If you're reading this around March 23, you might be going through an emotional period. At the time of writing, it appears this coming week will see havoc on the stock market. My goal here is to help you review the events, take a step back, and calm down.
More specifically, in this initial piece on COVID-19 and the future state of the global economy, we wanted to focus on two important parts...
Part 1: How to think about risk using OODA loops. Many of the numbers in this newsletter are big and uncomfortable. This framework and approach to managing uncertainty is one tool to help you get through the coming weeks and months.
Part 2: The latest stats and critical articles on the future of the global economy.
There’s been a lot of news this past week, and the rest of March looks to be as volatile and unpredictable. We want to share some thoughts on how you can manage this time, especially if you are concerned.
Part 1: Observe, Orient, Decide, Act (OODA) loops
The situation around public health, infection rates, and caseloads is changing rapidly. This is true for the economic situation as well. This week, we’ll likely hear new announcements and iterations of existing plans around how to help people manage lost jobs, suffering companies, and broken supply chains. This can be overwhelming.
When dealing with fast-changing situations, I tend to fall back to a framework championed in the US Air Force by Colonel Joyn Boyd. Follow these steps to figure out your situation and action plan:
Observe: notice what’s going on around you... What are your coworkers doing? How is your company reacting? What is your government announcing? How are you feeling? List these facts on a sheet of paper. If you’re panicking, then list the trigger points around your emotions; the things that set you off and made you nervous.
Orient: once the facts are listed, the next step is to decide what they’re telling you. Ask yourself if the challenges you’re facing are existential. If they scare you, *why* do they scare you? What themes do the facts show? What are the implications of these themes?
Decide: the patterns you see and the hypotheses you generate from the orientation activity will help you make decisions. Do you need to act now? If not, then consider pushing decisions to the future, and return to steps 1 and 2 above. Otherwise, prioritize your decisions, and...
Act on them.
...then repeat as often as needed. These days, I find myself using OODA loops on a daily basis.
It’s critical to split the tasks above up into separate parts, as the skills and mental models you need for each one are different and sometimes even compete with each other. For example, observation is a divergent activity: you need to be broad and list observations that are diverse and unrelated. Decisioning, on the other hand, is convergent: you take your observations, your orientations, and you converge on a few key decision-points which you then act upon.
The process is also meant to be calming, in some ways similar to CBT. You remove emotion; or at best, call out your emotions as a form of data in your observations.
My goal with today’s article is to share data with you; to inform your observations. In fact, this is very much the goal of the COVID-19 news tracker. What does the data tell you, and how does it reconcile with your own feelings? How does it help you decide and ultimately act? That is ultimately up to you.
Part 2: The Latest News
The numbers are BIG. First, government announcements:
Stimulus commitments are topping $7.4 trillion across America, UK, Italy, France, and Germany, commitments are topping. It’s unclear if this includes the latest commitments, too.
The US plan also includes supporting the Federal Reserve with $4 trillion in liquidity for loans, bond buying, and more. That’s nearly 20% of US GDP.
Since Friday, Germany has committed to create a €500bn bailout fund. 20% of this will include the ability to take direct equity stakes in German companies, and the other 80% will focus on underwriting loans.
According to the NY Times, we might see output drop by up to 24% in Q2. This means 24% less equipment being built, less products being sold, and 24% less money being based.
As stock markets reel from the news above, this means we have fewer savings. If your pension savings are tied to market perforamnce, then you might have seen a drop of 10%, 20%, or more already.
Airlines need to shut down, or be bailed out. We're seeing this in New Zealand and Italy. The International International Air Transport Association (IATA, an industry group), says airlines will need $200 billion in funding to survive this crisis.
American hospitals are also seeking support: “The American Hospital Association has warned some hospitals are running out of cash, at risk of not paying key staff, or even shutting down, as it called for $100bn in federal funding.”
Oil & gas companies are struggling due to the oil price war and reduced consumption due to COVID-19. Bailouts in Canada and the US might be in the works.
Many of these numbers are US-focused, but we’re likely to see similar metrics and changes across Europe and North America.
...so let’s end with some good news…
While the economic uncertainty is immense, remember that infrastructure is still in place and will be restarted once the pandemic is over. We’re seeing factories, stores, and restaurants reopening in China. This includes Apple, Starbucks, and Volvo.
As a result, there is a world after COVID-19 which we have the power and agency to influence. This can be positive or negative. See, for example, Yuval Noah Harari’s piece in the Financial Times.
More people are working remotely, and this might become a permanent change.
People want to fund new innovations in biotech and pandemics, be it wealthy inviduals or governments (e.g., Canada). I wouldn’t be surprised if post-pandemic, we have more movement and innovation in the biotech space as a result of the attention this space is now receiving.
With the above in mind, this coming week will be difficult, unpredictable, and likely challenging. We’ll keep our COVID-19 tracker <> updated, but I highly encourage you to review what you see, and apply the OODA loop to your thinking, if you’re feeling overwhelmed.
Part 3: Observe, Orient, Decide, Act (OODA) loops
I’ve withheld my opinions on the above, in an effort to let you decide. If you want to hear my thoughts, contact us and I will follow up.