One crisis invariably leads to a crisis of another kind
The Covid-19 pandemic is unquestionably a health crisis. That said, just focussing on the health aspects of the virus is too narrow a perspective. There is a lot more going on than a healthcare challenge.
If we reflect back to the most recent global crisis - the Global Financial Crisis (GFC) of 2008 - we remember that it was labelled a financial crisis. It originated from bad financial practices which led to the GCF. It did not stop there. The lasting consequences of the GFC led to a business crisis. This in turn led to a healthcare crisis. The healthcare consequences of the GFC are rarely explored or discussed. The reality is that there was a dramatic increase in chronic and mental health illnesses due to the stress caused by the financial and business crisis.
The Covid pandemic started as a healthcare crisis. The full healthcare implications are still being determined and grappled with. One of the key solutions to the health crisis has been a global lockdown. These lockdowns have created a business crisis which in turn led to a financial crisis. We are now in the midst of the financial crisis. This is likely to lead back to an additional healthcare crisis as this will begin to affect those susceptible to chronic and mental health illnesses. This is something that is not getting much attention at all and yet is equally concerning.
Getting the balance right to manage all these dynamics is an unenviable task for each government. How they deal with this, will impact how deep the financial and consequential healthcare crisis goes.
From a health perspective it is important to reflect on where and how the virus has been most dangerous. All indications are that the Covid-19 virus has attacked most severely the health impaired with pre-existing lung, heart, and other morbidities. From a business perspective, the lockdown has done the same to companies that were already under peril in one way or another. All the companies that were frail before lockdown have already closed up shop. The rest are in deeper trouble and unlikely to recover. The companies that were strong before Covid are surviving and making things work, even though the environment is brutal. Those that are innovative and nimble are thriving.
Investors in companies now need to think carefully about how to proceed from here. Looking forward we need to unemotionally review our companies and develop our strategies based on three simple principles:
- Make sure the company is liquid – that means it does not have too much debt and that is has the cash flows to sustain itself. If it does then you have the right to have a discussion about the future. If it does not, then it is a case of when and not if it will close down.
- Adopt a triage approach – dispassionately determine the most critical projects within a company. It is unlikely that you can continue to try and do what you did in the past. Only projects/divisions/ businesses that deserve the right for future funding should get that funding. Ignore what will not ensure survival into the future.
- Right size the business – restructure the business and particularly the balance sheet to ensure its future resilience. This challenge will evolve and further challenges will come along. Only the strong will survive.
For business executives this is the perfect opportunity for introspection. We need to think carefully and clearly about what made us achieve what we have to date. We need to reapply and rethink this, using all our ingenuity and creativity to find the solutions that will be needed for the future. There are opportunities now and there will be even more in the years to come.
The future will provide massive opportunities for those who want to help meet the evolving consumer needs. The world will not be what it was. All our needs have changed and we will continue to transform. We cannot rest on our laurels and rely on the solutions of the past. Now is the time to get out there and work smartly. That will keep us relevant and ensure that we continue on our upward trajectory.
While there are undoubted challenges and opportunities within the business environment there is a complete disconnect to what is going on within investment markets. It is important to remember that investment markets are forward looking pricing machines that try and value an asset 12-24 months into the future. What is in the news today has mostly been factored into the days price.
The biggest reason for the current investment market disconnect to our immediate reality is embedded into the old saying “Never bet against the Fed”. The Central Banks in the USA, UK, Europe and Japan have said they will do whatever it takes to protect their economies. They are doing this by pumping money into the financial system. With the property market being severely impaired and interest rates close to zero and negative, there is nowhere else for it to go. Most of the available funds are going in to the investment markets which is pushing up values.
While this is good news for investors, there is one huge caveat to be aware of. Governments are building up a huge debt burden which will need to be repaid by future generations – unless world economic growth is spectacular. Not quite the legacy we would want to leave to our children.
Fiscal Private Client Services (Pty) Ltd
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