Pro Perspectives 2/28/20

February 28, 2020

Stocks rallied sharply in the last 15 minutes of trading today.

Why?  Given the carnage of the past week, there has to be a decent chance that we get some policy response over the weekend — whether it be a coordinated global central bank response, or some sort of coordination from global governments to strategize on containment, and/or support the global economy with a big fiscal stimulus response. 

As we discussed yesterday, the turning point for markets and global confidence during the global financial crisis, was the G20 meeting in April of 2009, when the G20 pledged to work together to resolve "a global crisis with a global solution." Markets turned well before there was any visibility on a favorable outcome for the global financial system. 

With that in mind, we end the week with the world now at "highest risk" of the global spread of the coronavirus, according to World Health Organization. 

Interestingly, the head of the WHO wouldn't use the word pandemic today, but he does say the "greatest enemy is not the virus itself, but it's fear, rumors and stigma."

Why?  And why do governments seem to be slow to react? 

It may have something to do with what they already know about pandemics. 

In short, there's not much that can be done to stop it, only to mitigate the effects.  Reuters had a good piece yesterday that cited a 2011 UK government white paper on pandemics.

Here are a few interesting excerpts from that white paper: 

"During a pandemic, the Government will encourage those who are well to carry on with their normal daily lives for as long and as far as that is possible, whilst taking basic precautions to protect themselves from infection and lessen the risk of spreading influenza to others."

"Modelling suggests that imposing a 90% restriction on all air travel to the UK at the point a pandemic emerges would only delay the peak of a pandemic wave by one to two weeks."

"There is very limited evidence that restrictions on mass gatherings will have any significant effect on influenza virus transmission."

"There is modelling data highlighting the potential benefit of school closures in certain circumstances, both in terms of protecting individual children from infection and in reducing overall transmission of the virus in the population" … but, "The impact of closure of schools and similar settings on all sectors would have substantial economic and social consequences, and have a disproportionately large effect on health and social care because of the demographic profile of those employed in these sectors. "

Bottom line, the research determined that social and economic costs are greater with aggressive quarantines, border closures, etc.  Therefore, the focus, they recommend, isn’t on trying to stop it, but is on mitigating the severity of outcomes.  That seems to be the script.