Spring Quarterly Commentary

“I was dreamin’ when I wrote this So sue me if I go too fast But life is just a party And parties weren’t meant to last ‘Cuz they say... 2000 zero zero party over oops out of time So tonight I’m gonna party like it’s 1999” Prince, 1958-2016 Singer-songwriter, guitar virtuoso

We begin with what we hope will be our final substantive COVID update. The vaccines have arrived and are going into people’s arms at an accelerating pace. The data shows roughly 80% effectiveness after an initial dose, on the way to 90% with full immunization. We in the U.S. are fortunate to be getting vaccinated quickly, as many other regions are not celebrating the end of the pandemic just yet. Much of Europe is currently in some form of lockdown and COVID remains the #1 cause of death in the Americas. Sadly, the developing world will endure this pandemic for at least a couple more years.

We fear any celebration of the end of the pandemic would be premature. This virus is like the villain in a horror film who keeps coming back after you thought you finished him off. The U.K. variant (also known as B117) now represents the majority of cases in the U.S. It is nearly twice as infectious and at least 40% more likely to cause severe illness1. Fortunately, the existing vaccines are effective against this strain. While 36% of the U.S. population has had at least one shot, the current level of immunity alone is insufficient to completely avoid the developing fourth surge2. We believe the rapid and still accelerating vaccine rollout will likely mute the impact of this fourth surge, especially when it comes to deaths and hospitalizations, because the vaccine has been targeted at more vulnerable populations. Moreover, we believe that society is gradually becoming more accepting of health risks as lockdown fatigue and economic collateral damage both continue to mount.

COVID will remain with us for years. A new vaccine-resistant strain may spin out of the world’s unvaccinated populations. Fortunately, we will be better prepared with faster developed booster shots. Like other deadly diseases such as the flu, AIDS, and measles, COVID will remain a serious public health challenge, but not an economic one. We expect this virus to recede from our collective psyche as time passes. For perspective, the world remembers and was scarred by WWI much more than the Spanish Flu of 1918. The latter killed a far greater percentage of the population at the time. Financial markets are now looking past COVID. Rising interest rates have been the primary driver of market activity this year. Short-term interest rates remain zero bound (as the Fed sits tight) while longer-term yields have been rising as the market sniffs out the potential for future inflation. Higher yields mean falling bond prices. Unsurprisingly, longterm bonds have taken a beating, with the 30- Year Treasury declining 15.7% in the first quarter, its worst quarter since 1976.