American Consequences - September 2020

INSIGHT FROM OUR CHIEF RISK OFFICER 1. How do we assess and differentiate between risks in a world with implied or actual governmental support? The government extending an unsteady and uncertain umbrella of protection for borrowers in times of crisis shields those borrowers and investors from managing ahead of these events. For example, assume going forward that large airlines have implied support. The result is that they will be able to run with higher degrees of leverage, increasing business risk without appropriately considering systemic risks such as fuel or disease in their sustainability assessment. This works until the implied

domestically across a range of scenarios to protect production, and size the resultant reshaping of industry and jobs accordingly. This, however, becomes far more complex when policymakers from both the Left and Right become involved, trumpeting slogans like “Bring Jobs Home to Americans” and “America First and Forever!” in reelection campaigns and promises to reduce record unemployment levels. These drastic measures might temporarily stabilize some American workers in the short run, with potentially dire consequences for the global economy. It’s yet another opportunity for us to recall the words of George Santayana: “Those who cannot remember the past are condemned to repeat it.” Perhaps it is too much to ask that our politicians revisit the Great Depression saga and the role that the Smoot-Hawley tariffs played in contracting the global economy. 2. How do we weigh the possibility of a no-vaccine world where COVID-19 becomes something we live with versus a world where a cure or sustainable vaccine is developed? There are again profound consequences to these bifurcated outcomes... While we all might like to consider a vaccine as a virtual certainty by the first quarter of 2021, with enough doses to largely immunize populations globally made available, we are a long way removed from that certainty. Historically, it has been notoriously difficult to develop sustainable vaccines for coronaviruses. While a number of promising vaccine candidates exist and untold amounts

government support is withdrawn... at which time investors are left with catastrophic losses. Another major economic and political shift is increasingly strident calls to replace the globalization of supply lines and labor initiatives of the last 30 years with domestically sourced materials... and foreign jobs with domestic jobs. If all we had to consider was the economic side of the picture, we could assess

what percentage of supply chains must be contained


September 2020

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