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“The time is out of joint” Reflections on our Current State

The time is out of joint,
O curs’ed spite,
That ever I was born
To set it right
Shakespeare, Hamlet

 

We can all relate to Hamlet’s frustrated cry of despair at the state of the world this week. Hamlet was  distraught over the politics of Denmark, but we experience the world in a whole new way this week, whether socially distancing, homeschooling kids, as caregivers, first responders,  recently furloughed, or others affected by the double exogenous shocks of the worldwide spread of the COVID-19 virus and disease, and the resultant shutdown of economic activity almost overnight. We can be forgiven a moment of despair as we begin to understand that, as Thomas Friedman wrote in the New York Times, there is now only BC and AC…the world before corona and after, and they will be dramatically different. I encourage you to read his thoughtful analysis in full here: (https://www.nytimes.com/2020/03/17/opinion/coronavirus-trends.html)

But we do know that each of us will be called on to do our best to help “set it right” eventually, or right away. And we have seen parts of this movie before. Unlike 2008, the underlying domestic economy going into the shock was steady to strong, credit quality was better than in 2008, and the banks, thanks to incessant capital stress-testing, are for the most part solid. Additionally, the Fed and other central banks are immediately bringing substantial support, both for individuals and businesses. We believe that quick action will prove essential. We hope that the bill currently in Congress will pass in the next few days, to begin injecting liquidity back into the economy. In the meantime, here are a few short-term and medium-term thoughts we share with our clients today:

  • Risk: evaluate plans for short-term and medium-term liquidity in the light of what is projected to be a 2-3 quarter event. Current consensus is for a Q2 shock of almost no economic activity, followed by a gradual ramp up. Will you hit a covenant? Will you need to shore up credit lines? Pro-active engagement with funding sources is critical, and messaging that your company needs help until such time as the economy improves will not be penalized by lenders, based on our experiences in 2009 and 2001.
  • With that said, the capital markets are as unsettled as we have seen in our careers. There are institutions suggesting new issuance to some of our clients (remarkably!), but if possible, we recommend avoiding new capital markets transactions until the markets settle, which we hope will be in the June-July timeframe if not before.
  • The interconnectedness of our communities is a strength and a weakness. This exposes that this crisis, as with many, will fall hardest on the communities with the least buffer, the fewest resources and protections, and the most marginalized voices. We applaud the companies reaching out with monetary assistance (JPMorgan, Bank of America and others). If we can all find a way to donate or pack food for a food bank, go shopping for a health care provider, deliver meals for hungry schoolkids, or otherwise help our neighbors we can individually make a difference while staying safe. We are aware that it is easiest to think first of colleagues, many of whom will be without income or otherwise furloughed at some point during the coming weeks and perhaps months. But all our connections will face hardships of some sort, so thinking of our networks as systems, not independent circles, will help us extend our compassion in ways that may also be new, as we deal with a novel crisis.

We will be back with more. In the meantime, we are thinking of you, and wishing each one of you good health and spirits as we navigate together the rapids ahead.

 

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