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What A Strange Trip This Has Been: Our Perspective on the Balance of 2020.

Congratulations, we have made it to the last third of 2020. Now that we are here, the logical next question is: What else should we expect during this year of the unexpected? At Research & Innovation, our clients call upon us to contextualize complex challenges and the risks/opportunities which they are faced with – whether it be through dispute advisory, risk consulting, protecting against cybersecurity threats, advising strategic transactions, or the development of solutions architecture. To that end, we have walked through some of the highlights of what we see ahead and how we got here.

They said: Cheer Up, It Can’t Get Any Worse. We did and it did.

Aliens. At this point the only thing that would appear to be truly surprising news for the rest of 2020 would be the discovery of sentient alien life. From the pandemic to civil unrest and even something called a Murder Hornet, this year has brought about significant turbulence which has alternatively exposed the best and worst of society and for many people has fundamentally changed how they go about their lives.

The question really is not if this year is unprecedented; but rather why we have framed our expectations to seek catastrophic news which serves to reinforce the misconception that things really are different. Nearly every epidemiological discussion in the past decade has focused on the likelihood of a global pandemic and the world’s collective lack of understanding and preparedness. The Black Lives Matter movement was formed in the aftermath of the shooting death of African-American teen Travyon Martin in 2012. Even the Murder Hornet can be traced back to the same path that introduced the Asian Longhorned Bettle in the early 1990s. Society treats these events, while undeniably tragic and often devastating, as both sudden and unprecedented despite the fact that they are almost certainly never sudden and generally are iterative from similar prior strife. The reason for ascribing novelty appears to be in order to avoid taking collective responsibility for failing to diagnose and treat the underlying causes long before the issues reach catastrophe. Rather than dwelling on the perceived novelty of current events, this is a perfect opportunity to survey the landscape of other major latent issues and begin tackling them before they reach crisis proportions. We propose that issues related to the disparity in delivery and financing of healthcare and education in America are two ripe areas for consideration as is the completely untenable state of entitlement benefits and their effect on municipal budgets. As the French proverb goes, “A stitch in time, saves nine.”

Notwithstanding, apparently we should not even be surprised by extraterrestrial life insofar as is not even that unlikely given the recent announcement by Columbia astronomy professor David Kippling that the odds of extraterrestrial life are approximately 3:2 given the number of planets out there and the percentage which are located in a potential habitability window and correlated it to the chronology of intelligent life on Earth using a statistical technique called Bayesian inference. Given that 3:2 is the same relative probability (which also uses Bayesian inference) that it will rain overnight tonight in Oklahoma City; perhaps we ought to begin considering whether they will be potential users of Facebook or Instagram when looking at the future total size of the social media markets.

 COVID-19 Update

 There is an often-paraphrased quotation of the opening of a Rudyard Kipling poem, “If you can keep your head when everybody around you is losing theirs, it is very probable that you do not understand the situation.” In March, we indicated our perspective that the Coronavirus threat is not a mortality threat from a population extinction or even population reduction standpoint. We reaffirm our conviction that ultimate disposition of COVID-19 fortunately does not appear to threaten the viability of the human race or even represent the likelihood of an anomalous reduction in population.

Notwithstanding, we accept the limitations of our prior statistical analysis insofar as we offered projections which assumed increased severity beyond seasonal influenza; but that the virus would take the path of SARS and represent a much more limited infection population (SARS was 8,098 people) and limited mortality (774). Our figure of 750,000 total global infections has proven unfounded. Evidently, COVID-19 has shown itself to be exceptionally more contagious (25.5 Million confirmed cases) and while its lethality is less than half of SARS at just under 3.3%, it appears to be above the lethality of the Spanish Flu of 1918, which was estimated between 2-3%, and significantly beyond our initial projection of 1%. We also appeared overly optimistic in our view that the warming temperatures in the northern hemisphere would slow infection past May. Mea culpa, mea culpa, mea maxima culpa.

Some of the lingering effects of COVID-19 beyond the disease itself include an open question of how liability will be apportioned and what risks businesses face for re-opening, or not re-opening, and what the new standard of care will be for protecting employees and the public. There has been much discussion on the legislative front about liability shields for businesses who choose to re-open and the first wave of Coronavirus related lawsuits has been filed although none of this has yet been tested by the courts. We are actively watching for whether this will become the next litigation honeypot or be absorbed through a legislative act such as the insurance backstop created by Terrorism Risk Insurance Act (“TRIA”) following September 11th, 2001.

Of interesting note is the societal implications surrounding wearing masks. Beyond the obvious infectious disease barrier, the mask appears to have become a symbol for many who wear it (or don’t). On a recent airline flight, the announcement regarding the requirement to wear masks indicated that wearing a mask not only helps fight the spread of COVID-19 but also displays courtesy to your fellow travelers. It would seem as though the mask has become, like the display of the American Flag after September 11th, 2001, a way for citizens to feel as though they are participating in a way that transcends the pure efficacy of the mask. It is a tangible sign that not only do they seek to protect themselves (irrespective of whether they may already have the antibodies) but are trying to limit the spread from others and visually signal their intent to do so. This brings to mind the exhortation of Pope Gregory I during the midst of the bubonic plague – when a person would exhibit a sternutation, which was the primary visible symptom of the plague – the Pontiff would offer a short prayer in the form of “God Bless You” as a means of seeking divine intervention from the malady the sneeze may represent.

Bulls & Bears Make Way For The Honey Badger

The stock market terms Bull and Bear are thought originate from the method by which each animal fights. A bull gores its rivals by thrusting its horns in an upward manner, whereas a bear’s paws are used to swipe downward. If an upward trending market is a bull market, and a downward trending market is a bear market; we are in the Honey Badger of markets, because this market doesn’t care about anything, this market is completely crazy. One might expect all of the doom, gloom and uncertainty to have a chilling effect on the stock market – although one would currently be very wrong. The S&P 500 Index (which represents about 2/3 of the United States economy) opened today right around 3,500 or up about 8% Year-to-date, which represents an all-time high. What makes this all the more surprising is that it has climbed about 56% from its low point at the end of March during the height of the Coronavirus panic.

Given the extent to which the US equities markets appear to be unconcerned about the long-term effects of the Coronavirus pandemic (and its effect on business closures, unemployment – which remains at just above 10% or 2.5x a year ag0, or the general lack of travel) one must question what it would take to rattle the markets? Clearly the uncertainty posed by the US Presidential Elections is not something that seems to trouble the markets as there is no indication that the market has any concerns that a Biden victory would change legislative policies such as increasing tax on market participants or cool the pro-business initiatives that have caused the market to rally during the last four years.

The failure to rattle the market does not appear to be caused by a lack of sources of potential rattling but rather a fundamental shift in the market participant and their investment objectives. With countless Americans confined to their homes during the bulk of 2020, they appear to have traded their sports and the associated betting for another form of gambling – day trading. One need only look to Robinhood as the shining example of the new breed of market participant. Armed with the internet and an unbridled sense of entitlement matched only by their lack of perspective or technical insight – this vintage of speculator trades on the momentum of FOMO (Fear Of Missing Out) without any regard for the underlying condition of the company or any investment horizon other than a “score”.  This is not to say that the companies being traded are without value – but rather whether companies such as Tesla have improved their businesses by the 475% this year to justify the meteoric rise in stock. A hint might be found in the fact that Tesla is trading at a 1,222 price to earnings ratio. For all the talk of a new market paradigm, we suggest that the time-tested adage that, “a fool and his money are soon parted” might still apply equally well.

Biden, Trump, or Kanye West?

Following the series of conventions, in which nobody actually convened, Senator Joe Biden and Senator Kamala Harris have accepted the nomination for the Democratic ticket and will face off against President Donald Trump and Vice President Mike Pence, who are seeking re-election in November. Also in the mix appears to be (or not to be) Kanye West, who has qualified for ballet access in eleven states and is currently litigating to get on the ballot in Ohio, Wisconsin and West Virginia. While hardly considered a serious candidate by nearly anyone, the question is not whether Kanye West will win (as of now he can only pick up 83 electoral votes + 29 potential electoral votes for states where the ballot access deadline has not passed, if he won every state); but what effect he might have on the race between Trump & Biden. Students of history will remember the 2000 election, which was itself a bitterly contested race that was ultimately settled by the US Supreme Court. In 2000, third-party candidate Ralph Nader received 97,488 votes in Florida when George W. Bush beat Al Gore by 537 votes. If Kanye West does appear on the ballot in Ohio or Wisconsin, could he serve as a spoiler for Biden? Similarly, could Kanye West flip a state such as Arizona, where Biden is polling vs. Trump 49.1% to 45%?

 Do Not Ignore The Big Shiny Object In The Sky

 One bright spot (both literally and figuratively) in the 2020 landscape has been the prolific development of commercial spaceflight in the United States. From the historic launch by SpaceX of a manned commercial space vehicle to the International Space Station to the constellations of communications satellites being launched which promise to provide high speed global internet coverage, to the recent launch of another mission to Mars, this year has already been a banner year for the public-private partnerships that are the US commercial space industry. We believe strongly that the next wave of significant innovation will come from the advances made in commercial spaceflight (just as NASA’s space programs paid dividends in the form of everything from insulin pumps to Teflon and Velcro).

We exclude Virgin Galactic from this excitement insofar as they recently announced that their inaugural commercial flights will begin no earlier than Q1, 2021. Moreover, the SpaceShipTwo is a barely suborbital tourist attraction that is unlikely to contribute to the enhancement of the commercial space sector and instead will serve more as a carnival sideshow attraction for which the novelty will quickly wear off.

We remain confident that the best hope for developing the tools to manage whatever maladies the world throws at us an investment in innovation. To that end, we believe that commercial spaceflight represents an unrivaled opportunity to undertake the audacious technical challenges inherent in expanding our reach into space. In committing to reinvigorating the space program, and unleashing the power of the private markets as a catalyst, we afford ourselves the best chance to vastly improve the resources of society in the broadest possible fashion as the technology that begins in a space shuttle today ends up in the home tomorrow and in the hands of a child the next day.

We welcome the opportunity to engage in a further conversation regarding the greater macro landscape or how we might be of assistance on a more granular level.

This report is a summary of certain developments that may be of interest to clients and prospective clients of Research & Innovation Co. This report is for general information purposes only, is not a complete summary of the matters referred to, and Research & Innovation does not undertake to keep the recipients of this report advised of future developments or changes in any of the matters discussed in the report.

While Research & Innovation may employ certain professionals who maintain advanced degrees, professional designations, certifications and/or licensure in the fields of tax, law, government affairs, accounting or investment advisory; Research & Innovation, and its affiliates, do not provide any tax, legal, government affairs, accounting or investment advisory advice. Nothing contained herein nor any of the services rendered by the firm (including by its personnel) is intended to provide, and should not be relied on, for tax, legal, government affairs, accounting or investment advisory advice. Clients and potential clients are advised, and by accepting this report agree to, engage and consult their own tax, legal, government affairs, accounting and/or investment advisors before engaging in or refraining from any transaction.

 

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