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Investment Review/Outlook

Current Investment Outlook

On April 1, we wrote to discuss some of our views about the Coronavirus Pandemic and its effect on our investment outlook. We talked about how our economy - and that of the rest of the world - had been almost totally shut down in what we described as our latest World War. We talked about how we were confident that we would get through this crisis, based on the hard work and dedication of the American people, along with their generosity and belief in one another. We also pointed out that markets discount the future way ahead of most investors. Markets rise sharply at the darkest moments. This has actually happened since our hopeful letter. We expect some setbacks in the market and a number of tests of its lows, but markets always look forward way beyond our abilities to do so.

In our letter, we pointed out that the keys looking ahead would be progress in dealing with this virus in the key areas of Testing, Vaccines, and Therapies. In the two weeks since, there has been a great deal of progress and the pace seems to be quickening. Assistant Secretary for Health Brett Giroir points out that tests are improving rapidly in terms of their availability, their speed and capability, and their cost. Soon, we will be able to do widespread surveillance testing regardless of symptoms, testing to catch flare-ups with those with symptoms, and contact testing of five or so people per each case. Abbott promises to have a quick and reliable finger-stick test within weeks. Antibody tests are weeks away from being available for those who have recovered and their plasma is thought to be highly effective for those who are suffering from the virus. While it typically takes years to develop a reliable vaccine, we have been looking for a COVID vaccine within 12-18 months. Now, a UK team has announced that they are 80% confident that they will have a vaccine by this September. J&J and Moderna are working hard and optimistic about their vaccines as well. The progress just keeps coming faster and faster. Hydroxychloroquine continues to have great success with all anecdotal evaluations, sometimes combined with azythromycin or zinc. I remember some years ago hearing about a college student with a peanut allergy who died at home because his mother did not want to use an EpiPen with an expiration a few months out of date. In a life or death crisis, you don not fuss around with expiration dates. With hydroxychloroquine, we believe we already have a highly effective therapy. Gilead's remdesivir has also done extremely well in non double-blind tests. Other effective therapies will be coming on line in the near future. Ventilators, masks, shields, and gowns are being produced in high volume and hospitals are now reporting that they are almost empty. The medical solution to this crisis is almost right in front of our eyes. Though there is lots of work to be done, and people will still get sick and die, and the economic recovery will be slow and awkward, the medical solution is essentially here today in an investment sense.

Different states are already beginning to develop solutions that suit their particular needs. Massachusetts, Utah, and North Dakota are ready to put in place a contact trace and test system. The key need in this case is the many people needed to manage this process. With so many people currently unemployed on a short term basis, this should not pose a problem. All places where people gather will establish systems of temperature checks at entrances and there may be a number of other similar precautions. People will find ways to protect themselves while they get back into the process of living productive lives.

We urge our readers to remember the Gulf War experience in Kuwait with the oil wells that would "never be put out." They were out in three months. The same sort of thing is happening today. It is all going at a medical warp speed. And, do not forget how far in advance markets can discount developments. Think of the market recovering from its bottom in the darkest days of WWII when it was impossible to predict all of the military events yet to come. And, finally, are you tracking the toilet paper isle? We are finding that that shortage is over. Investment panic and shopping panic tend to occur at the same time - and end at the same time. Congress has passed trillions of relief programs for companies and individuals. And, they are not done. The Federal Reserve announced a bond-buying program on March 23, unfreezing the bond market, and that marked the low to date for the equity markets. On April 9, the Fed announced a high-yield buying program which gave another strong boost to markets. Basically, they have made it clear that they will do whatever it takes - whatever it takes - to keep the markets afloat and the economy pointed in the right direction.

As we mentioned in our April 1 letter, we track the daily WHO Coronavirus numbers and they seem to have plateaued and possibly peaked. Individual states and cities have seen peak activity and the improving numbers will give great confidence to investors. The market looks at the second derivative of change, and those trends are now clearly favorable. There will still be bad news to come, but we have almost certainly seen the peaking of the rates of change of cases and deaths.

Walter Isaacson, the former CEO of the Aspen Institute, predicts that the next twenty years will be a period of dramatic growth in biotech research using CRISPR genetic engineering and mRNA techniques, all at the molecular level. He expects the rapid pace of development of the last few years to only accelerate looking ahead. We agree strongly with his forecast and constantly look for the best opportunities in biotech.

In our April 1 letter, we stated that we expect a kind of accounting with China. It is increasingly clear that this will happen. We will give further attention to this process in future letters. For now, the key points are that medical solutions are either here or in speedy development, we are confident that a bright future stands around the corner from this crisis, and that markets are best able to see the events to come when the days seem most dark and uncertain. We invest for the long term with the best companies that we can buy at reasonable value. There are many opportunities to do just that in the present environment.

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