I am being asked these days about whether I am ready to start going to restaurants, playing cards, seeing friends, etc. The answer I have been giving is that I need to wait to see what happens in July.
As we move through the month of June, we are going to see several very significant events. Let’s take a look.
First, CLINICAL TRIALS. The first wave of double-blind, placebo controlled clinical trials will begin to be reported by the end of June. We will begin to get a much clearer picture of where we stand regarding potential therapeutics for COVID-19. Not only the studies on hydroxychloroquine, which we have spoken about in detail, but several anti-virals, antibody treatments, etc. Hopefully these studies will give us some direction as to what potential therapeutics will be likely to be able to reduce the severity of the disease or at least reduce the lethality.
This is the most important piece of information that we can use to begin to truly open the economy. Knowing that if we get sick, we won’t die is the key to convincing us to risk going out.
Second, THE END OF THE FIRST WAVE. I have written extensively about the issues involved with opening the economy too quickly. Although the news has been diverted by the issues revolving around the death of George Floyd, the virus continues to infect the country and deaths continue to accumulate. Mr. Pence was wrong, as I am sure he knew he would be when he claimed that the infection would be over by Memorial Day. It wasn’t over quickly in January, or February, or March. It wasn’t over before Easter Sunday and it wasn’t over on Memorial Day. It isn’t over now, nor will it be over this summer.
Furthermore, polemics notwithstanding, there is no evidence that the current administration has developed techniques or strategies to “put out the fires” as new spikes arise. I have seen no reporting on any of the news sites how, after seeing new spikes in SC, meat-packing plants, prisons, etc., there has been a mobilized effort to limit, track and trace to control the outbreak. Who is in charge? The CDC? FEMA? The Task Force? Without a demonstration of the ability to mobilize resources to squelch new outbreaks, I have little confidence that we are better off now than we were a month ago.
The current spiking in SC, GA, TX, CA, AR, etc., may well be the results that we have been predicting for the past month. Hospitalizations and deaths lag 3-5 weeks behind infections, so we are only beginning to see what will have been the effects of the “opening up”. As I have said before, by the time that we begin to see the increases in hospitalizations, the numbers of infections will have already skyrocketed; therefore, if and when we begin to see spikes, those spikes will only be the tip of the new peaks. Those results will begin to appear in June but be most visible in July.
Third, THE ECONOMY. We are encouraged by the 2.5 million jobs “created” in May. But we must understand what happened. I know that our company rehired 6 people in May because we received PPP funds. Were those “new jobs” created, or were they simply “recreated jobs”?
If you are a company who has laid off workers, the government told you in May that you could rehire those workers at 2.5 times the cost of their salaries as of February. Then, within a set period, if you used that money to pay salaries, you could have that loan forgiven as long as you spent 75% on salaries.
So, let’s see how that works. Let us assume you have 10 employees, each earning $3,000 per month. You also have rent and utilities equal to about $10,000 per month. Your costs were $40,000 per month.
You laid off the employees because you had to shut down, but the rent and utilities were still due.
You are now losing $10,000 per month.
You now get a PPP loan for $90,000 (2.5 times the salaries per month).
After 2 months you can now get forgiven the full salaries of the employees, $60,000 PLUS you can get forgiven an additional $20,000 (25% of the total amount of spent on salaries, rent and utilities), or a total of $80,000.
You now lost ZERO for the two months although you now also have an additional $10,000 as a loan at 1% that isn’t due until 6 months after it was loaned to you, and then must be paid back, at 1% over the next 24 months.
So, as a businessman, you HAVE to take that PPP money.
But what happens after that 2-month period has ended? Do you continue to pay those workers, or do you lay off some of them because the business has not yet rebounded?
That 2-month period ends sometime in July. What will happen when those recreated jobs are re-released?
Finally, if the virus spikes again, the economy fails to recover and the politicians “move on”, accepting the additional deaths, will I, or will you, be willing to go to the ball game, the restaurant, the movie, the rally or the wedding?
July will tell us where the bus is going and whether we are willing to take the trip.