China continues to be battered and beaten daily by the coronavirus, but it looks like the rest of the world is in store for a bad case of Covid-19, too. Despite warnings from international institutions and governments imposing travel restrictions, the private sector is the one doing the dirty work, hoping to both save the planet from the outbreak and make money in the process. Do you know what? That is not a bad thing. It turns out that profit motive is enough of an incentive to invest in research and development, rush to fill demand, and manufacture effective treatment. At a time when trillions of dollars in equities are being lost and thousands of lives are being impacted, it is great that capitalism is here to save the day. Without it, we would need to depend on the state, and we all know how that turns out.
Vaccines, Masks, and Videotape
In recent weeks, dozens of companies from all over the world have been racing to be the first to come up with a vaccine to combat the virus. While health experts say it may take a year until a vaccine is ready, many of these businesses are working tirelessly to produce one or to come up with a myriad of other remedies.
Inovio Pharmaceuticals is developing a vaccine to treat the MERS strain of the coronavirus. Cerus Corporation is taking advantage of its proprietary technology to fight the inactive strain of SARS and use it to combat Covid-19. Moderna received a cash injection to ramp up its work for a coronavirus vaccine. Cocrystal Pharma possesses a licensed compound it plans to produce into a coronavirus therapy. These are just a handful of the firms coming up with solutions to eviscerate this newest contagion.
Companies are also helping hospitals, medical centers, community organizations, and households cope with the virus. Alpha Pro Tech and 3M manufacture N-59 masks and other protective apparel to help prevent people from contracting the disease. Alpha Pro Tech has received an enormous influx of orders and is ramping up production, while 3M just announced it is boosting output to satisfy demand. Lakeland Industries is another company that produces protective clothing for workers who are at high-risk.
Even Zoom Video is benefiting from the outbreak as companies turn more to teleconferencing.
With the U.S. government planning to chip in up to $8 billion to fight the coronavirus, many of these companies will likely receive a piece of the pie. Alpha Pro Tech might get a huge contract, while Moderna could receive more funding if it is on the cusp of a significant discovery. Whatever the case, the private sector is doing what it can to save the world. In the meantime, global financial markets are doing what they do best: sending signals to the world’s investors.
In Speculators We Trust
The Dow Jones Industrial Average just suffered its worst week since the Great Recession, as the U.S. stock market drowned in an ocean of red ink. The only part of the market to perform well has been coronavirus stocks, such as biotech and consumer goods firms. These companies recorded impressive triple-digit percentage gains.
It was a remarkable sight to witness. A handful of penny stocks had suddenly posted 800% gains. A bunch of relatively unknown tickers just a month ago had become juggernauts. While there was a slight correction to close out the trading week – possibly because traders took the profits – the sentiment is that the coronavirus will worsen in North America and Europe, and it will drive up these stocks.
You might shriek to the heavens and curse out these speculators for profiting off a devastating event. But, contrary to popular opinion, speculators are performing an essential social function in the market.
First, equity traders, money managers, and hedge funds may not produce anything that will stand the test of time. However, the price signals generated by their efforts contribute a great deal to the market. If the speculator’s long purchase of a particular stock pays off in the end, then it provides everyone with better information about where capital should be allocated. On the other hand, if the speculator’s short-sell is proven correct, then the market is informed what companies or even sectors should be avoided altogether.
Second, speculators will eventually stabilize prices. If it were not for this profession, the market would only consist of producers and consumers, causing the inefficient distribution of capital investment and distortion in prices. Plus, speculators add liquidity into the market, which is paramount for buyers and sellers to turn their investments into liquid cash.
Third, speculators are not omnipotent creatures who hold a crystal ball in their hands. Instead, they comb through the market, study financial reports, and read analyst opinions on what the future holds. Should a speculator get it wrong, then the market punishes his or her pocketbook, leading to either the ousting of an incompetent speculator or the rise of a smart one. The market is efficient at kicking traders with poor records to the curb, preventing them from further influencing the stock price.
Finally, speculators are just making money from all the chaos that is running wild. They see a detachment from reality and decide to pounce. These returns are then scattered throughout the market and into far more reliable stocks, bonds, currencies, and commodities.
Free Enterprise to the Rescue!
Wall Street speculation has been in the news a lot since the economic collapse. In addition to the coronavirus plays, Senator Bernie Sanders (I-VT) wants to slap a 0.5% tax on stock trades, a 0.1% punishment on bond transactions, and a 0.005% penalty on derivatives. He thinks this will cover the tab of his multi-trillion-dollar socialist schemes and curtail speculation on The Street. You cannot blame the senator for proposing such a concept since many Americans feel the same way he does; that speculators are parasites, feeding off the economy. Like everything else related to economics, once you learn a speculator’s job, you understand their value. This profession triggered neither the housing crisis nor the recent meltdown.
Read more from Andrew Moran.