Pace Institute Growth in Technology Sector Reading Reflection Paper about 2 paragraphs,For this week’s discussion, please review “Our New World 2020” and i | Course Hero
Pace Institute Growth in Technology Sector Reading Reflection Paper about 2 paragraphs,For this week’s discussion, please review “Our New World 2020” and identify 1 trend (including slide number) which resonated with you the most and why?the article is in the attaching files Our New World
2020
BOND
April 2020
April 17, 2020
We are in an environment the likes of which we have not experienced before…
In this informal note, we have compiled observable trends that help form our views of the present and
should provide insights into the future.
Relevant reference points from Internet Trends plus USA, Inc. can be found at bondcap.com.
Mary, Noah, Mood, Juliet, Daegwon, Paul & the BOND team
Our New World (Outline)
1) Covid-19 = Shock + Aftershocks
2) Viruses + Microbes = Consistent + Periodic Agents of Disaster
3) Creative Innovators (Globally + Together) Will Rise Above the Virus
4) Rapid Changes Drive Growth in Both Directions
Scientists / Engineers / Domain Experts Get Back More Seats at The Tables
Work-Life Re-Balanced
Digital Transformation Accelerating
Rise of On-Demand Services as Economic Growth Driver Continues (for Consumers + Workers)
Governments Role in Stabilizing / Stimulating Economy (& Jobs) Must Be Enabled by Modern
Technologies
2020 = Step-Function Year for Technology + Healthcare?
Traditional Sports = Post Covid-19 Evolution Provides Real-Time Engagement Clues for Other
Businesses
5) The World Just Doesnt End That Often = We Will Get Through This
But Life Will Be Different
1
Our New World
1) Covid-19 = Shock + Aftershocks
Earthquakes are like high-speed zippers that rip open the earth they can run 138 miles in a minute1 as the San
Francisco Earthquake did in 1906. The big ones transform the way people live.
The shock from Covid-19s high-speed spread / impact has similarities as of 4/16/20, in the 94 days since the first
known cases outside of China were reported, 2.1MM people have tested positive globally and 145K have died. 93% of
the worlds 193 countries have reported cases, and governments only choice has been to impose unprecedented
social control policies with the hope of flattening the curve.
Covid-19 =
Rapid Globalization
Number of Countries With Confirmed
Community Cases
180
Number of Countries
160
140
120
100
80
60
40
20
0
1/23
1/30
2/6
2/13
2/20
2/27
3/5
3/12
3/19
3/26
4/2
4/9
N=1
1
2
5
5
12
27
47
94
123
149
175
Week (Starting 1/23, Week of China’s Lockdown)
Source: Internal analysis as of 4/13/20, John Hopkins University, Worldometer
The top 20 countries by GDP have all implemented some form of social distancing and/or quarantine in aggregate,
this represents 80% of global GDP and a large portion of the population. Covid-19 has upended our modern lives in
ways were just starting to understand.
With an abrupt shock, many of us other than those who are infected or serving those in need of care have shifted
from navigating the rat race to moving at a relative snails pace. We are living in a hunkered down world that in many
ways seems more attuned to life from another era but in 24×7 streaming global color.
In the face of an enemy on our shores, America has stepped up. Neighbors are looking out for each other.
Philanthropic initiatives (often local) are rolling out to provide stopgap help to those in need until more sustainable
solutions are optimized. And, over 18MM2 healthcare workers are tirelessly and heroically serving on our front lines.
In the aftershock, the economy has also ground to a halt, and job losses are rising rapidly. At current course and
speed, in a few months unemployment could reach levels not seen since the Great Depression almost a century ago.
Nearly one in four American workers are employed in the most affected face-to-face jobs like food service, hospitality,
retail and other services3. As of one month ago, one in five Americans had already lost working hours or jobs4.
Seventy-three percent of Americans have indicated their household income has been reduced5.
1
U.S. Geological Survey (USGS) The Northern California Earthquake, 4/18/1906. 8,300 miles per hour illustratively converted to miles per minute.
2
CDC. 3 Pew Research 3/27/20. 4 NPR/PBS NewsHour/Marist poll on 3/17/20. 5 FT-Peterson poll, 3/24/20 3/27/20.
Note: Throughout we use Covid-19 to refer to both the disease, and the virus (SARS-CoV-2) that causes the disease.
2
Comparing U.S. unemployment and the stock market of the past 43 trading days with September 1929 December
1936 (the Great Depression), one finds terrifyingly similar trends in stock market movements while todays
unemployment levels are spiking at a materially faster clip. Similar shocks have taken place in other advanced
economies, amplifying the knock-on effects to trade that may worsen the global downturn.
Unemployment vs. Stock Market Trends =
2020 (2/12 Current) vs. 1929 1936
120
30%
100
25%
80
20%
60
15%
>10%
(Q2:20E)
40
10%
4.4%
(3/20)
20
0
9/1/29
USA Unemployment Rate (%)
Dow Jones Industrial Average Indexed Returns
USA Unemployment Rate vs.
Dow Jones Industrial Average (Indexed)
5%
9/1/30
9/1/31
9/1/32
9/1/33
DJIA Returns
(Peak(Peak
9/29 Indexed)
DJIA Returns
9/3/1929 Indexed)
DJIA Returns
Unemployment
Rate(Peak
(19292/12/2020
– 1936) Indexed)
9/1/34
9/1/35
9/1/36
DJIA
Returns (Peak
2/12/20
Unemployment
Rate
(1929 Indexed)
– 1936)
Umployment
RateRate
2020
Unemployment
(2020)
Source: St. Louis FRED, BLS, CBO (including Q2:20E unemployment projection from 4/2/20), CapitalIQ as of 4/14/20.
Recent government-imposed containment actions have necessitated government-funded lending / liquidity / stimulus
programs at unprecedented speed, scope, scale and complexity. In its effort to stabilize and stimulate the weakening
economy, the U.S. government has committed over $2 trillion in aid to consumers and the economy while the Federal
Reserve has committed up to $2.3 trillion to expand an existing corporate lending program for small and medium-sized
businesses along with the purchase of municipal bonds. These numbers will likely continue to rise.
USA CARES Act (2020) =
Largest & Fastest Stimulus Package Ever
Historical USA Stimulus Bills ($B)
Historical USA Stimulus Bills ($B)
Nominal Dollars
Inflation Adjusted Dollars
30%
$2,000
$2,000
$3,000
$1,500
20%
$1,000
10%
Stimulus Dollars ($B)
40%
% GDP
Stimulus Dollars ($B)
$3,000
$2,000
$2,000
$1,788
$826
$1,000
$42
$0
CARES
NewDeal
Deal
2020Act Recovery
2008 Act New
& TARP (1933
(2020)Act Recovery
– 1940)
CARES
(1933
(2009)
(2020)
Act
1940)
Months to Implement 1st
Stimulus Package From
Stock Market Peak
1
10
$0
2020
CARES
2008 Act New
Recovery
New Deal
Deal
CARES
Act
Act
(2020) Recovery
& TARPAct (1933
(1933 — 1940)
1940)
(2020)
(2009)
42
Stimulus Dollars ($B)
% of GDP
Source: St. Louis FRED. 2009 2020 assumes 1.77% annual inflation. 1933 2020 assumes 3.52% annual inflation based on CPI.
3
We have a hydra-like crisis health / economic / psychological that occurred at a time when many things were
humming (economic growth / consumer spending / employment / wages
) but there werent huge margins for error.
Personal Saving Rate = Rising But 8% vs. 12% Fifty Years Ago
Debt-to-Annual-Income Ratio = 23% vs. 15%
USA Public Debt / GDP Level =
8th Highest vs. Major Economies (2018)
Personal Saving Rate & Debt-to-Annual-Income* Ratio
Government Debt
Country
1) Japan
2) Sudan
3) Greece
4) Italy
5) Portugal
6) Singapore
7) Mozambique
8) USA
9) Cyprus
10) Belgium
11) France
12) Spain
13) Egypt
14) Congo
15) Canada
30%
Ratio, USA
Debt-to-Annual-Income* Ratio
15%
0%
1969
Personal Saving Rate
1979
1989
1999
2009
% of GDP
2019
2018 ($B)
236%
186
185
135
122
110
107
106
101
100
98
98
93
90
90
Source: St. Louis Federal Reserve FRED Database, USA Federal Reserve Bank. *Consumer debt-to-annual-income ratio = outstanding credit extended to individuals for
household, family & other personal expenditures, excluding loans secured by real estate vs. average annual personal income. Personal saving rate = percentage of
disposable personal income (DPI), frequently referred to as the personal saving rate. (i.e. the annual share of disposable income dedicated to saving)
$4,971
41
218
2,084
241
364
15
20,544
25
543
2,778
1,419
251
11
1,713
Government Debt
Country
16) Angola
17) Brazil
18) Argentina
19) UK
20) Sri Lanka
21) Croatia
22) Zambia
23) Austria
24) Pakistan
25) Slovenia
26) Hungary
27) India
28) Morocco
29) Ireland
30) Yemen
% of GDP
89%
87
86
86
84
75
75
74
72
70
70
69
65
64
63
2018 ($B)
$106
1,869
520
2,855
89
61
27
455
315
54
158
2,719
118
382
27
Source: IMF 2018 Estimate, World Bank GDP data.
For context, the $4.3 trillion in government monetary and fiscal responses is the equivalent of 124% of the American
governments revenue in 2019 and 20% of GDP. Simplistically, it would take total debt / GDP level to 127% vs. 107%
in 2019. The speck of relative good news here is that interest rates are near record low levels so the near-term annual
cost of the new debt will be relatively low.
USA Income Statement = Expenses > Revenue for Years
-19% Average Net Margin Over 30 Years
USA Income Statement
F1989
F1994
F1999
F2004
F2009
F2014
F2019
$991
9%
$1,259
9%
$1,827
6%
$1,880
5%
$2,105
(17%)
$3,021
9%
$3,463
4%
Individual Income Taxes*
% of Revenue
$446
45%
$543
43%
$879
48%
$809
43%
$915
43%
$1,395
46%
$1,718
50%
Largest driver of revenue
Social Insurance Taxes
% of Revenue
$359
36%
$461
37%
$612
33%
$733
39%
$891
42%
$1,023
34%
$1,243
36%
Social Security & Medicare payroll tax
Corporate Income Taxes*
% of Revenue
$103
10%
$140
11%
$185
10%
$189
10%
$138
7%
$321
11%
$230
7%
Fluctuates with economic conditions
Estate & gift taxes, duties / fees
Revenue ($B)
Y/Y Growth
Other
% of Revenue
Comments
+5% Y/Y average over 25 years
$83
8%
$114
9%
$151
8%
$148
8%
$161
8%
$283
9%
$272
8%
$1,144
7%
$1,462
4%
$1,702
3%
$2,293
6%
$3,518
18%
$3,506
1%
$4,448
8%
Entitlement / Mandatory
% of Expense
$486
42%
$717
49%
$900
53%
$1,238
54%
$2,093
60%
$2,098
60%
$2,735
61%
Non-Defense Discretionary
% of Expense
$208
18%
$255
17%
$312
18%
$463
20%
$846
24%
$573
16%
$853
19%
Education / law enforcement /
transportation / general government
Defense
% of Expense
$304
27%
$282
19%
$275
16%
$456
20%
$661
19%
$603
17%
$686
15%
2009 increase driven by War on Terror
Net Interest on Public Debt
% of Expense
$169
15%
$203
14%
$230
14%
$160
7%
$187
5%
$229
7%
$375
8%
Recent benefit of historic low interest
($153)
(15%)
($203)
(16%)
$126
7%
($413)
(22%)
($1,413)
(67%)
($485)
(16%)
($985)
(28%)
Expense ($B)
Y/Y Growth
Surplus / Deficit ($B)
Net Margin (%)
Risen owing to rising healthcare costs +
aging population
-19% average net margin, 1989-2019
Source: Congressional Budget Office, White House Office of Management and Budget.
*Individual & corporate income taxes include capital gains taxes. Note: USA federal fiscal year ends in September. Non-defense discretionary includes federal
spending on education, infrastructure, law enforcement, judiciary functions.
4
USA Interest Rates =
Near Historic Lows
Total Federal Debt at Historic High
USA Total Federal Debt as % of GDP =
@ 107% & Rising (2019)
Effective Federal Funds Rate (%) vs. Total Federal Debt ($B)
20%
Effective Federal Funds Rate (%) Blue Line
Total Federal Debt % of US GDP
120%
WWII
100%
80%
60%
40%
20%
$25,000
$20,000
15%
$15,000
10%
$10,000
5%
$5,000
0%
0%
1940
Total Federal Debt ($B) Black Shading
Total Federal Debt % of US GDP
140%
$0
1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
1950
1960
1970
1979
1989
1999
2009
2019
Source: St. Louis FRED, Office of Management & Budget.
Source: St. Louis FRED, Office of Management & Budget.
These are all big numbers. The biggest / fastest such intervention ever from Washington DC by a long shot. For
better or worse, given the circumstances, the boosters or bazookas (a term used by Hank Paulson, U.S. Treasury
Secretary, during the financial crisis in 2008) are needed for the attempt to stabilize and restart our rapidly
deteriorating economy.
These large numbers may not be large enough after all, one persons lost revenue is also another persons lost
revenue and so on and so on
a problematic cascade on multiple dimensions that is still in its early stages.
We are all participating in an unproven test for fiscal and monetary policy of a magnitude we have not experienced
before. Can a rapid response of this scale using lots of capital stabilize rapidly declining business trends and help them
resume growth in short order? The money is one thing; human confidence is another. We will know soon enough we
suspect business trends in Q3 will be better than Q2 but that will be a low bar
Key challenges of this multi-sided situation include:
1) Understanding when people can safely leave their homes, resume some version of their former lives, and restart
the economy
all while balancing privacy and civil liberties
2) Ensuring government funding efficiently gets in the right hands and helps the economy weather the sudden
slowdown
3) Helping businesses gradually get up and running again, while mindful of the potential for periodic shutdowns
4) Ensuring sufficient and creative ways for people to get back to work (and/or receive support) that sustain long-term
economic growth
5) Managing government debt which unfortunately has risen in good times so that the financial overhang does not
overburden our future
5
2) Viruses + Microbes = Consistent + Periodic Agents of Disaster
The battle of humans vs. infectious disease has been going on forever and humanitys ever-increasing proximity is the
primary facilitator. Viruses are commonplace, epic viruses are rare these are the big ones that changed the world
Type
# Deaths
# Infected
Mortality
Rate
Bacterial
200MM
~333MM
60%
5 years
1347-51
China
Europe
Quarantine / Survivor Immunity
Viral
Viral
56MM
40-50MM
~185MM
~500MM
30%
431 years
1520-1951
8%
2 years
1918-19
Europe
Unknown
Global
Global
Vaccine
Quarantine / Survivor Immunity
Plague of Justinian
Bacterial
30-50MM
~80MM
50%
2 years
541-542
Middle East
Europe
Survivor Immunity
HIV / AIDS
Third Plague
Viral
Bacterial
25-35MM
12MM
~70MM
NA
35%
NA
39 years 1981 – Present
1 year
1885
Africa
Asia
Global
Asia
Testing / Antivirals
Quarantine / Survivor Immunity
Pandemic
Bubonic Plague
Small Pox
Spanish Flu
Duration
Years
Region Most
Affected
Stopping Mechanism
Origin
Sources: Visual Capitalist, CDC, History.com, TIME
Additional viruses over the last century have been material killers, all originating outside America: Asian Flu killed
1.1MM people in 1957-58 primarily in Asia; Hong Kong Flu killed 1MM in 1968-70 primarily in Asia; Swine Flu killed
200K in 2009-2010 globally, Ebola killed 11.3K in 2014-2016 in West Africa1 and SARS killed 8K people in 2003.
While other regions (primarily Asia) have experienced easily spread viruses with high mortality rates in recent history,
Americas last pandemic experience (at scale) was the Spanish Flu one-hundred years ago. Unfortunately, 3-4
generations are long enough for many people to have forgotten the pain and to be ill-prepared for the next attack.
Our world had become increasingly porous, handing a coronavirus the perfect setup for global impact.
As digital connectivity, air travel, cross-border movement and trade have ramped steadily upward, our population has
become untethered physically, darting from place to place with limited geographic constraints. Furthermore, people
have migrated from rural, isolated regions to more densely populated, connected urban areas.
Global Air Travel (2018) =
>4.2B Passengers, +7% Y/Y
Global Internet Users (2018) =
3.8B vs.
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