After lockdowns, economic sunlight or a long hard slog?

Equities imply that economic activity will swiftly return to previous peaks

Gavyn Davies

This photo taken on April 29, 2020 shows an employee working at a textile factory in Handan in China's northern Hebei province. - Chinese factory activity continued to expand in April, data showed on April 30, but analysts warned that the outlook remained clouded by battered overseas demand as the rest of the world struggles to overcome the coronavirus pandemic. (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)
China’s manufacturing rebounded in April, but exports are down as the rest of the world struggles to overcome the pandemic © AFP via Getty Images


The strong recovery in global financial confidence caused the S&P 500 index to rebound 13 per cent in April, leaving US share prices only 9 per cent below their levels at the end of last year.

This may seem puzzling, given the slim prospect that a vaccine against the virus, or effective treatments, will become available soon.

The surge appears to rest on the pattern shown in gross domestic product forecasts from the big investment banks (see box), which is mainly driven by the expected path for supply shutdowns.

Based on indices of lockdown policies published by the Blavatnik School of Government, and on population movements shown on Google Maps, it is likely that supply curtailments in the advanced economies reached their peak in April.

From May onwards, a combination of gradual policy relaxations and normalisation of consumer behaviour should allow the global economy to bounce back.

China has already seen industrial activity rebound as shutdowns have been relaxed since late February, although exports are now weakening markedly amid global recession.

Growth expectations have also been supported by the sheer scale of the monetary and fiscal policy easing introduced around the world in just a few weeks.

Thomas Huray at Fulcrum estimates that the direct fiscal measures introduced in the advanced economies so far is equivalent to 6 per cent of 2019 nominal gross domestic product, roughly double the equivalent stimulus from 2008 in the financial crisis.

Furthermore, JPMorgan estimates that the expansion in central bank balance sheets may exceed 18 per cent of GDP by 2021, about three times the scale in the financial shock.

The relatively optimistic forecasts for the advanced economies seem to treat the 2020 downturn in a similar fashion to a recession caused by a natural disaster, which has a catastrophic immediate effect but then disappears extremely rapidly.

If that pattern is repeated this year, the implication is that share price valuations may be only minimally affected by discounted future profits.

According to a very interesting analysis by Zach Pandl of Goldman Sachs, the equity markets are assuming that the storm will blow over very quickly, with GDP growth rates being higher not lower than normal in 2021. On that basis, equities do not look particularly overvalued.

However, Mr Pandl adds that this outcome would be unique among recent recessions in the country.

In a normal cyclical downturn, predictions for GDP growth are reduced in successive years once a recession becomes inevitable.

This is particularly true in the second year after the recession starts, suggesting no early bounceback to previous peak activity.

The decline in output becomes persistent, not a springboard for recovery.

This more normal pattern underpinned the strong concerns expressed by Federal Reserve chairman Jay Powell last week about the medium-term risks to the productive capacity of the US economy following a very deep recession.

Mr Powell also said that the course of coronavirus itself is a new form of economic uncertainty.

He is clearly right about this.

Although the key infection rate — the reproduction rate — has almost certainly dropped below one in most countries during the lockdowns, there have already been indications from Germany and Singapore that improvements can be partially reversed as restrictions are relaxed.

The grim arithmetic of epidemics strongly suggests that any increase in the R rate significantly above one may lead, sooner or later, to a large second wave in infections that will need to be suppressed.

In his press conference on Thursday, the UK prime minister Boris Johnson promised that the country was now approaching “sunlight and pasture” after passing through the “huge tunnel” of Covid-19.

But his chief medical officer, Chris Whitty, suggested it would still be a “long slog” for all countries from here.

Unfortunately, the scientist has probably got it right.

Market economic forecasts depict a short, sharp recession

Fulcrum has collected an indicative selection of economic forecasts from leading investment bank economists.

The average of these suggests that the level of GDP in the global economy will fall by 6 per cent in the first half of 2020, but then rebound to exceed pre-crisis levels of output by the beginning of 2021.

China is out of synchronisation with the advanced economies, and has already started to recover. This results in some smoothing in the cycle for the world as a whole.




The US economy is expected to show a similar broad pattern, although both the recession and the recovery are expected to be much sharper than for the global economy as a whole.

The level of US GDP is expected to fall by 12 per cent in the first half of this year, returning to pre-crisis levels only in mid 2021.

Argentina on brink of default as it wrangles with bondholders

Negotiations to restructure $65bn of foreign debt continue but both sides stand firm

Benedict Mander in Buenos Aires and Colby Smith in New York

Bondholders say Argentina’s economy minister Martín Guzmán is too dogmatic
Bondholders say Argentina’s economy minister Martín Guzmán is too dogmatic © FT montage; Reuters


Investors have abandoned hopes of a last-minute reprieve in negotiations with Argentina to restructure $65bn of foreign debt, as the country braces itself for a ninth sovereign debt default.

Both sides say talks will continue after Friday, when the 30-day grace period for previously missed payments lapses. But simmering tensions over the failure to reach a deal remain, and there is still the danger of a chaotic fallout from a technical default.

Bondholders accuse Martín Guzmán, Argentina’s economy minister, of being too dogmatic, while the government complains some creditors have acted high-handedly. But some are optimistic of a settlement.

“The contours of a deal are clearly visible,” said a person familiar with the government’s thinking, who believed a deal must be reached within “days to weeks”. “It’s like when you’re far from a mountain summit,” the person said. “It’s not like they are about to sign something, but you can see where the scope for a deal is.”

An extension of Argentina’s offer is now widely expected after Mr Guzmán this week described the Friday deadline as “anecdotal”, admitting there was a “big chance” it would be extended.

But bondholders say negotiations so far have been frustrating.

“We still have no real idea what the government is thinking, and here we are [a day away] from a default,” said a person who is involved with a BlackRock-led group of creditors. The group counts Fidelity, Ashmore and T Rowe Price among its members.

“Frankly, the Argentine government has engaged virtually not at all with anyone for months in this whole process,” added the person. Nonetheless, the person believes the proposals from creditors and the government are “not a million miles away from each other. There is a landing zone in there.”


Bondholders submitted three separate counter-proposals last week in response to the government’s original offer that included a 62 per cent “haircut” on interest payments. The counter-proposals are “a step in the right direction”, according to the person familiar with the government’s thinking, but remain too far from what the state is able to pay.

One particular flashpoint is the government’s insistence that all bond payments should be suspended for three years — close to the end of President Alberto Fernández’s four-year term. Each of the bondholders’ counter offers proposed a grace period of just one year.

“What creditors have put forward here is pretty much the bottom line,” said a member of another bondholder group. “The ball is in their court. We have delivered a proposal.”

According to Siobhan Morden, head of Latin America fixed income at Amherst Pierpont, a securities firm, the government’s proposal suggests a recovery value of 39 cents on the dollar for the bonds issued after 2016, assuming that the new bonds trade at a yield of 10 per cent after the restructuring.

The equivalent value is roughly 42 cents on the dollar for the so-called exchange bonds, which were previously restructured in 2005 and 2010. Those figures are some way adrift of the bondholders’ proposals, according to Ms Morden’s calculations.

The exchange bondholder group is seeking an average recovery value of 58 cents on the dollar, on a similar basis. A proposal put forward by Gramercy Funds Management, Fintech Advisory and a creditor committee involving Greylock Capital Management and GMO asks for the same for the post-2016 bonds.

Meanwhile, the proposal from the BlackRock-led group, whose members hold both the exchange bonds and those issued since 2016, suggests an average recovery value of 60 cents on the dollar.

A government official involved in the negotiations indicated that Argentina might be willing to make a counter offer if bondholders were to adjust their current proposals to reflect a recovery value in the low 50s.

According to a person familiar with the matter, BlackRock has discussed with other members of its group the prospect of accepting a recovery value of between 50 to 55 cents on the dollar.

Market prices of various bonds have rallied in recent days amid optimism that talks had not collapsed entirely, even as default looms. In a public statement released on Monday, the group involving BlackRock said it was “hopeful that a mutually acceptable solution can be reached”.

Mr Guzmán has said that the government is flexible, even though it is committed to staying within the constraints of its own forecasts.

A study carried out earlier this year by the IMF concluded that Argentina’s debt was unsustainable.

US health agency director warns of virus flare-up this year

Exclusive: Comments by CDC’s Robert Redfield raise spectre of more lockdowns in colder months

Kiran Stacey in Washington and David Crow in New York


Robert Redfield, director of the Centers for Disease Control and Prevention: ‘We need to work to try to develop programmes that help improve the public health of America’ © Mandel Ngan/AFP/Getty


The rapid spread of coronavirus in the southern hemisphere suggests it is likely to flare up again in the US this autumn and winter, raising the possibility of a second round of lockdowns this year, the head of the nation’s public health body has told the Financial Times.

Robert Redfield, director of the Centers for Disease Control and Prevention (CDC), warned the US would have to increase its disease-tracking capabilities rapidly in the next few months to avoid another public health crisis as seasonal flu coincides with a second wave of Covid-19.

“We’ve seen evidence that the concerns it would go south in the southern hemisphere like flu [are coming true], and you’re seeing what’s happening in Brazil now,” Dr Redfield said. “And then when the southern hemisphere is over I suspect it will reground itself in the north.”

The warning from the CDC chief comes despite repeated efforts by US president Donald Trump to convince Americans the worst of the pandemic is over, arguing the country was “transitioning to greatness”.

It also comes amid mounting tensions between the CDC and the White House, which has accused the world’s pre-eminent disease-fighting agency of mishandling the early stages of the outbreak.

Dr Redfield acknowledged the US was caught on the back foot when the virus hit, but attributed the failure to deficiencies in the nation’s public health efforts that predate Mr Trump’s arrival in the White House.

“This simple respiratory viral pathogen has really brought my nation to its knees, and the reality is, it’s no one particular person’s fault,” Dr Redfield said. “This nation has been unprepared for that for decades.”

Asked whether he could guarantee the US would not have to go back into lockdown this winter, when public health officials expect colder weather could exacerbate the spread of the disease, he replied: “I can’t guarantee; that’s kind of getting into the opinion mode, we have to be data driven.

What I can say is that we are committed to using the time that we have now to get this nation as overprepared as possible.”He added: “If we have a [flu] season like we had the year I became CDC director [2018] — almost 80,000 people died — it’s going to put a lot of stress independently by itself on our health system . . . and then you add on coronavirus and you can see the stress on the health system.”


The CDC has been criticised for its response in the early days of the outbreak. Over the weekend, Peter Navarro, a senior White House adviser, accused the organisation of “letting the country down” with testing kit failures earlier this year.

Dr Redfield blamed the high US death rate on two factors: a lack of funding for public health organisations such as the one he runs; and high levels of underlying health conditions such as obesity and diabetes.

“What this outbreak has shown is that the underlying occurrence of some key co-morbidities in the American public is greater than it should be,” he said. “We need to work to try to develop programmes that help improve the public health of America.”

He added that avoiding a similar public health disaster in the future would involve “doubling or tripling” investment in the US public health system. The CDC has a discretionary budget of about $7.8bn. Its funding fell about 10 per cent in real terms between 2010 and 2019, according to Trust for America’s Health, which carries out research into US public health policy.

Meanwhile, the CDC has also found itself at the centre of the tussle over how quickly states should reopen. Dr Redfield said he did not object to several states reopening faster than his organisation’s guidelines recommended, but he urged Americans to continue social distancing as much as possible.

“I think it’s important to rebuild the confidence of the American public that there is a path that they can go out safely but we want them to maintain social distancing.”

And he sent a warning to airlines that have been filling planes to capacity, saying they would have to enforce stricter social distancing to reduce the risk of Americans contracting the virus.

“If the airlines are really not going to put anybody on either side of you, great,” he said. “But if you’re going to be in the middle seat packed in between two people, that’s probably not the best place to be.”

Dr Redfield suggested, however, that the CDC could relax guidance stipulating people should keep a distance of 6ft between themselves and someone else if it turned out that wearing a mask offered some protection. “It may turn out that in the presence of using masking that social distancing may be modulated,” he said, although he cautioned that the CDC did not “have the data yet”.

Dr Redfield said that as states began to reopen, the US would need a huge increase in its ability to identify and isolate clusters of cases. “We’re committed to stay in the containment mode, where we have to get . . . every single case and cluster, a family cluster, workplace cluster, nursing home cluster, and we’ve got to shut them down.”

But he admitted his organisation was finding it difficult to obtain the kind of immediate case data needed to manage such a system.

“Sometimes that data is not collected in electronic form. Then that data needs to be centralised and sent to the states, and once it’s with the states, sent to CDC.

The truth is regularly the data is delayed and it’s incomplete.”

E.U. Is Facing Its Worst Recession Ever. Watch Out, World.

New forecasts predict a 7.4 percent economic collapse and risks of even worse decline if the reopening triggers a second virus wave.

By Matina Stevis-Gridneff and Jack Ewing


The Louvre, in Paris, during lockdown.Credit...Dmitry Kostyukov for The New York Times


BRUSSELS — The good news for Europe is that the worst of the pandemic is beginning to ease. This week deaths in Italy hit a nearly two-month low. And the German leader Angela Merkel announced that schools, day care centers and restaurants would reopen in the next few days.

But the relief could be short-lived.

The European Commission released projections on Wednesday that Europe’s economy will shrink by 7.4 percent this year. A top official told residents of the European Union, first formed in the aftermath of the Second World War, to expect the “deepest economic recession in its history.”

To put this figure in perspective, the 27-nation bloc’s economy had been predicted to grow by 1.2 percent this year. In 2009, at the back of the global financial crisis, it shrank by 4.5 percent.

It’s a grim reminder that even if the virus dissipates, the economic fallout could pressure the world economy for months, if not years.

In China, where the outbreak has subsided in recent weeks, the factories that power the global supply chain have been fired up. But with few global buyers for its goods, its economy has been slow to recover.

In the United States, where the growth of new cases in the hardest-hit areas shows signs of slowing and there is a push to lift lockdowns, there are also signs that a recovery may be elusive. The government on Friday is set to release the monthly employment report, and some forecasts predict a loss of more than 20 million jobs in April — a number that would wipe out a decade’s worth of job gains.

The European Union, home to 440 million people, is the United States’ No. 1 trading partner, and China’s second-largest. It’s the biggest foreign investor in sub-Saharan Africa and other parts of the developing world.

A prolonged European recession, a second wave of the virus or an anemic economic recovery would spell added misery for many Europeans, and hurt companies, banks and people the world over.

The crisis is also reigniting political divisions between a wealthier north and a poorer south, threatening to break the brittle balance between divergent nations with inextricably linked economies.


A nearly deserted piazza in Milan.Credit...Alessandro Grassani for The New York Times


A recovery will probably start unevenly in the second half of the year, Paolo Gentiloni, European commissioner for economy, said at a news conference after the release of the forecast, which comes out four times a year. But by the end of 2021 the countries of the European Union will be in worse shape than they were just two months ago, before the coronavirus started ripping through the continent.

U.S. gross domestic product fell at a 4.8 percent annual rate in the first three months of the year, and some economists believe it will contract at an annual rate of 30 percent or more in the current quarter.

“The danger of a deeper and more protracted recession is very real,” the head of the commission’s economic unit, Maarten Verwey, said in the forecast’s foreword.

A resurgence of the virus after the end of lockdowns would shave a further 3 percentage points off economic performance this year, he said.

The economies of Italy and Spain, two of the countries hardest hit by the disease, will most likely shrink by over 9 percent each this year, and Italy’s economy will be particularly slow to recover, Mr. Gentiloni said.

Greece, which had started turning a corner after a decade of economic calamity, will be worst-hit in the union, according to the forecasts, losing 9.7 of its economic output this year. Poland would suffer the least, with a 4.5 percent recession.

And unemployment will most likely average 9 percent in the bloc, the European Commission said, from 6.7 percent the year before.

The bloc’s biggest economy, Germany, will also be hammered, suffering its worst recession since World War II, set to shrink by 6.5 percent, but it is expected to recover relatively quickly. France, the second-largest economy, is expected to contract 8.5 percent this year.

The severe downturn in Europe will have major repercussions for United States growth and jobs because the two economies are intimately connected.

The European Union and the United States are each other’s largest trading partners, exchanging goods and services worth $1.3 trillion last year. European companies like Daimler, BMW or Siemens employ more than four million people in the United States, according to U.S. government figures.

China will also suffer. The European Union is second only to the United States as a customer for Chinese goods.

As grim as the economic outlook appears, the greater danger to the world economy may be the risk that the euro common currency could be undermined by the deepening rifts between its members and their leaders. That almost happened in the early years of the last decade, but was averted when the European Central Bank, the euro’s Federal Reserve, used its monetary firepower to prevent Greece, Italy and Spain from becoming insolvent.

The central bank is again flooding the eurozone with credit and buying the bonds of eurozone governments to keep their borrowing costs from spinning out of control. But the central bank’s ability to rescue the euro again may be constrained after a ruling Tuesday by Germany’s highest court.

The German Constitutional Court issued an ultimatum to the European Central Bank, saying it must show that the side effects of the bond buying do not outweigh the economic benefits. The court threatened to bar Germany’s central bank, the Bundesbank, from taking part in the stimulus program, which would be a serious breach of European unity.

The coronavirus is already producing an economic shock in Europe more severe than the one that followed the financial crisis in 2008.

“It is clearly more massive, and it is going down more steeply,” Clemens Fuest, the president of the Ifo Institute, one of Germany’s leading economic think tanks, said during an online presentation Wednesday.

The pandemic could have ramifications for politics and society that are impossible to predict.

The economic dislocation caused by the 2008 financial crisis helped fuel far-right populist movements in Germany, Italy and France.

Europe’s best hope is that economies will bounce back quickly, in what economists optimistically call a V-shaped recession, as lockdowns are eased.
 
Already, factories have resumed production in much of Italy, and Germany this week allowed hairdressers to begin receiving customers again. France will begin gradually ending its lockdown next week.
 
But many restrictions remain, including bans on large public gatherings. And no one knows yet whether the virus will reappear with a vengeance as public life resumes.
 
The fresh set of figures will pile pressure on European leaders to conjure up a brave joint response to the recession to ensure the recovery isn’t lopsided, hurting the joint currency and spawning more political unrest in the weaker economies.
 
Although the leaders have approved a half-trillion euros’ worth of measures that effectively call on wealthier nations to subsidize the recovery of worse-hit poorer ones, they have been criticized for not going far enough.
 
The persistent divide “poses a threat to the single market and the euro area — yet it can be mitigated through decisive, joint European action,” Mr. Gentiloni said.


Matina Stevis-Gridneff reported from Brussels, and Jack Ewing from Frankfurt.

The Post-crisis World: What Changes Are Coming?




The coronavirus pandemic has infected millions across the globe, upended markets and completely altered the business landscape as we know it.

Finding a Cure

Garrett began by asking Johnson & Johnson’s Gorsky a question that’s perhaps the most relevant in terms of moving beyond the pandemic: “What are realistic expectations about the medical side of the COVID-19 fight?”

“This is a really nasty virus. It’s a smart virus,” said Gorsky. The best opportunity in the midterm, he noted, is for a vaccine or a therapeutic that will treat and slow down the disease in patients who are already affected. “I’m cautiously optimistic that we’ll begin seeing the impact of a medicine in the coming months and a vaccine at some point in 2021.”

Significantly, pharmaceutical companies are not competing with each other in the traditional sense to be first to market with a therapeutic, medicine or vaccine, he pointed out. Instead, “dozens and dozens of companies are working against a common enemy…. It’s a bit of a combination between a moon shot and an Apollo shot, because what usually takes five to seven years is now being [attempted] by multiple companies … in five to seven months.”

In order to make the grade, a vaccine must be safe, effective and scalable in production, Gorsky said, noting that he is confident of an eventual breakthrough because numerous companies are working on the task.

Johnson & Johnson’s trial vaccine has passed safety tests, and its efficacy is being tested in primate models. The next stage is to accelerate the testing in humans and ramp up production to “hundreds of millions and even billions of doses,” he added.

Developing an antibody test kit for home use is “the holy grail,” Gorsky noted. “The challenge right now is we don’t exactly know the level of neutralizing antibodies that gives you protection against the virus.” While more data and information are needed on that front, investigations are also underway to determine the potency of treatments or their durability over time, he added.

A Changed World at Work

During his discussion with Garrett, Rowan from Apollo Global Management noted that he sensed an impatience among people to return to the way things were before the pandemic.

“We’re going to learn to live with this in our own way,” he said. “I see people wanting to go out, wanting to go back to work, and I do think we’re going to see a bit of an assumed-risk mentality take place. I think we’re going to see more green shoots of people venturing out and getting back to work.”

However, the world they return to “is going to be different for some time,” Gorsky noted. “Until we get a vaccine out in substantial numbers, we’re going to be living with this disease…. It’s going to be a matter of how we build the confidence of our citizens, of our workers and of society that we can either prevent the disease from occurring, or that we can limit the spread of it in some way.”
Gorsky called for “a global public health system” with the requisite capabilities and resilience, noting that it will be essential “for national security, economic security and many other aspects of our society.”

Business leaders, too, need to rethink their priorities on health and wellness for their employees, Gorsky continued. In that scenario, “every business leader in some way is going to be a health care leader going forward,” he said.

According to Rowan, “some surprising longer-term trends” will emerge as the pandemic makes its way through the economy. “One is [that] business is going to be asked to do more. The government is just not going to be able to fund [some measures],” he said. “We’re already seeing some businesses that are going to provide health testing, protective equipment and a series of services that historically we relied on from government.”

In the meantime, it will be critical “to master things like social distancing, masking and testing,” said Gorsky. He added that he grapples with the question of “how do we get back to work” — not only at Johnson & Johnson, but also in his role as chair of the corporate governance committee at the Business Roundtable and in his engagements with the government.

“We’re going to have to maintain a great deal of flexibility as we go through this to make sure that we can respond to future flare-ups if and as they occur, and ultimately continue to protect our employees and society as a whole.”

Fresh approaches will be required across all aspects of work, Gorsky said. “We’re going to have to think very differently about work shifts, and about regions, states and areas of the workplace that may be prioritized based on geographic location. [We will be] thinking very differently about travel, about meetings and about the new virtual work space as well.”

Benchmark Capital’s Rachleff echoed the theme of the virtual work space when Garrett asked him whether a lack of worker proximity or “density” will lead to lower productivity and innovation in a place like Silicon Valley.

“I’m not sure that productivity is going to be hurt that much. Engineers actually prefer this kind of environment,” Rachleff responded. “With regard to office space, I don’t think we’re ever going back to the old version of the office because why do we need to?

If productivity is at a high level and innovation continues, I don’t think that you have to be in the company of a lot of other people to drive innovation. I’m not sure we need to have the same kind of offices that we’ve had in the past.”

Red Flags in the Economy

Predictions for an economic recovery have ranged from a so-called V shape, which is a sharp dip followed by an equally sharp recovery; and a U, representing a longer recession followed by a gradual recovery; to an L, where the economy stays flat at a depressed level for a long time.

Rowan predicted a “swoosh” or an extended U, suggesting a longer wait for a full recovery.

The Federal Reserve and the Treasury deserve “very high marks, first for speed – much faster than 2008 – and second, for size,” said Rowan of their response to the economic downturn triggered by COVID-19. “To a large extent … they have taken the worst case off of the table,” he added.

However, Rowan pointed out that the current economic downturn is “not a banking problem like in 2008,” where solvency was the issue, but “a capital markets issue and a Main Street issue.” Secondly, the transmission mechanisms the Fed and the Treasury have to reach capital markets through the banks “are not as clean” as required, he said. Small businesses in particular are “difficult to reach with these transmission mechanisms.”

Rowan added that his biggest worry was that landlords are at risk of their tenants missing rent payments. He noted that landlords collect about $130 billion a month from their residential and commercial tenants. While “the vast majority” of residential tenants are paying their rent, that is not the case with commercial tenants, he added. Tesla is among “a growing number of businesses” that are seeking rent relief, according to a Wall Street Journal report.

Missed rent payments have a cascading effect. “When a tenant does not pay a landlord, the landlord does not pay local real estate tax, local utilities or their mortgage,” Rowan said.

“Those mortgages are held by community banks. The scale of this is really troublesome.”

Rowan noted that while the stimulus programs have provided substantial funding for the health care system and for protecting employees, they have largely overlooked protections for employers.

“If we don’t preserve the employers, it’s going to be very difficult to keep paying the employees,” he said. If their business fortunes don’t look up sufficiently, “the utilities are going unpaid, the insurance is unpaid, the rent is unpaid, and these businesses are just not going to reorganize,” he added. “And so using them as the transmission mechanism for employees is probably not the smartest thing.”

Rowan pointed out that instead of relying on banks, large businesses borrow directly from the capital markets. Their needs have been taken care of by the Fed and Treasury, which “have absolutely opened the capital markets for any solvent, creditworthy borrower.”

Small businesses, too, borrow from the capital markets, but indirectly through the securitization market, he noted. “Loans are gathered, packaged and securitized, [but] the securitization markets are still shut,” he said. “The ability to support small business, even solvent small business, is tenuous at best.”

Rowan explained why the government needs to walk an extra mile to help small businesses. “The ones I’m talking about are the 30 million small businesses that will never be good borrowers, who had a month’s worth of cash on hand or two months’ worth of cash on hand….

Those entrepreneurs put their life savings into their leasehold improvements, they failed to make the April rent payment, and they failed to make the May rent payment. And those businesses are really at risk. How we reach those can only be done through government programs because they’re not creditworthy borrowers for the most part.”

New Openings for Entrepreneurs

The pandemic has brought opportunities in select business spheres. Garrett noted that mobile payments are more popular in China than in the U.S., and he wondered if the pandemic would provide that business “a dramatic takeoff, precisely because it needs less human touch.”

Rachleff agreed that COVID-19 has accelerated the move to mobile services. “If it continues on its current path, it will represent a huge part of the economy,” he said.

The pandemic is also making way for “the adoption of online banking or a next generation of banking, and a next generation of investment management,” said Rachleff. “Digital banking is going to be an enormous force.”

The big opportunity now is to provide liquidity to companies that need it, Rowan said. He noted that Apollo Global Management has in recent weeks concluded several “private equity style transactions that involve private equity skill sets, but are not classic private equity deals.”

He pointed to two recent deals – a $600 million investment in travel services company Expedia and $300 million in printing services company Cimpress that caters to small businesses. Both companies face challenging times in the pandemic’s fallout. “One can get really nice returns and be a provider of liquidity to the marketplace,” Rowan said.

It is too early in the current cycle to find good opportunities to buy companies with private equity, Rowan noted. However, “there will be some opportunities in distress” in time to come, he added.

Rachleff said the current times might actually be good for entrepreneurs. “The data shows that the economy has absolutely nothing to do with the likely long-term impact of a business,” he added. “As a matter of fact, starting a business in a bad economy is a great idea because it lowers your cost of doing everything.”

Can America Handle a Second Wave?

The United States is not limiting COVID-19 infections enough to avoid a serious second wave of the pandemic later this year. As communities reopen and behavior patterns loosen still further, the country will be forced to face the consequences of its insufficient action to date.

William A. Haseltine

haseltine2_JOHANNES EISELEAFP via Getty Images_coronavirusUSnursememorial


CAMBRIDGE – Like surfers looking out for the next big breaker before the first one has passed, epidemiologists and public-health officials in the United States are bracing themselves for a fresh surge of COVID-19 infections later this year.

The fear is that this second wave will coincide with the peak of the 2020-21 US influenza season, triggering a new flood of hospital patients in dire need of respiratory support.

The fear is justified, based on what we know about coronaviruses and influenza. For both, infections begin rising in November and peak at some point in December, January, or February, before subsiding by April.

What is less certain is how high the waves for each infection will be. Although we understand influenza infection patterns much better than that of the SARS-CoV-2 virus that causes COVID-19, influenza remains a known unknown.

Its strains vary from year to year in terms of both transmissibility and severity. In some years, the number of lives lost to influenza in the US can be as low as 12,000. But during the 2017-18 winter, a particularly lethal strain led to the death of an estimated 80,000 Americans – the highest such toll in at least 40 years.

The annual variation in influenza strains means that we need to create a new vaccine each year. But there’s a catch: the vaccine needs to be prepared well in advance of peak flu season – and often before the new influenza strain even appears.

If the vaccine matches fairly accurately, it limits both the severity of an illness due to infection and the number of deaths due to complications from the disease.

But our 2017-18 vaccine was not a good match. By January 2018, hospitals were overwhelmed, emergency rooms were turning away ambulances, and medical centers were implementing now-familiar measures such as setting up triage tents in parking lots, restricting visits by friends and family, and canceling elective surgeries.

The severity of the 2020-21 influenza season will therefore depend on how well our vaccine matches the strain of the virus, and on the particular strain itself. But it will also depend on our own behavior and how readily we spread the infection to others.

Compared to influenza viruses, the behavior of SARS-CoV-2 is a much greater unknown. What we infer is mostly based on the behavior of the four cold-causing coronaviruses that have been circulating in the US since at least the 1960s, when they were first discovered.

The seasonal appearance of these viruses closely resembles that of influenza, except that infections do not disappear in the summer months; instead, they continue at a reduced frequency. Indeed, the notion that heat and humidity will eliminate SARS-CoV-2 is belied by ongoing infections in Singapore and coastal West Africa.

In fact, the seasonality of viral infections overall remains a mystery. Some think that viruses like influenza and coronavirus peak in winter because cold, dry weather dries our mucous membranes, rendering us more susceptible to viral infections. Others observe that, in winter, we gather more closely together indoors, facilitating transmission.

These theories seem plausible until one considers other viruses, like polio and cold-causing rhinoviruses, which peak in summer. And the mystery only deepens when we come to viruses that are seasonal in temperate climates and maintain a near-constant (albeit lower) infection rate in the tropics.

With SARS-CoV-2 unlikely to disappear on its own, and absent an effective vaccine or prophylactic drug, the main factor influencing the magnitude of a second wave of infections is how well we control the epidemic between now and then.

The number of people actively infected by the virus in October – the so-called human reservoir – will determine the size and speed of the expected second wave. Limiting the number of infections now will reduce the number of infections later.

Unfortunately, the US is not limiting COVID-19 infections enough to avoid a severe second wave. Our current control measures – limited testing and largely voluntary self-isolation for those known to be infected or exposed – are unlikely to eliminate the virus from the population.

Countries that so far have tackled the disease successfully have much broader testing regimes and have implemented exhaustive contact-tracing programs that identify all those potentially infected and move them to supervised facilities, often at a local hotel, where they are monitored for symptoms.

As US communities reopen and behavior patterns loosen still further, we will be forced to face the consequences of our insufficient action. Come October, I expect that we will be on the brink of another deadly round of COVID-19 infections. And if a significant wave of influenza infections crashes down upon us at the same time, even more people will die.

Having the medical means to prevent SARS-CoV-2 transmission will diminish the size and impact of a second COVID-19 wave. Indeed, with strong support by governments, the pharmaceutical and biotechnology industries, and non-profit foundations, efforts to develop a vaccine and drugs that may block the virus’s transmission have shifted into high gear in laboratories around the world.

With seven vaccines and at least one drug with prophylactic potential currently in clinical trials, I am confident that we will be able to limit SARS-CoV-2 transmission in the near future.

But the question is when.

To have an impact on a second wave of US infections this autumn, a vaccine or prophylactic drug must be widely available by the very beginning of the season. That will require maximum coordinated efforts by researchers, manufacturers, and regulators.

Although such a scenario is possible, we will need to be both smart and lucky to avoid what nature has in store for us come winter.

And without a medical breakthrough, we will have to prepare for the worst.


William A. Haseltine, a scientist, biotech entrepreneur, and infectious disease expert, is Chair and President of the global health think tank ACCESS Health International.