to bring the virus truly under control?

• How long will it take to repair or replace disrupted supply chains?

It is complex to project what the business landscape will look like coming out of this:

• Which industries will be permanently damaged, or at least dramatically transformed?

• What industries will be big winners?

• What new industries will emerge?

Finally, it is beyond complex to surmise the specific effects that politics will play in all this – both in the exceptional challenge of legitimate decision making and the insidious effects of partisan self-interest as the relative cooperation of the initial crisis passes. 

There is simply an extraordinary amount we still do not know … and will not for some time.

The first key in the process of regaining some sense of clarity will be the pace of development of an appropriate combination of (a) induced immunity (from a vaccine), (b) natural immunity (hopefully, from exposure and recovery), (c) scope of testing (critical for a virus which is transmitted asymptomatically) and/or (d) an effective remedy.

A second key will be the pace of return of confidence and more normal economic behavior by consumers and companies.

And another will be the extent to which production and consumption that is permanently reduced or destroyed in some industries is replaced by new production and consumption in new or expanded ventures? Disruption of this magnitude could launch a wave of creative development that could project us forward in ways far beyond what we can currently imagine. Despite the damage, one of the valid possibilities is that it could be the catalyst for a more productive economic future.


As for the question about the future effect of the almost unimaginable levels of government expenditure and the scope of the Federal Reserve balance sheet – that is for later. The “world war” analogy that some have used for comparison is probably a good one in some respects, despite its significant imperfections. Right now is about “survival” – we’ll have to try to sort out the implications when we’re past the crisis.

Despite the complexities, what can be done even in this environment is to form well-reasoned assess- ments of the health of many companies – both in current terms and with regard to the changing landscape – and to develop projections of market segments which are likely to be advantaged or disadvantaged by the conditions we are seeing unfold. Our portfolio managers have been thoughtfully making incremental adjustments to portfolios with a goal of better positioning for the period ahead.

"World economies will not return to the same place from which this began – we all recognize that."

World economies will not return to the same place from which this began – we all recognize that. At the same time, it is likely not productive to try to overstate the ultimate magnitude of change at this point. Things rarely change as much or as fast as some of the more impassioned prognosticators suggest in the heat of the action. It is all but inevitable that something of this magnitude and severity and emotional impact will move the needle perhaps more than anything we have experienced, but as to the specifics, only time will tell.

So, in a moment precipitated by a viral mutation and transmission process that has thus far eluded our control, and as we witness an expansion of the use of technology as a more pervasive way of life, may we never lose sight of our fundamental humanity. Ultimately, though we sometimes forget, the lifeblood of each of us is dependent on the lifeblood of all of us. May we use this event as motivation to spend more time looking inward and reaching outward … (even though we are best advised not to actually “touch” one another!!)

From all of us, we are wishing safety and wellness for each of you, your families, and all those who are part of your lives.

Gordon T. Wegwart 
President, Chief Investment Officer

This material contains forward looking statements; there is no guarantee these outcomes will be achieved. All investing involves risk of loss, and there is no guarantee that strategies which may have been successful in the past will be similarly successful in the future.